In The Wall Street Journal today, Art Laffer points out the Catch-22 waiting to ambush those who want to raise taxes and “soak the rich.” In brief, soaking the rich is a reliable prescription for socking it to the less well off. “As a result of higher tax rates on those people in the highest tax brackets,” Mr. Laffer points out,
“there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending.”
Oh, that is to say, dear. But then we have Fareed Zakaria at Newsweek with a request I wish I could help fulfill, at least in his case: “Raise My Taxes, Mr. President.” According to Mr. Zakaria, “The Bush tax cuts remain the single largest cause of America’s structural deficit.”
Gosh. “Structural deficit.” That sounds impressive. How, you might wonder, does a structural deficit differ from the common or garden variety deficit? Let’s leave that to one side, acknowledging as we do that a “structural deficit” at least sounds more impressive than a deficit without that adjectival honorific.
The question — well, one question — at issue is whether Fareed Zakaria is right: Are the Bush tax cuts largely responsible for America’s deficit?
I believe the answer is no. Why? Because, as Art Laffer argues in his column, tax cuts generally have the effect of enhancing revenue, whereas tax increases generally reduce revenue.
This is not a new observation. Mr. Laffer begins his piece with a quotation from President Kennedy who pointed out half a century ago that “Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshaling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets.”
I do not expect that argument to make much of an impression on Fareed Zakaria or anyone else carrying water for the Democratic establishment. Why not? Because the economic effect of reducing taxes is for them a secondary consideration. What matters most to them is the political effect of raising taxes.
It’s all a matter of perspective, of where you sit. Fareed Zakaria begins his column with the observation that
“For the last few months, we have heard powerful, passionate arguments about the need to cut America’s massive budget deficit.”
I think that is one of those statements that is true but misleading, which means that it is false though (partly) accurate. It is misleading because it tells only part of the story. And the part it leaves out is critical. Ask yourself this: where did the deficit come from? Did a tax cut, the one put in place by President Bush or some other tax cut, cause the deficit. No. Spending more than we took in caused the deficit. The deficit is a symptom, an objective correlative if you will, of profligate spending.
Spending is the issue. You get a deficit when you spend too much. It’s only by turning the telescope around and looking at things backward that the issue of spending seems miniature.
The larger question here, the political question I referred to a couple of paragraphs back, revolves around the motivation for looking at things in this backward way. Why would people like Fareed Zakaria, Timothy Geithner, Nancy Pelosi, and Barack Obama suddenly discover America’s huge deficit and conclude that the solution to the deficit is to raise taxes on the producing (as distinct from the taking) classes?
An easy way to think of budget surpluses, deficits, savings and debt:
If it costs you $20 and you have $25, you have a surplus.
If it costs you $20 and you have $15, you have to borrow and thus will have a deficit.
A deficit ALWAYS turns into debt.
A surplus ALWAYS turns into savings.
If you are told otherwise, then the person telling you this is helping perpetuate a lie (pace the “budget surplus” during the Clinton administration or what you’re currently hearing about some states having a “surplus”).
For the left, the unavoidable fact that some people earn more money than others is seen as a problem. Not just a problem, but a moral issue.
They see punitive taxation as the solution to this “problem.”
But some people will always be richer than others. Some people will always be smarter than others. Some people will always work harder than others. There will always be people who simply get lucky. The genius of America, what makes this the greatest country that has ever been, is that each and every one of us has the opportunity to make the most of the lives we have been given. Anyone who tells you otherwise is someone who has failed in life (or feels that they have) and wants to find someone else to blame for their own shortcomings.
So it makes no sense to attempt to reason with leftists and explain to them that raising taxes hurts everyone. They don’t care. As long as it hurts the most successful people more than the rest, they feel vindicated.
Perfect summation of the Left.
Zakaria belongs to the Helen Thomas school of journalism. He hosts a program, GPS , aired on CNN.
On March 21 , he opened with a segment regarding Israel. and its relations with the United States.
Prior to dialogue with a number of guests Mr. Zakaria offered his “ take “ on the current political climate.
Israel is “ not truly serious “ about “ its claims that Iran is an “ existential threat “.
Why , he asks, does Israel allow “ petty domestic considerations “ get in the way of warmer relations with Arab neighbors that also view Iran as a threat?
Mr. Zakaria asks why Israels “ motley collection of political parties “ is allowed to get in the way of peace efforts?
Zakaria then, with opprobrium never tossed at an Ahmadinejad or Chavez , called Israeli Prime Minister Netanyahu a “ hack “.
Zakaria has neither the intellect or fair mindedness his enablers claim he has.
” Hack “is a word which comes to mind regarding his abilities.
He proves, once again, that talent and real intellect are not required for either financial success or popularity.
He gives the dim witted hope that they too, one day, may host a network television show of their own.
Quite right, Roger, and yet, even Fox has been using the “tax increase for the wealthy” meme, in place of the more accurate “tax increase for high income earners” or even truer “tax increase on those who actually pay taxes.”
Wealthy John Edwards reported almost all his investments were in tax free municipals; ditto Rush last week. Ever wonder how much income tax Nancy Pelosi pays each year vis-a-vis her real total income?
Are taxes fair just because the majority voted? The social compact of the United States is for economic and personal freedom. The Constitution is not a suicide pact nor an agreement that the government can take what it wants.
The Congress has discovered (for the moment) that it can issue unlimited guarantees and borrow unlimited amounts. This doesn’t give the Government moral authority to exploit those loopholes. This cannot lead to a better society, because there will be resistance and fundamental disagreement, without creating a stable, prosperous society.
The government says that its deficit spending is “stimulus”, but this is an excuse for confiscating money (higher taxes) from the people who organize the private sector (jobs), then giving that money to people who will spend it to “save us” from our recession. The government is robbing the people who produce employment. That is the cause of our jobless, stagnant economy.
–> Public Tax Meeting – We Voted On It
== excerpt ==
John JJ Richman was making breakfast when he heard the crowd outside. They seemed just shy of hostile. He opened his door to see about 65 townspeople, out of a town of 100. Two spokesmen were standing on the porch.
John: Good morning. Why are you all here?
Rob: There are things that need funding, and you are the one to help us.
(more at the link)
== /excerpt ==
The question is whether an economist or a clueless Newsweek hack knows how the economy will behave?
Yoo have GOT to be kidding. Zakariah isn’t smart enough to even SPELL CHECK anything Laffer could write….
there’s more than way to balance a budget: http://wormme.com/2010/05/10/yard-sale-make-me-an-offer-on-the-hope-diamond/
RK: Laffer vs. Zakariah: Who’s Right?
More like: Who will be left standing ?
Leaders and Followers, White and Blue
collar workers, tend to unite during
Hard Times; The Mobsters and the Mob,
not so much. TPTB fear the reaction
of the Underclass to loss of Welfare;
Will they reverse their policies when
tax revenues fall ?
Let’s not forget what the Affirmative Action Hire had to say…..
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
High marginal tax rates benefit the wealthy. The highest earning individuals and corporations have the ability to structure their economic activities in such a way as to avoid taxes–even if that means avoiding some economic activities.
This depresses the economy, so Congress creates thousands of carve-outs for certain industries and favored constituents. That will require higher taxes for the middle class in order to make up the shortfall. As more loopholes materialize, the rich will pay a lower percentage of the overall tax burden, and the middle class’s burden will be proportionally higher. And don’t think the progressives aren’t aware of this.
If you think everyone wants to see a nation of free citizens enjoying a booming economy…you would be wrong. Democrats want every dollar to be laundered through some layer of government, the better to control the populace. The so-called progressives want to ultimately destroy private economic activity.
There’s an empirical answer to this. Federal tax revenues have been around 18-19% of GDP in almost every year since WWII. It hasn’t mattered what particular tax regime we’ve had. This shows that if If you raise tax rates you don’t get more tax revenue.
Spending in most years has been around 20-21% of GDP — so we’ve had a 2-3% strucutural deficit. But spending is now over 25% and looks to stay there. This is unsustainable. Spending is the problem, unless we want a DC-run command economy.
History shows centralized command economies don’t work as advertised.
President Obama’s campaign promise that persons or households “making less than $250,000 a year” will “not see their taxes go up one dime” will require some serious writing of legislation and there is not much time left this year.
Forget about this business of raising taxes on “the rich.” Taxes are set to automatically go up on everybody, including many low-to-moderate income people who had been exempt from income tax (although still paying for Social Security and Medicare). The Speaker of the House has gone publically on record supporting “doing nothing” on this issue and letting everyone’s tax increase Jan 1, which will be felt immediately through increased withholding.
Chris Mathews on CNBC today has called Republicans who have pointed this out “liars” (actual term used). Pretty much everyone sympathetic to Mr. Obama or critical of the political opposition seems to think that the “Bush tax cuts will only lapse for ‘rich’ people as the President has said so.”
Tax law has to start in the U.S. House of Representatives, and not only that, the head of the tax-writing committee (Ways and Means) seems to have his dance card full right now.
Forget about this business of raising taxes on the rich. Is there any sign of any kind of bill to extend the Bush tax cuts for the bottom 98% of non-rich taxpayers? Is there any chance of such a bill between now and Jan 1?
One of the things politely forgotten is that it just feels good to push people around, even if vicariously. Among the left, you already have an ideology that gains power through envy. It is not hard to imagine that it seeks it out of a lust for revenge.
Show me a leftist and I’ll show you someone who is angry that a sufficient number of people do not obey them, or love them.
It’s never about justice in the sense that you recognize. It’s a more narcissistic form, where justice comes from the acquisition and use of power.
I think Zakaria’s writing shows that he is talented and intelligent. The problem is that he’s taken in by leftist ideology that often preempts reason. So many are influenced by this blinding temptation.
I agree with your assessment of Fareed Zakaria as a David-Gergen-like weather vain of the bien pensent thinking of the moment. It’s the hard core ideologues of the Left who must be exposed and defeated. Many of these are only rhetorical ideologues. The Clintons, Al Gore, John Kerry and so on, who accumulate hundreds of millions in personal wealth while denouncing the “greed” of people making $250,000. They are mere lying opportunists, fanning the flames of class resentment, even as they amass fortunes unimaginable to those they denounce.
But then you have the true ideologues. I suspect Obama is a True Believer ideologue, though I will be surprised if he does not become a very rich man after he is through destroying as much of the private wealth of others as he can manage. But the true ideologues, as you say, only care about punishing. They would rather everyone have horrible health care, for example, than that we all continue to proceed up the evolutionary ladder of better health care, though at any given moment it may be unequally distributed. They care not a whit for the plight of the “poor,” only that the “rich” are beggared. These people are Calvinists, essentially, even though they would recoil at the label. They see mankind as essentially, unavoidably corrupt and sinful, and they maintain that humans can do no good in this world. Therefore, every attempt by anyone to achieve, to build, to innovate, must be crushed by the flaming sword of righteousness that only they hold. “Environmentalism,” as it has become, is one manifestation of this loathing of humans. The hatred of cars is just a hatred of human agency and individuality. We all “consume too much,” the implication being that those who utter this deep truth must be engaged in some deeply meaningful activity themselves (monks, perhaps, or ministers to leper colonies?) But of course, it is merely a shallow pose, a pointing of the grim Calvinist finger that affixes the scarlet letter “G” for “greed.” Punishing sinful humans is what these unwitting heirs of the puritanical denial of life have in mind, but always for others, never themselves.
I wrote a post recently in which I compared the size of one year of deficit with the entire net worth of all of the billionaires in the United States at http://ker-plunk.blogspot.com/2010/07/putting-us-deficit-into-perspective.html
Anyone who thinks that increasing taxes on the wealthy is going to make any significant difference is in Cuckooland.
In his WSJ op/ed, Arthur Laffer points out IRS statistics have consistently confirmed what tax accountants and attorneys have always known: that permanent tax cuts on high income earners yield greater, not fewer, tax receipts in government coffers.
I fail to comprehend why the opposite empirically unproven assumption is thrown around as factual by liberal politicians and pundits. And these are the same people who are consistently caught in tax avoidance/evasion schemes? Kerry? Daschle? Geithner? Sibelius? Hollywood types?
Either the economic illiteracy of the Left is truly astounding… or there’s a heckuva lot of tax policy hypocrites on that side of the aisle.
AVERAGE(weighted for years) top marginal rates by president:
reagan(81-89): 51.6%
clinton(93-01): 39.6%.
bush(01-09):35%.
gosh if clinton raised the tax rate to the average of the reagan years, think of the money the govt lost out on in the 90′s.
(please note sarcasm)
it would seem that clinton was more of a supply sider than even the gipper.
so the marginal tax rate turns out to be 25% lower under clinton than reagan, but suddenly they crossed fareed’s ‘maginot line’, when bush’s tax cuts were 11% lower on the top margin? If bush wasted money, then surely clinton did so, for more years, on a larger scale, during a stronger economy.
I think the large mistake is that supply siders rely too heavily on the term “tax cut”, when the actual result is more akin to “maximizing revenue” for the govt, as well as individuals.
the four years after the bush tax cuts of 03 saw a 44% increase in govt revenue. clinton’s best four year run at maximizing govt revenue came in at 39%.
I know the libs don’t want to accept that bush found a way to create revenue faster than clinton, despite clinton’s bull market, and bush’s flaccid market, but that’s the way it is…
The Laffer Curve is a corollary of Rolle’s Theorem (under a set of not-unreasonable assumptions about the dynamic behaviour of tax revenues vs. rates). That is to say, if one grants an uncontroversial set of axioms about how much revenue a tax generates as a function of rate (0% tax raises no revenue; 100% tax raises no revenue; revenue is non-zero at some intermediate rate; revenue varies continuously as a function of rate: ergo revenue is maximised at some intermediate point, which may be to the left of current rates) then the existence of the Laffer Curve is necessarily true. It’s only the continuity criterion that is even slightly arguable, and even then, the proof can be rescued if the function is piecewise continuous.
Lest anyone think this is logic-chopping: not so. It goes to the heart of the Leftist mindset. If a Leftist theory says 13 is a composite number, when 13 is clearly a prime, then so much for primality. It’s the Humpty-Dumpty school of economics: who is to be master? Helmut Kohl famously dismissed economics as “that silly stuff”. Bush père tagged the Laffer Curve with the phrase ‘voodoo economics’ (as immortalised in Ferris Bueller’s Day Off.) But a much more sensible attitude was that of Margaret Thatcher (PBUH) when she said: “you can’t buck the market. Sooner or later it will buck you.”
The Laffer Curve is also unconnected to the argument about how much tax the State should be collecting. It merely points out that its maximisability may not be in the intuitive direction of higher taxes. Maybe lowering rates to the revenue-maximising hump and then a long way down the left-hand slope will generate a richer society. That’s a separate argument (I think it’s the case). But if one accedes to the very weak-tea assumptions behind it, then the existence of the Laffer Curve occupies a similar plane of truth as the proposition that the square roots of integers are either integers themselves, or irrational. You have to be as dumb as a PoliSci major to argue contrariwise.
This omits the most important case: inequality in slavery. That’s the condition that’s obtained in every system of unlimited government in human history: masters living lives of undreamed-of luxury, while their serfs stagger from one inadequate meal to the next.
Coercive egalitarians might not know it (and those who do surely wouldn’t admit it), but they’re morally and strategically identical to death cultists. Their campaign for leveling the human race cannot end until we’re all dead. A nice future to aspire to, eh?
Empirical evidence of the positive effect of the Bush tax cuts is easy to find just google “federal tax revenues”.
You will find charts that show tax revenues beginning to increase 3 months after enactment in the Spring of ’03. Up until that point they had been steadily declining despite an extremely stimulative monetary policy most likely due to the lingering effects of 9/11 and the 2000 recession. Federal tax revenues continued to increase until cratering in 2008.
Now show this evidence to a liberal (as I did to my brother who fancies himself as a conservative democrat) and you will see consternation followed by disdain.
Zakariah does not understand what we want. The goal is not to reduce the deficit. That is merely a by-product. The goal is to reduce government spending. The only way to keep the beast under control is to starve it, and it is in dire need of a diet right now. The reason we have problems with the deficit is that it allows Congress to keep feeding the critter even after the tax cuts.
If Zakaria were a truly moral person, the unfairness of his current tax burden would be addressed by him actually paying more than his calculated tax liability. As a philosophical imperative, it matters not what the law says he owes. If he feels he is paying too little, then he should pay more regardless of whether he is compelled to do so by law. Form 1040 allows you to overpay to your heart’s and soul’s content.
Zakaria is not a moral man: he is a Democrat apologist who advocates more confiscation of wealth in order to redeploy it to pet causes.
Mr. Zakaria: Pay More Taxes. You can do it all on your own as can all of your like-minded class warriors.
Isn’t it quite amazing that Laffer can base his entire argument on the percentage of tax revenue from the top 1% of earners without factoring in what percent of GDP that group earned? I guess he’d be shocked to find that reducing taxes on the top 1% might actually increase the percentage of GDP they make…
>> They can change the location, timing, composition and volume of income to avoid taxation.
Surely this is an argument for the marginal rate of tax being *irrelevant* rather than that increasing it lowers revenue? Why would the wealthy choose to pay *more* when the marginal rate is lowered rather than finding ways to stay at the same effective rate?
Also, didn’t Laffer propose a Curve rather than the Laffer Straight Line? That implies that there are situations where lowering the tax rate does decrease revenue, right? Does anyone actually know where that turning point might be?
OMG — I spent too much money on vacations, speed boats, ducatti motorcycles, and
solid gold bathroom fixtures. You know – I’ve got a STRUCTURAL DEFECIT! There’s
only one solution that’s FAIR — my boss is going to have to give me a raise!
Threasts? I dont need to threaten
someone in your family is or will be dying of cancer or heart disease,
ill let nature take its course
I just hope soon
the LAffer curve has been shown years ago to be an utter fallacy