Thursday, November 17, 2011

The taxation lie that just won't go away

It's becoming increasingly painful to read the same wrong-headed, sophomoric "analysis" on taxation, again and again. Here is Michael Tomasky at the Daily Beast singing the same lame tune, once again:
So what do I mean when I say they want to add $3.7 trillion to the deficit? I mean that they want to make the Bush tax cuts permanent. The cost of the Bush tax cuts over the next 10 years comes to $3.7 trillion.
It's amazing. They repeat this nonsense and pat themselves on the back, because they think they're "in the know."

Get this, Mr. Tomasky and others: the economy is not static. You can't say what government revenues will be down the road, based on the income tax rate by simply looking at the declared incomes of the most recent tax year. It doesn't work. It's never worked. Why? Because--again--it's about the incentives, not the rate. And it's about future economic conditions that are unknown, not a simplistic projection based on current conditions.

Regardless, there are two ways to lower the debt, that much is obvious: 1) decrease expenditures and 2) increase revenues. But a simple look at history shows us that revenues increase when the economy is doing well, not the other way around. Here's an article from last year by Kurt Brouwer at MarketWatch. A simple look at the charts, and reality is clear:

(courtesy of the WSJ)

Note that revenue--as a percentage of GDP--stays relatively flat, even as the top marginal rates have been slashed. That's the incentives kicking in. Another:

(courtesy of the Heritage Foundation)

Revenues, it is clear, are driven by the economy, not the rates.

Yet somehow--in the warped view of people that consider themselves knowledgeable in the field--revenues can simply be increased by upping tax rates. And somehow, the economy  will not be affected, one way or the other (or, in the minds of the truly ignorant, upping tax rates will grow the economy). Nevermind whether or not lowering rates helps economic growth, the question is what does increasing rates do, because that is what is being proposed, argued for, demanded.

Of course, we know what's behind all of this: demagoguery and class warfare. Facts are ignored, history is ignored, all for the sake of appearances. Those insisting that not increasing tax rates will "cost" the government revenues are most concerned with looking good, with demonstrating that their point of view is fair, even as it is logically untenable.

Cheers, all.


  1. Robsie, if people don't want to see something, they won't. I posted similar charts at AW a while ago, including a nice chart with correlation of revenue to GDP growth rate. It had no effect on the faithful. :)

  2. I know, I know. But I have faith that maybe, just maybe, some will come around.

    Hope you're doing well, DM!

  3. I am doing ok, more or less. Extremely busy with work and some family problems, but ok overall. I am still reading the PC&E, but it had largely descended into partisan bickering a while back, which is a shame. I did find your blog through the "I'm 1%" post :) Cute. There might be something there. Rudeness and indifference were a staple of behavior in the USSR, too.