Posted on 08/22/2011 6:51:56 AM PDT by MNJohnnie
The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts.
The survey out Monday found that 56 percent of the NABE members surveyed felt that way, while 37 percent said they favor equal parts spending cuts and tax increases. The remaining 7 percent believe it should be done only or mostly through tax increases.
As for how to reduce the deficit, nearly 40 percent said the best way would be to contain Medicare and Medicaid costs. Nearly a quarter recommended overhauling the tax system and simplifying tax rates and exemptions. About 15 percent said the government should enact tough spending caps and cut discretionary spending.
I would draw everyone’s attention to the Rahn Curve. It shows that when government increases the marginal tax rate above 20% that people respond by earning less taxable income. Over time, federal tax revenues have run about 20% even when rates were far higher.
see: The Rahn Curve and the Growth-Maximizing Level of Government
http://www.youtube.com/watch?v=uj6lRFXC5rA
And then there is this:
“In 2008 about 320,000 Americans reported income of more than $1 million, or about 0.3% of all income tax returns. They paid about $250 billion in taxes that year. Mr. Conrad is going to get nearly $2 trillion more from them without damaging the economy? That should be some trick. ”
From the article, Conrad Wants $2 Trillion , on Senator Kent Conrad’s budget and tax ideas, from the WSJ, July 11, 2011.
Both of these citations show that anyone who is proposing a federal budget that includes an increase in the marginal tax rates cannot count on government actually realizing any higher revenues from that increase. Any projections based on increased taxes will be unrealized. Further, there are just not sufficient levels of income to tax. This means that the federal government MUST base a rational budget solely on cuts in spending. Any talk of “shared sacrifice” is vapid dreaming and we no longer have the prosperity and leeway to entertain liberals by giving in to their vapid dreams.
Of course, this is all apart from the issue that taxing the rich is just a thinly veiled form of petty coveting the wealth of others, and hoping to be able to get government to steal it from them (legally of course), so that there is more wealth to spread around on favorite programs. Never mind that the average government employee has a total compensation package of $123,049, as compared to the median household income of $52,029, at least according to USA Today and the US Bureau of the Census.
Paul Krugman did NOT approve of this message....
"More restrictive." What exactly does that mean? It suggests cutting back but we all know we aren't cutting back. We are simply reducing spending from a baseline of increases for most programs. The sad part is that government fiscal policy won't be more restrictive. It will just be less expansive.
And everyone on the Left and a good number of "moderates" will scream bloody murder that we are being too harsh just because fiscal policy is less expansive.
Any wonder why we are as screwed up as we are?
Political and economic lexicon is very important, and something that liberals had the advantage in that department over conservatives for decades, using the "populist" language to cover up their "sweet" lies. Just recently, Obama and the Democrats subtly change the word "taxes" into "revenues" as if the two are automatically synonymous or the same (i.e., presumption that higher marginal tax rates directly equal higher government revenues) which is absurd, as often it results in exactly the opposite.
It's time to treat them to the their own medicine and adjust the lexicon, but based on the truth instead of the liberal lies.
For instance, the term "revenue" itself should be derided as the "[increased] tax on economic growth" and additional "tax burden on jobs creation".
The term "tax cut" for the "rich / billionaires and millionaires" sets an "anchor" - the impression that the government revenues were reduced / "cut" from some higher "natural" rate that liberals decided on for a time - and should be transformed by Republicans into "reduction in tax on economic growth" and "tax relief" for the "jobs creators / jobs producers" and the "working middle class".
The "paying their fair share" argument should be countered to name what number would constitute the "fair share" that the top percentiles of earners should pay as a percentage of total government "revenues" - it's pretty much guaranteed that the number they come up with would fall far short from the actual number top earners pay.
The term "government investment" (on "infrastructure," education, healthcare, environment) should be countered with "out-of-control, profligate, ill-conceived, counterproductive, open to fraud, waste and abuse, and uneconomically expensive government spending of taxpayers money on useless projects 'to nowhere'".
Given the obviously inadequate and critically dismal performance of government services that are constantly growing in cost, such as education and health, this terminology will find a receptive ear with the public, just like Reagan's rhetoric found the support of those who became and remained "Reagan Democrats."
From The Democrats' Big Tax Lie - TDB, by Michael Medved, 2011 July 28
The trouble with this rhetorical approach is that it relies on an obvious and embarrassing falsehood: far from paying the “lowest rate in 50 years," top earners actually paid at the current rate or significantly lower for most of the time in the last quarter century. ..... < snip > ..... Even a cursory glance at the historical records make it clear the amount of revenue flowing to the federal government bears little connection to the tax rates applied to the wealthiest Americans. In 1951, for instance, top-earning families (those who earned more than $400,000) paid a confiscatory top marginal rate of 91 percent, but the government collected just 16.2 percent of the GDP in revenue. More than 30 years later, during the brief three-year interlude when taxpayers enjoyed the low Reagan top rate of 28 percent, the feds took in vastly more total revenue - an average of 17.9 percent. In other words, contrary to the simplistic assumption that raising tax rates always increases revenues, a rate of 91 percent brought in less to the Treasury by every standard than a 28 percent rate. Alan Reynolds, a veteran economist with the Cato Institute (and a frequent guest on my radio show) isolates the figures for individual income-tax collections (excluding corporate levies, capital-gains tax, estate tax, and other sources of revenue) and shows that higher top rates historically bring somewhat lower - not higher - tax collections. Between 1952 and 1979, the top tax rate ranged from 70 percent all the way to 92 percent, but revenues from personal income tax amounted to only 7.8 percent. From 1988 through 1990, with the highest individual rate 28 percent, taxpayers actually provided more funds, not less - 8.1 percent of GDP. Reynolds concludes: “The trendy talking point of blaming projected deficits on ‘tax cuts for the rich' is flatly absurd. ..... < snip > ..... The most recent numbers (updated in October 2010) show that the top 1 percent of tax returns covered an amazing 38 percent of all income taxes - nearly doubling the share of the total income they earned (20 percent). The top 5 percent of taxpayers (earning above $159,000) earned 35 percent of all income, but paid the big majority of all income taxes - 59 percent. ..... < snip > < snip > ..... The Democratic line about “the lowest rate in 50 years" effectively reinforces two important liberal themes: first, that the rich don't pay their fair share to support the operations of government, and second, that hiking rates on undertaxed wealthy people offers a painless, eminently fair way to increase revenue and reduce the deficit.
From Time to Man Up - B, by Gene Epstein, 2011 August 06
These tax hikes have been scored by the president's own Office of Management and Budget as contributing a bit less than $1 trillion in reducing the debt over the 10 years. Even without discounting that figure as probably erring on the high side, it barely makes a dent in the long-term fiscal problem. Unless the president is willing to consider far more ambitious cuts, especially on the entitlement programs, he will have to hike taxes on virtually everyone with an income. CBO FIGURES SHOW that the full burden of the federal tax is about as progressive as it was in the late 1970s; the richer the income group, the greater the share that it pays. All income groups pay a somewhat lower effective rate than they used to, but by far the steepest proportionate drop has been among the lowest 20%, which paid just 4.2% of their income in taxes in 2006 and 2007, the most recent years for which figures are available. The top 1% of income recipients paid 30.4% of their income in federal taxes in 2006-07, the highest effective rate. That figure includes all ways the Internal Revenue Service can make claims on income, including corporate income taxes, of which the top 1% pay a disproportionate share, because they own a disproportionate share of stock. (The 30.4% excludes estate taxes.) In order to be in the top 1% in those two years, you had to earn at least $350,000, a figure that might not even qualify you for the president's targeted group of "millionaires and billionaires." (Millionaires here being defined as households that earn at least $1 million a year.) But because there are plenty of real M&Bs in the top 1%, this income group did account for 28.2% of all federal taxes paid in 2006-07. That's an impressive number, but regardless of how much it is raised, it won't cover the soaring cost of government, especially when you consider that the aggregate tax take already falls far short of paying those costs. You have to hike taxes on the top 20%, who earned a minimum of $75,000 in 2007, and even on the next quintile, who earned a minimum of $50,000. ..... < snip > ..... < snip > The $11.7 trillion also included Obama's own proposal for raising rates on the two top income brackets and increasing the estate tax.
The truth is out there. The conservatives / Republicans just have to learn how to communicate it effectively, to counter the Lies and the Lying Liars of the Left.
“...The Democratic line about ‘the lowest rate in 50 years’ effectively reinforces two important liberal themes: first, that the rich don’t pay their fair share to support the operations of government....”
I think many conservatives believe in the fairness of a flat tax, by which the rich would pay the same rate as someone making $100,000 a year at his job. But how do we answer Warren Buffett’s observation that he pays federal taxes at half the rate of his office staff (who he says make around $100k a year)? It’s not just a question of whether taxing the rich will get us out of debt—obviously it won’t—it’s a question of fairness. Why should a man who declared a net income of $39 million last year pay taxes at half the rate of his staff?
Even with a "flat" tax income rate, there most likely will be an exemption on first $30K-$40-$50K (or whatever median income, or close to it, will be at the time) so the bottom 50% of income earners will not have to pay income tax on "earned income" thus still maintaining the highly "progressive structure" of "effective" income tax, though supposedly at a smaller rate and with much smaller number of deductions, if any. Whether any of it is "fair" is left to be decided by the individuals, depending on who is going to be subjected it, but it will be significantly simpler and, hopefully less bureaucratic.
First of all Buffett is a liberal Democrat, which means he is a first-class hypocrite, though he is (like many other very rich Democrats) a first-class investor and is well-spoken advocate for investing and other "causes" in his "folksy" manner.
But exposing this kind of hypocrisy is pretty easy. For instance, he is all for the "estate tax / death tax" yet the government will get almost nothing from his own estate, since it will be transferred to the family foundation, managed by slightly less liberal but about as rich Bill and Melinda Gates.
Same on taxes on the "rich". First, his secretary's taxes include paying disproportionate (relative to the salary) in payroll/Social Security taxes, which is capped and therefore is a miniscule percentage on $39M. Second, his "income" comes not from salary but from capital gains, which are tax-advantaged (as they should be, if not tax-free, because it involves capital risk, and is not a guaranteed "income") so here again he is deliberately omitting the difference in the tax rate structure. In other words, raising a tax bracket for M&Bs would not affect Warren Buffett's capital gains rate in the least next year. But it does endear him (and those like him, e.g., rich Hollywood crowd who call for more taxes on the rich, while investing their own money with Madoff and other privileged and/or tax-advantaged hedge funds or off-shore) to the hoi polloi and the "great unwashed" who represent the mass of Democratic voters.
That said, it's also easy to point out that his "revenue" math doesn't work either, even under his "best case" scenario:
From Warren Buffett's Tax-Hike Proposal Is Mistaken - Buffett's Blunder on Taxes - B, by Gene Epstein, 2011 August 20
When billionaire investor Warren Buffett speaks, people tend to listen. So when the Oracle of Omaha called last week for drastic tax hikes on earners like him, President Obama cheered, and the rest of us at least took notice. ..... < snip > ..... Unfortunately, Buffett didn't bother to estimate either how much his tax proposal could generate in revenues, or the real multi-trillion-dollar dimensions of the federal debt problem. By remaining vague on both counts, he leaves the impression that a bigger tax contribution from the superrich can make a significant difference, when in fact, we might be lucky if it added five cents on the dollar. ..... < snip > ..... The Barron's tax proposal echoed Obama's: Raise rates on the two top income brackets and boost estate taxes. It was therefore more ambitious than Buffett's, which would hike taxes only on those earning a million dollars a year or more. But while never saying so explicitly, Buffett did appear to recognize that most of the heavy lifting must therefore come from spending cuts. ..... < snip > ..... In a follow-up article to Buffett's, the New York Times estimated that Buffett's proposal would raise about $500 billion in extra revenue over 10 years. That means the proposal would roughly make a mere 6.6% contribution to that $7.6 trillion goal. What's more, even that $500 billion revenue estimate could be way too high. Anyone reading Buffett's article would get the impression that an altered tax structure does not alter behavior. ("People invest to make money," he declares, "and potential taxes have never scared them off.") ..... < snip > Research has shown that the 2003 tax cut on dividends induced corporations to make more dividends available to shareholders. Might a tax hike - to 50% on dividends taken by Buffett's million-dollar-plus earners - cause that policy to go in reverse? And at that 50% rate, might many of the very rich forgo stock purchases and start channeling funds into tax-free municipal bonds and other tax-sheltered vehicles? The super-rich can contribute their pennies. The real dollars will come from spending cuts.Boosting taxes on the super-rich has its sound-bite appeal, but a look at the numbers tells us it would barely make a dent in our debt.
When the numbers are on your side, it's easy to call the hypocrites on their "vague" assumptions and conjectures, which have no basis in real life. Just need to have the facts and the right lexicon in your arsenal.
And Warren Buffet was called on it, by none other than Arthur Laffer:
Buffett a Hypocrite for Seeking Tax on Ultra-Rich: Laffer - CNBC, by Margo D. Beller, 2011 August 18
"The hypocrisy of Warren Buffett is unfathomable," Arthur Laffer, chairman of Laffer Associates, told CNBC Thursday, referring to the Berkshire Hathaway chairman. "If he really wanted to make (the tax code) fair, why doesn't he propose a wealth tax on everyone over $1 billion worth of wealth of 50 percent once and for all," Laffer said. "That would really work for him, but of course he's not going to suggest that because he would have to pay that." Laffer said most of Buffett's wealth is in unrealized capital gains. "It's never seen a tax, and when he gives (the investments) to the Bill and Melinda Gates Foundation, it never will. This is ridiculous," he said. ..... < snip > The creator of the Laffer curve called Warren Buffett a hypocrite for urging lawmakers to raise taxes on the super-rich to cut the budget deficit.
Just the facts, ma'am. That will expose them to the sunlight of reality.
“First, his secretary’s taxes include paying disproportionate (relative to the salary) in payroll/Social Security taxes, which is capped and therefore is a miniscule percentage on $39M.”
Aren’t payroll taxes in fact taxes on income and therefore “income taxes”? So make it fair and undo the cap. That would bring the tax rate that Warren Buffet pays into line with his employees.
No, they are specifically not general-purpose "income taxes," they are taxes that go into mythical Social Security Trust Fund (which are of course, appropriated and spent by the general fund by way of IOUs).
So make it fair and undo the cap.
You seem to have a strange idea of "fair." Social Security taxes are for the individual retirement, and that's the reason they are capped. In fact, Obama had suggested and passed into law a "payroll tax break" to "stimulate the economy" and is now proposing extending it, which for some reason Republicans in Congress oppose (possibly, fiscally responsible toward Social Security, but a loser politically, just like Paul Ryan's Medicare reform proposal within the budget reform fight). To make Social Security mandatory withholding tax uncapped would make it just another general-purpose income-transfer tax, which it was not designed to be and is unconstitutional (not that it would stop politicians from trying).
To do all this, just to make it "fair" to the likes of Warren Buffett would only penalize middle class even more, it's the same as the idea of "means-testing" for Social Security "benefits" so that the program can be "saved."
That would bring the tax rate that Warren Buffet pays into line with his employees.
Not in the least. You probably missed the part about lower rates on capital gains tax (which is not, in fact, a regular "income tax") that is the bulk of Warren Buffett's annual "income." His staff is receiving salary, which is subject to regular "income tax" and capped "payroll"/Social Security/FICA (Federal Income Contribution Act) tax, his capital gains "income" do not (and should not be. Capital gains tax is also taxes at lower rate, to compensate for the investment risk of total loss (many quite reasonably think that it's double-taxation already on earned capital and the tax should be eliminated alltogether). Buffett also uses "charitable donations" to significantly lower his tax rate, which few of his staff can utilize with the same effectiveness (Law of Large Numbers).
You don't seem to understand the difference between different taxes, and why they might have different rates (incentives, disincentives, penalties, so-called "loopholes" etc.) There is a reason why Warren Buffett has many tax accountants and lawyers and his staff don't.
If you stop trying to fit higher taxes on everybody as the means of being "fair" or the "solution" to government deficits and government looking for higher revenue, it will become easier and simpler to understand what you seem to have missed about tax "fairness" in my two previous posts or how much easier it it for the "rich" to not having to pay "income" taxes just by deferring the "income" into the future years or moving them into legal tax-free havens such as munis etc. They can live for awhile off their wealth or from tax-free income or free up some money by firing the "staff"... can the typical middle-class "staff" do that?
That doesn't even count the numerous taxes and fees from the states and municipalities. Look again in the first post at how much of federal tax revenue burden falls on the 1%, 5%, 10% of top earners and then decide if that is their true "fair share" or do they need to "contribute" more to the government that thinks it can spend them into "prosperity"?
“No, they are specifically not general-purpose “income taxes,” they are taxes that go into MYTHICAL Social Security Trust Fund....” Yes, it is mythical. Real world, it is just another income tax, as it is being used to pay the obligations of the government. It is a flat tax, at 15.3% or so, with no exemptions, and everyone should pay it at the same rate, instead of limiting it to the first $106k of income.
“Rahn Curve and, similarly, the Hauser’s Law in conjunction with the Laffer Curve, describe the practically “optimal” tax rates.”
As much as I agree with your post, there is a more important topic that finding the optimal tax rate.
The famous Laffer Curve shows that when government has a zero tax rate, it gets zero revenue. When it has a 100% tax rate, it gets 100% of nothing and thus has zero revenue. The curve bulges in the middle to show that there is a rate of taxation that produces the greatest amount of revenue to government.
Conservatives argue that when tax rates are too high, lowering the rate will increase government revenues. This implies that tax rates had been above those that produced the bulge. Lowering the rate moves us down towards the bulge in revenues.
Liberals argue that if only we could increase tax rates, we could have more revenue to spend on “vital programs”. They assume that tax rates place us below the bulge.
But both of these positions miss a fundamental point. Consider that when there is zero government, the resulting anarchy makes society unlivable and thus destroys liberty. But when government takes over every single function of life, there cannot be any liberty at all. The preamble of the Constitution tells us that we form a government to “secure the Blessings of Liberty to ourselves and our Posterity”. The Constitution then goes on to describe a structure of limited and enumerated powers. Too little
government as well as too much both destroy liberty. So, obviously there is an optimum level of government, a bulge in the middle, of optimum liberty. I call this the Liberty Curve.
In advocating lower tax rates, Conservatives are advancing the wrong aspect of government. Our obligation to ourselves and our Posterity is not to optimize the amount of money the government has to spend by optimizing tax
rates, but to optimize the level of liberty that each citizen has by optimizing the level of government! As government grows, our liberty must retreat. But for our own protection, we must have some level of government.
I know that level is far less than we have today.
We would not be in the mess we are currently in if our focus had been on liberty as compared to spending. Even the idea of running a perpetual deficit destroys liberty, for it places all future taxpayers in a form of debt-servitude from which we cannot allow escape, lest government be unable to service the debt incurred by those long dead.
We can start down the Liberty Curve by spending less than we take in. We are not anywhere near doing that with the current debt and budget debate going on in Washington at this very moment.
Futher, the Rahn Curve [1] shows us that when tax rates get above about 20%, people who do have some measure of control over how they structure their financial affairs take active steps to decline to pay more in taxes. It is just a fact of life that any politician attempting to increase revenues by raising taxes will be disappointed, and any plans and budgets that depend on those higher revenues will fail.
The only way out is to spend less and shrink the size of government. The only way out of the debt morass is to boost wealth creation. The only way to boost wealth creation is by giving entrepreneurs more liberty to create
more wealth and jobs. But government cannot pick and choose who will start the next Apple or Microsoft. But it can pollute the risk-taking environment so that nobody will be willing to invest their time or money in new ideas.
When government tells such people beforehand that you can only deduct $3,000 of your losses, the more government tells us that it will take of the gains, the fewer people there will be who will try. And right now, we cannot have too many people starting up or will fund new business ventures! So, apart from cutting government spending,
we need to do something that big government types just refuse to do: give people more liberty.
[1] The Rahn Curve and the Growth-Maximizing Level of Government
http://www.youtube.com/watch?v=uj6lRFXC5rA
Which is pretty close to what was found by Hauser. Despite what Buffett said, taxes do affect investment behaviour and people (including, first and foremost, investors and managers like Buffett himself) often alter their investments on that basis alone. Al one needs to remember is those counterproductive tax shelters in the U.S. of 1960s and 1970s. Every company has a fiduciary duty to lower effective tax rate, which is one reason why so much corporate money is now stashed and used more productively overseas by the U.S. companies. We are not even talking about job-killing and economy-starving regulatory environment.
As much as I agree with your post, there is a more important topic that finding the optimal tax rate.
Obviously, I agree with your larger point of inverse relationship in degrees of government and degrees of liberty, but by saying "optimal" tax rate I was more narrowly commenting on the direct topic of the CNBC/AP article ("Spending Cuts, Not Tax Hikes, Best for Deficit") trying to show that any federal government spending above that "optimal" rate will inevitably lead to deficits, as proven by Hauser and, tangentially, Laffer. And the numbers in the articles in my post seem to prove that, as well as providing some ammunition for the "fair share" and other class-warfare and politics-of-envy arguments.
That doesn't mean that it should be the goal to "give" the government the "optimal" amount of money to spend, in part because governments have proved that they are incapable of spending wisely or stay away from purely political spending of any amount. Not that the governments ask much for the permission to "take" (tax more), and when they find that they can't "tax and spend" they just "borrow and spend" the money.
I do understand and appreciate your larger point, we don't have an argument there.
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