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Eat the Rich

I have yet to find one piece of convincing data that shows tax rates to have a major effect on government revenues. Tax receipts stay at roughly 18-19% of GDP, completely without regard for the tax rate of the day. (obviously you could lower taxes to reduce that, but taxing anyone at any of the rates of the last 100 years doesn’t seem to have an effect.)

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  1. 2012/05/30 at 16:28

    Or maybe spending is more proportional. If I spend $100 a year, $18 might come from taxes. If the next year I get $24, I may be spending $150. The percents are the same, but the raw revenue is not.

  2. 2012/05/30 at 18:11

    Do you mean effective tax rates, top marginal tax rates, or what? Total tax compared to GDP is not a proper metric in a properly progressive tax system, and flat tax, as any good liberal knows, is morally corrupt.

  3. 2012/05/30 at 23:10

    Just look at what the government has managed to collect over time. In real terms, the government takes in 3 times what it did in 1950, but manages to collect roughly the same share of economic production. That is despite the fact that rates have dropped, most prominently in the top bracket.

    GDP, not tax rates, seems to be the determining factor. Not surprising when you figure that those at the top, who pay the majority of taxes, also have the most volatile incomes, dependent heavily on how well, or poorly, the economy may be doing in a given sector at a given time. Just have a look at the drop in tax revenues circa 2008/09. California was especially hard hit.

    One might say it is morally corrupt to finance services for the poorest with taxes from the most volatile. Might one not make a convincing argument that if the state is to provide ________, that the state should also ensure that it will always be able to do so? That it takes steps to ensure revenue stability?

  4. 2012/05/31 at 08:21

    One other thought.

    The Laffer curve may or may not be entirely accurate, but the premise that one will begin, at some point, to collect less revenue as tax rates increase is in fact true. At both 0% and 100% taxation you will collect nothing. In line with that bit of truth is at some point the incentive to cheat and the incentives to try and earn more income dissolve and decrease as your rates climb.

  5. 2012/05/31 at 09:55

    One might say it is morally corrupt to finance services for the poorest with taxes from the most volatile. Might one not make a convincing argument that if the state is to provide ________, that the state should also ensure that it will always be able to do so? That it takes steps to ensure revenue stability?

    One might, but I certainly would not be one. A state is a division of the nation. States can say counties should do x and counties can say cities should, and cities can say families should and we can drown ourselves in a wealthy of “shoulds.” I want to live in a nation where those who cannot take care of themselves are cared for, and the only way to ensure that is at the federal level.

    The Laffer curve, in its most elementary understood form, is obvious and beyond rebuttal, despite the fact that we liberals tend to say it is “discredited.” (At least liberal Burr Deming repeatedly has told me so).

    Raising taxes does increase revenue, at least in the short term. That too is obvious. Assuming you data as accurate, which I will do for the sake of this discussion, we may be getting causality mixed up. Could it not be that we tend to adjust the way we tax and how much in accordance with GDP, even if not consciously?

  6. 2012/05/31 at 10:42

    I always find it interesting when I encounter people who think that the Federal Government, in all of its similarity to a clumsy fat guy stumbling around in a crowded bar, should be the echelon where the needs of indignant individuals are planned.

    You are, of course, right that tax increases will increase revenues in the short term, the problem seems to be that the responses that people have to that particular stimuli have negative long term effects.

    You can have a look at IRS data, and it’s clear that with all the tax changes in the last 70 years, the top marginal rate, the average marginal rate, the capital gains rate and the corporate tax rate, have never, in any combination at any level, increased the governments take of the GDP past 18% or 19%. So I’m not sure that there is much connection between what the government does with tax rates and what they take in in cash, other than they bring in more money if the economy does well and less if it does poorly.

    Antony Davies, an Econ Professor at someplace I can’t remember, argues that tax rates should be set not to maximize revenue, but to maximize GDP growth. Obviously, the idea is that high rates are what you set to maximize revenue, but that that doesn’t end up having the intended effect. e.g. perhaps lowering the Corporate rate would entice companies from elsewhere to move here, increasing domestic product and therefore tax receipts.

  7. 2012/05/31 at 11:40

    You can have a look at IRS data, and it’s clear that with all the tax changes in the last 70 years, the top marginal rate, the average marginal rate, the capital gains rate and the corporate tax rate, have never, in any combination at any level, increased the governments take of the GDP past 18% or 19%

    The most dramatic shifts were those of Reagan in his 1986 tax reform. However, he made a point to keep revenue constant with a slight increase where possible. He lowered top marginal rates that no one was actually paying and closed the loop holes that allowed the people to avoid paying their top marginal rates. Looking at tax tables, this would seem to be a huge tax cut. In reality, for many, it was a small tax increase in their effective tax rates.

    So I’m not sure that there is much connection between what the government does with tax rates and what they take in in cash

    That question is what conservatives normally ask? What will the government take in, vs what are the top marginal rates (they don’t phrase it that way, but it is ultimately the question). This is not a typical liberal question. Liberals care more about a progressive tax system and that everyone survives and can survive in America. Equality of taxes cannot be measured in dollars. A waitress, mother of three, single, may spend her dollar on beans for her little boy, who may go without beans if she does not have that dollar because it was taxed. For the little boy, the dollar is his beans for dinner. It is not a piece of paper. Donald Trump does not know exactly how many dollars he has or where they are. For him, they are pieces of paper that he uses to measure his theoretical idea of success. An increase in taxes for him has no real-world consequences (for him).

    So, to only ask what the overall tax rate is and to only couple that with how much revenue the government is taking in, is to miss the most important questions about taxation: 1. How fair are they? 2. How will they affect the overall economy? I believe you are implying that greater taxation must reduce GDP, else a tax rate would pull in more revenue. That is a circular assumption that pre-supposes that taxes are not adjusted in accordance with GDP, even if indirectly. You cannot tax more than the economy will bear.

    Antony Davies, an Econ Professor at someplace I can’t remember, argues that tax rates should be set not to maximize revenue, but to maximize GDP growth.

    He ignores the little boy’s beans also, or perhaps subscribes to the false notion of bean trickle-down theory.

    Obviously, the idea is that high rates are what you set to maximize revenue, but that that doesn’t end up having the intended effect.

    This is not obvious. In the short term, it clearly has the intended effect, and without presupposing the conclusion of our hypothesis, our hypothesis is not supported by the arguments presented here. The effect of those “taxed” dollars on GDP clearly depends on how they are spent. To assume that they reduce GDP is to make a false assumption, as they circulate back into GDP in some cases.

    perhaps lowering the Corporate rate would entice companies from elsewhere to move here, increasing domestic product and therefore tax receipts.

    I do not believe offshoring, or its inverse, as you suggested, is primarily a tax question. The cost of cheaper labor has a several hundred percent ROI. Small movements in the tax code are not what tips the economic scales.

  8. 2012/06/01 at 13:30

    I will get back to you but I’m busy, I’ll try not to forget.

  9. 2012/06/06 at 21:32

    I’m just going to touch on the bigger things I don’t agree with, let me know if I skip something significant.

    You might be right about Reagan, but you may also be very wrong. The reason I have in mind is that your tax rate and the costs you incur in relation to them are not equal. One of the positives about a flat tax is that compliance costs are very low. We spend billions each year just to comply with the tax code, fewer loopholes result in lower compliance expenses.

    With regard to your second point I’ll mention again that the more progressive the tax code, the more expensive it is to comply with, progressive tax structures are complex by nature. I can’t agree that it’s fair or equal to tax one person at a higher rate than another or that there are no “real world” consequences to increasing taxes on the rich. There are no free lunches my friend.

    Thirdly, I wasn’t trying to say that high taxes rates always or even usually lower GDP. I agree with you that it matters how that money is spent. Where I part ways is when when you got to the notion that the government which, for all intents and purposes, is insulated from the market can allocate resources efficiently than the market can. A GDP drop? I doubt it in most cases. Reduced growth rate due to resource miss-allocation? Doubtless.

    Last of all, you don’t think that taxes have significant effects on the cost of labor and suchlike? There are no small movements in a tax code that liberates 18% of the nations production from those who earned it.

  10. 2012/06/07 at 00:35

    The reason I have in mind is that your tax rate and the costs you incur in relation to them are not equal.

    Granted.

    One of the positives about a flat tax is that compliance costs are very low. We spend billions each year just to comply with the tax code, fewer loopholes result in lower compliance expenses.

    Seems like a false dichotomy to me. We can make the tax code very simple without flattening it.

    With regard to your second point I’ll mention again that the more progressive the tax code, the more expensive it is to comply with, progressive tax structures are complex by nature.

    I disagree. It is not the fact that our tax code is progressive that makes it complex. There are reams of paper dedicated to our tax code. A progressive policy could be established in a few pages and would cost no more to implement than a flat tax code.

    I can’t agree that it’s fair or equal to tax one person at a higher rate than another

    It is a fundamental divergent of the understanding of equality between liberals and conservatives. Conservatives ignore the opportunity cost of taxed dollars spent, and instead look at the inflow to the government. Liberals factor in the opportunity cost as a real measure of equality. Opportunity cost is real. A dollar is only worth what it can mean to someone owning one.

    …or that there are no “real world” consequences to increasing taxes on the rich.

    There are no real world consequences to some taxes on the rich. A 30% increase would have real-world consequences.

    Where I part ways is when when you got to the notion that the government which, for all intents and purposes, is insulated from the market can allocate resources efficiently than the market can.

    I only mean to imply that we have to be careful when looking at correlational studies. They are interesting, but not evidence. They help us argue our philosophies.

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