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Wednesday, March 20, 2013

The Revenue Deficit From Progressive Tax Rates

Wall Street Journal op-ed:  The Revenue Deficit From Progressive Tax Rates, by Michael Solon (Gramm Partners):

The two policies that national Democrats blame for massively unbalanced federal budgets—the Bush tax cuts and the wars in Iraq and Afghanistan—have been largely repealed. Yet deficits are projected to average $700 billion a year over the next decade before rising again to $1 trillion.

So as the Senate and House take up competing budgets this week, President Obama and his congressional allies have renewed their demands for more revenue. The claim is that taxes remain far below historical norms, despite the recent rise in tax rates.

Well, yes, federal revenues have averaged only 15.3% of GDP over the past four years, the lowest share in 60 years. But that did not happen because tax rates are too low. Federal revenues are down because economic growth is too slow.

This simple distinction is profoundly important. Even small economic changes are powerful enough to dwarf the tax-policy differences dividing Republicans and Democrats. ...

A more progressive tax code now leverages the negative impact of slow economic growth. The share of all individual income taxes paid by the top 1% has risen to 41.8% in 2008 from 17.4% in 1980—but almost two-thirds of the income from the top 1% comes from nonwage income, including capital gains, dividends and proprietor's profits. ...

The country's fiscal condition thus poses a choice for Democrats. They can harvest a great deal of revenue by making peace with a profitable and growing economy and with those productive individuals who create such an economy. Or they can embrace new taxes on both upper- and middle-income earners that will restrain economic growth. The latter course will make it harder and harder to raise the revenue that Democrats demand to fund the government they love.

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Comments

I don't agree with the statement "The two policies that national Democrats blame for massively unbalanced federal budgets—the Bush tax cuts and the wars in Iraq and Afghanistan—have been largely repealed."
Only a very small portion of the Bush tax cuts have been repealed. The overwhelming majority- especially from a money standpoint- remain in place.
Treasury estimates the costs of making the tax cuts permanent for everyone is $3.7 trillion over 10 years.

Of that, $3 trillion accounts for the cost of extending them for the vast majority of Americans, as the president has proposed. The remaining $700 billion is the cost of extending them permanently for the high-income earners.

Posted by: tom | Mar 20, 2013 6:58:13 AM

It is exactly the tax trap that California has put itself into with rather disastrous results. Demagoguery has it's costs and, unfortunately, they are rarely borne by the demagogue! However just may be the fate of an Alcibiades it remains beyond the reach of today's "Gods"!

Posted by: Steve W from Ford | Mar 20, 2013 6:59:52 AM

Alas, there is no question.
Obama stated explicitly that he would raise the capital gains tax DESPITE lower revenues, to suit his perception of "fairness."

See http://www.youtube.com/watch?v=54jr3Ceu894

Posted by: Robert Arvanitis | Mar 20, 2013 7:10:14 AM

I'm doing my part for the deficit. 2012 income taxes:0, payroll taxes:0 Earned income:0, Tax credits:0. Government programs/benefits used/claimed:0. So by progressive's standards of "fairness", is that fair?

Posted by: DoneGone Galt | Mar 20, 2013 8:13:11 AM

It's going to be hard to implement useful changes as long as liberals get to define "revenue" as "tax rate increases" instead of "money coming in". By liberal logic, we could make the country solvent overnight by just raising the tax rate to 200% for everyone. That would be a huge "revenue increase" as far as Obama logic is concerned, but would reduce real world revenue to $0.

Posted by: Norcross | Mar 20, 2013 8:49:21 AM

" $3 trillion accounts for the cost of extending them for the vast majority of Americans, as the president has proposed. The remaining $700 billion is the cost of extending them permanently for the high-income earners."

It's a beautiful thing, isn't it? The Dems have railed against 'tax cuts for the rich' for ten years. Now they have had to admit (implicitly, of course--they could never actually just admit that they were always full of sh*t) that the Bush tax cuts were a boon for the lower- and middle class.

Hoisted on their own petard.

Posted by: PD Quig | Mar 20, 2013 9:51:38 AM

Of course, the only way to increase revenue is to tax the poor while exempting the people who have all of the money.

It's perfectly rational. After all, when you're digging a coal mine, you always look for the place with the lowest concentration of coal.

It's a good thing Rupert Murdoch is keeping this money losing propaganda rag afloat with his tax savings, and billionaires are funding all of these P.O.S. studies which still can't prove conclusively that reducing taxes on capital gains does anything to promote efficiency.

Posted by: Anon | Mar 25, 2013 8:26:47 AM