Friday, November 16, 2012

It's All About Revenues

As a percentage of GDP, revenues are at a lower level than they have been for years.  Why is that?  Because of the Bush tax cuts?  No.  The reason is that the recession of 2008 is still with us.  The economy is in slow motion, so revenues have never recovered (as a percentage of GDP).

So, how do you get revenues up?  That is where the rubber meets the road.

The democrats answer to that question is to raise tax rates.  If so, why not raise them to 90 or 95 percent?  That should raise revenues easily enough to solve the current deficit, if you take the democrat logic literally.  A good beginning would be to tax Congressional pay at a 90 percent rate. I like that one.

Heck, 100 percent sounds even better.  We could begin to make progress on reducing the national debt if we just confiscated everyone's income above $ 1 million.

Democrats believe that folks are indifferent to tax rates and will pay whatever the Congress decides without changing behavior.  Thus, 100 percent rates really make sense.  Lets do it.  Economists like Austin Goolsbee don't believe that tax rates really matter.  Folks are just as willing to work hard and produce jobs if you take all of their income and leave them with nothing as if you take 39 percent of the income.  There is no difference, says Goolsbee.  Maybe we should tax Goolsbee's income at a 90 percent rate and see if he still thinks that it doesn't make any difference.

The truth is that if democrats get their way and raise tax rates, the result will be further weakness in the economy and much lower tax revenues.  The result: a further expansion in the deficit and a rising national debt.  Combine that with economic stagnation and you get the Obama plan for our future.

Since tax rates are progressive, economic growth alone will dramatically raise tax revenues, just as economic contraction dramatically lowers tax revenues.  These facts are true whether tax rates are increased, reduced or remain the same.

The main impact of raising tax rates is to signal a lower after-tax income for investments in the economy.  Entrepreneurs and businesses, those greedy guys and girls, will pull in their horns by investing less, hiring less and generally taking an extended holiday.  This is where the Obama "fairness" gambit leads -- a weaker economy, lower tax revenues, a ballooning deficit and economic stagnation for a generation or more.

So, yes, it is all about revenues and if you want to guarantee that revenues will decline, then begin by jacking up tax rates.  That will definitely do the trick.

1 comment:

A. Barrow said...

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