The President’s vague new “millionaire tax” proposalhas brought out the same old arguments that were used in past speeches seekingtax hikes on people making $200,000 or more, and as always, on oil and gascompanies.
Oddly enough, aBusiness Insider article earlier this week took up some of the base arguments againstsuch tax increases. Let’s take a look at a few of these, to see why they arenot on the mark – and, in the process, see why the President’s plan is unlikelyto do much good for the ailing U.S. economy.
Business Insider’s Henry Blodget claims spendingis only part of the problem: “few reasonable non-partisan economists think that we cansolve our budget-and-debt problems just by cutting spending. Unless weradically reshape and re-size the government – something that would have a hugeand almost certainly negative impact on the economy – we also need to raise thepercentage of GDP that is collected in taxes.”
The comment that reducing the size of governmentwould have a “negative impact” on the economy perhaps betrays an ideologicalagenda, but beyond that spending hasbeen a bipartisan problem over the past decade. Federal expenditures haveessentially doubled from when George W. Bush was elected until today, and haveincreased by nearly 30 percent since Barack Obama moved into the White House.Today this alarming trend looks all the worse because of a decline in taxrevenue that often happens in recessions. We can certainly expect revenue toincrease if the economy improves, more so if our tax system is streamlined tobe made more competitive internationally. Still, spending has jumped radically and would likely outpace any increasein revenue, beyond bone-crushing tax hikes.
Business Insider then dismisses the concerns overdiscouraging upper-income earners and job creators from being economicallyactive: “Thisis the argument that even reasonable people sometimes espouse. But it’s absurd.No one is proposing raising the top tax bracket to 90%, the way it was in the1950s(when, by the way, the economy wastremendously successful). No one is proposing raising it to even 80% or 70% or60%.”
Thisis a misunderstanding of historical circumstances by only looking at a snapshotin time. Those incredibly high rates were more limited in reach and escapablethrough various deductions. To give just one more recent example, the 1986 TaxReform Act managed to streamline and reduce tax rates to two levels (15 percentand 28 percent) while remaining relatively “revenue-neutral” precisely becausethe previously narrow base of income subject to tax was broadened. The top rateprior to passage of the Act was 50 percent.
Blodgetcontinues on this path saying, “Anyone who says with a straight face thatsuccessful, ambitious people will kick back in a chaise lounge because thegovernment is going to take 40 cents of every dollar in income above a milliondollars instead of 35 cents is an idiot, an ideologue, or a liar.”
Who has made such an argument? The real argument he must be referring to isthat higher tax rates chase capital away, which seems pretty self-evident. Butin case anyone could use a refresher, here is a nice summary of research on the topic. There are numerous effects, from keepingmoney outside of the U.S.’s jurisdiction to small business owners who declareprofits on their personal returns getting hammered with higher taxes. Aggravatingsuch financial situations with tax hikes WILL harm a floundering economy. It ishard to imagine we are still talking about a supposed job creation plan… .
As NTU continues to discuss, the taxcode remains quite progressive. Despite the President’s claim the Bush Administration“skewed (the tax code) in favor of the wealthiest taxpayers and reduced the taxcode’s overall progressivity,” the Bush tax reforms took many lower income folksoff the tax rolls.
Theonly way to permanently accomplish what BusinessInsider and the President are arguing for, a “fair” tax code and job growth(taking them at face value), is fundamental taxreform.That will ensure that no secretaries are paying more taxes than Warren Buffett.
Certainlythere will be more to come as this debate continues!