Tag Archives: Tax Policy

Why taxing the rich to grow government fails

UPDATE: Welcome visitors from 4Simpsons! Thanks for the link!

I spotted this article from Chris Edwards of the Cato Institute. (H/T Club for Growth)

In the article Edwards explains why taxing the rich is bad for economic growth. The article is a response to a leftist polemic in The Economist.

The first thing to note is that tax increases decrease the growth of the efficient, market-oriented private sector:

President Obama wants to go in the other direction, raising the top two income tax rates, which would reduce production and increase avoidance by highly skilled people. Such economic damage from higher taxes is called deadweight loss. In the 2006 paper, Mr Feldstein argued that deadweight losses from a federal income tax rate increase would be $1.76 for every dollar of tax increase. That means that every new $1 billion spending programme in President Obama’s budget will destroy about $1.76 billion of activities in the private sector.

Yes, this is why we are losing jobs today, because Obama is transferring wealth from private companies, who answer to customers and shareholders, to public bureaucracies, who are insulated from market competition.

He continues by explaining that the rich already pay most of the taxes:

…43% of American households do not pay any federal income tax, according to data from the Joint Committee on Taxation. That large group is doing little to support the huge burden of the welfare state, so it is laughable that they might be angry at the wealthy who do bear the burden. The CBO data show that the top one-fifth of households pay 69% of the entire costs of the federal government. Frankly, the rest of Americans are free-riders on the top quintile’s enormous financial support of government.

And he explains why the public sector is less efficient than the private sector:

There are fundamental reasons why big governments do not work very well. As taxes rise, resources are shifted from more efficient private activities to less efficient government activities. The private sector is not more efficient than government because it does not make mistakes, but because it has mechanisms to purge mistakes and move resources to higher-valued uses. Government policymakers do the opposite: they retain failed programmes year after year, and resources get stuck in low-value uses.

Even if politicians did focus on moving resources to higher-value uses, they would be unable to because government activities do not generate the price and profit signals needed to allocate capital and labour efficiently. A final problem is that government programmes are often horribly managed.

For an example of why governments don’t manage money efficiently, consider this USA Today story. (H/T Representative Mike Pence)

Excerpt:

The federal government will soon send more than $300 million in stimulus funds to 61 housing agencies that have been repeatedly faulted by auditors for mishandling government aid, a USA TODAY review has found.

The money is part of a $4 billion effort to create jobs by fixing public housing projects that have fallen into disrepair. Recipients include housing authorities in 26 states that auditors have cited for problems ranging from poor bookkeeping to money that was spent improperly, according to the review of summaries the agencies must file with the federal Office of Management and Budget (OMB).

Where did that money come from? It comes from the private sector. It comes from you.

Editorials by Stephen Baskerville, John Lott, Thomas Sowell and Walter Williams

I thought I would throw out a variety of recent editorials from some of my favorite economists and public policy experts. Economist Robert P. Murphy isn’t featured today, because I wrote an entire post about his excellent article on energy policy recently.

Does the government discourage marriage and family?

Patrick Henry College economist Stephen Baskerville wrote an article about the government’s role decline of marriage and the family.

He writes:

…80 percent of divorces are unilateral. Under “no-fault,” divorce becomes a power grab by one spouse, assisted by judicial officials who profit from the ensuing litigation: judges, lawyers, psychotherapists, and social workers. Involuntary divorce involves government agents forcibly removing innocent people from their homes, seizing their property, and separating them from their children. It requires long-term supervision over private life by state functionaries, including police and jails.

…Invariably the first action in a divorce is to separate the children from one parent, usually the father. Even if he is innocent of any legal wrongdoing and does not agree to the divorce, the state seizes his children with no burden of proof to justify why. The burden of proof–and financial burden–falls on him to demonstrate why they should be returned.

A legally unimpeachable parent can thus be arrested for seeing his own children without government authorization. He can be arrested through additional judicial directives that apply to no one but him. He can be arrested for domestic violence or child abuse, even without evidence that he has committed any. He can be arrested for not paying child support, regardless of the amount demanded. He can even be arrested for not paying an attorney or psychotherapist. There is no formal charge, no jury, no trial, and no record.

If these statements surprise you, I recommend you read the whole article to find out how this is done. You will never see anything like this reported in the mainstream media. They have an agenda that forbids telling the truth about this issue.

Do gun-free zones discourage multiple victim public shootings?

University of Maryland economist John R. Lott writes about gun-free zones and their effect on MVPS incidents in this Fox News article.

He writes:

Time after time multiple- victim public shootings occur in “gun free zones” — public places where citizens are not legally able to carry guns. The horrible attack today in Binghamton, New York is no different. Every multiple-victim public shooting that I have studied, where more than three people have been killed, has taken place where guns are banned.

You would think that it would be an important part of the news stories for a simple reason: Gun-free zones are a magnet for these attacks. Extensive discussions of these attacks can be found here and here. We want to keep people safe, but the problem is that it is the law-abiding good citizens, not the criminals, who obey these laws. We end up disarming the potential victims and not the criminals. Rather than making places safe for victims, we unintentionally make them safe for the criminal.

Lott is the author of “More Guns, Less Crime”, a study, published by University of Chicago Press, that shows how concealed-carry laws drastically reduce crime in every state in which these laws were enacted. Surprising? Take a second look.

Is moral equivalence good foreign policy?

Hoover Institute (Stanford University) economist Thomas Sowell writes about the danger of electing a president with no executive experience at any level. Especially one who believes, as Evan Sayet says, that evil is good, and good is evil.

Sowell writes about Obama’s affection for Iran and Russia:

What did his televised overture to the Iranians accomplish, except to reassure them that he was not going to do a damn thing to stop them from getting a nuclear bomb? It is a mistake that can go ringing down the corridors of history.

…This year, President Obama’s attempt to make a backdoor deal with the Russians, behind the backs of the NATO countries, was not only rejected but made public by the Russians– a sign of contempt and a warning to our allies not to put too much trust in the United States.

And his hostility for Israel and Britain:

However much Barack Obama has proclaimed his support for Israel, his first phone call as President of the United States was to Palestinian President Mahmoud Abbas, to whom he has given hundreds of millions of dollars, which can buy a lot of rockets to fire into Israel.

Our oldest and staunchest ally, Britain, has been downgraded by President Obama’s visibly less impressive reception of British Prime Minister Gordon Brown, compared to the way that previous Presidents over the past two generations have received British Prime Ministers.

You can find a lot more about the kind of foreign policy threats we face at The Western Experience. The world is not a safe place, Bush just made it look that way by keeping our enemies in check, in exactly the way Obama won’t.

Is wealth redistribution morally justified?

Finally, let’s see what George Mason University economist Walter Williams has to say about the morality of wealth redistribution.

Excerpt:

The reason is that now that the U.S. Congress has established the principle that one American has a right to live at the expense of another American, it no longer pays to be moral. People who choose to be moral and refuse congressional handouts will find themselves losers. They’ll be paying higher and higher taxes to support increasing numbers of those paying lower and lower taxes. As it stands now, close to 50 percent of income earners have no federal income tax liability and as such, what do they care about rising income taxes? In other words, once legalized theft begins, it becomes too costly to remain moral and self-sufficient.

I recommend clicking on whichever of these stories strikes you as the most wrong or unfamiliar, and see if reading the whole thing changes your mind at all. I think it’s a fun experience to become more aware and tolerant of different views by learning about them. You can still disagree, but you’ll have more understanding.

The Republican alternative budget

Tired of trillion dollar deficits as far as the eye can see? Worried that Obama is going to bankrupt the country? Angry about the planned reduction of charitable giving by 9 billion dollars? Or tax hikes on energy companies that will raise consumer energy prices? Are you doubtful that any amount of tax hikes on the productive sector can pay for all this spending?

Well, I spotted this post outlining the Republican alternative to Obama’s budget over at Investors Business Daily. (H/T Club for Growth)

This is definitely worth reading! The first part reiterates how tax cuts have stimulated the economy and job creation in the past under Ronald Reagan and George W. Bush. The article then list all the details of the GOP budget proposal which would get us similar results.

Instead of socialized medicine, the GOP would lower prices by increasing consumer choice and competition among medical plan suppliers. And they would also introduce a simplified tax system that would reward hard work and productivity:

…[The GOP budget] would establish “a simple and fair tax code with a marginal tax rate for income up to $100,000 of 10%, and 25% for any income thereafter, with a generous standard deduction and personal exemption.”

Prefer the current system? The GOP plan lets you stay in it. The capital gains tax would be cut and the Alternative Minimum Tax would be fixed to prevent huge surprise tax hikes each year.

…businesses with fewer than 500 employees would get a deduction of 20% of their income, so “these engines of growth will continue to fuel our economic recovery and companies can compete with their foreign counterparts, while keeping jobs here at home.”

On energy policy, the plan would open the Outer Continental Shelf to oil and gas drilling and use part of the federal share of revenues for alternative fuel programs. The Arctic Coastal Plain would be opened for exploration and development. Obstacles to new nuclear power plants would be removed.

Read the whole wonderful thing! And don’t forget: they have a podcast of this article read by the professionals at OutloudOpinion.com. Subscribe here!