You Can’t Fix Stupid

Especially if you insist on reelecting it:

In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.

This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election. …

George Osborne, the Chancellor, announced in the Budget earlier this year that the 50p top rate will be reduced to 45p from next April.

Since the announcement, the number of people declaring annual incomes of more than £1 million has risen to 10,000. …

Far from raising funds, it actually cost the UK £7 billion in lost tax revenue.

Wait, what?

Being a thoughtful and kind person, I offered some advice last year to Barack Obama. I cited some powerful IRS data from the 1980s to demonstrate that there is not a simplistic linear relationship between tax rates and tax revenue.

In other words, just as a restaurant owner knows that a 20-percent increase in prices doesn’t translate into a 20-percent increase in revenue because of lost sales, politicians should understand that higher tax rates don’t mean an automatic and concomitant increase in tax revenue.

This is the infamous Laffer Curve, and it’s simply the common-sense recognition that you should include changes in taxable income in your calculations when trying to measure the impact of higher or lower tax rates on tax revenues.

This is not the first time Barack Obama has heard of this:

To finish the point:

[T]ake a look at this table from the Congressional Budget Office’s most recent Budget and Economic Outlook. Taken from page 109, it shows what will happen if the economy grows just a tiny bit less than the baseline projection. Not a recession, by any means, just a drop in the projected growth rate of just 1/10th of 1 percent.

[T]he 10-year impact is $314 billion, mostly due to lower tax receipts, though there is some impact on outlays because of higher interest costs and a bit of additional entitlement spending.

So why am I sharing these numbers? Because let’s now think about President Obama’s proposed class-warfare tax hike. He wants higher tax rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. And he wants more double taxation of dividends and capital gains. And a higher death tax rate, even higher than the ones imposed by France and Venezuela.

I think some opponents are exaggerating when they claim that this tax hike will cause a recession and cripple the economy. But I do think that it’s reasonable to contemplate the degree to which the Obama tax hikes will slow growth. More than 1/10th of 1 percent? Less than that? Would the damage occur in the first few years? Would it be spread out over time?

Who needs the future? We have the past three and a half years!

As I’ve told you over and over, the so-called Great Recession ended in June of 2009. We’ve been in “recovery” ever since. But somehow (I suspect racism), this recession has bucked trend of the deeper the recession, the more robust the recovery.

If we take 3% growth as a historical average—average—we’ve exceeded that only twice in the last three years:

If every tenth of a percent of missing growth means hundreds of billions of missing dollars of revenue over the years, imagine how much barer the coffers of the US Treasury are today (and will be tomorrow) than they could have been and should have been had Obama embraced pro-growth economic policies, rather than the punitive, big government policies that led to two percent growth if we’re lucky.

If 0.1% yields $314 billion dollars, imagine how many food stamps and solar subsidies Obama could hand out with a full percentage point increase in the GDP over what he accomplished. The victims of Hurricane Sandy wouldn’t have had to loot widescreen HD TVs; they would already have had two.

1 Comment »

  1. Bloodthirsty Liberal said,

    November 29, 2012 @ 7:26 am

    The problem with all of this is that we are talking to walls and doorknobs. The public cannot understand these numbers. We can blame it on schools, parents, television, NPR… it doesn’t matter. They cannot follow the logic.

    I looked over the Amis book, Kobo the Dread, which you referenced yesterday, and am hooked. Fascinating and beautifully written. It is hard to imagine us going all the way to mass starvation, but the baseline stupidity is part of our daily lives. I don’t feel panic about this, but I think that vast sections of the US will be more or less peasant class, due to ignorance, and the people who can either earn a lot of money through rare skills or who can play the political system will be just fine. And we will produce a scapegoat class to explain it all away.

    - Aggie

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