04 December 2012

Why Raise Taxes?



A certain retarded clown* is calling for raising taxes onthe rich:

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

Of course, this claim is patently untrue.  It’s like Krugman just makes up facts to suit his fancy.

Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.

Now, I’m no apologist for rich people, especially since a lot of them benefit from and continuously lobby for greater government goodies.  However, Krugman’s argument for increasing income taxes on the rich is nothing more than nonsense on stilts.

In the first place, a good number of wealthy people don’t actually get wealthy strictly through income.  Instead, they rely on capital gains from their investments.  Warren Buffett doesn’t actually make billions of dollars every year; rather, he becomes wealthier because his holdings increase in value.  In fact, Warren Buffett’s salary is only around $100,000 per year (though he does earn more than this due to having other sources of income).  If he stuck solely with his Berkshire-Hathaway salary, he would fall squarely in the middle tax bracket.  His proposal for increasing income taxes on the wealthy, then, wouldn’t even apply to him.**  Thus, Krugman’s call for increasing the marginal tax rate on the wealthy might not even have any effect on the wealthy because some of the wealthy aren’t even in the highest tax bracket.

Second, it isn’t even clear that the tax code is good at providing economic justice.  As noted in a prior link, the wealthy never really paid that much in taxes even when the marginal rate was 91%.  Now, if the effective rate of taxation for the highest tax rate tops out at, say, 35%, then there really is not much point to having a nominal rate higher than 35%, except to make less wealthy people that are inclined to jealousy feel better about sticking it to the man.  In other words, Krugman is more concerned about symbolism than reality.  Who cares what the rich actually pay when it appears that they are paying 91% of their income in taxes.***  Of course, closing deduction loopholes for those in the highest tax bracket would also increase their tax burden.  Why doesn’t Krugman recommend this policy?  Because Krugman is far more concerned about symbolism over substance and, quite simply, raising rates is sexier than closing off loopholes.  Really, Krugman is nothing more than an instigator of class warfare.

Finally, it should be noted that the fundamental purpose of taxation is to raise revenue.  Economic justice and other platitudinous bullshit can certainly be ancillary to this, but revenue should be the primary focus of any discussion on taxes.  Now, as anyone familiar with the Laffer Curve knows—and hopefully this would include Nobel-Prize-winning economists—raising nominal tax rates does not necessarily lead to increased revenue.  In fact, a brief look at the history of tax revenue would suggest that, no matter what the tax rates are, the federal government will be hard-pressed to collect more than 20% of GDP in tax revenue.  As such, proposing ridiculously high tax rates even though they will likely lead to lower revenue in spite of being in the middle of a recession and facing a spending deficit of over $1 trillion is an incredibly irresponsible thing to do.

* Paul Krugman, obviously.

** Note: as I said above, he does earn more than $100k in a given year.  However, the sources of his other earnings are unclear, so I’m not sure if they would all be taxed as income or possibly as capital gains, etc.

*** And, with the US tax code using marginal tax rates, the nominal 91% rate for the highest earners is itself misleading, since the 91% rate would apply to earnings over a certain threshold. (E.g. you could have a 10% tax rate on the first $60k you earn and then have a 91% tax rate on all earnings above $60k, which makes for an effective tax rate of less than 91%).