Tax the Rich? Not so fast.

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BigPapaVol said:
Because when you cut corporate taxes to nil via recession, eliminate all the enormous capital gains (which would have been in the 2000 receipts) from the Wall St bust, factor in all of the portfolio loss protection for the big earners' income and you have a recipe for decreased gov't receipts. It's just not a real tough scenario to decipher, but I'm certain the NYT painted it as tax cuts gone awry.
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Have the Tax Cuts Increased Revenues?
After adjusting for inflation and population growth, this year and last year’s strong growth in revenues have barely made up for the deep revenue losses in 2001, 2002, and 2003. Measured since the current business cycle began in March 2001, total per-capita revenue growth, adjusted for inflation, has been near zero. Based on OMB’s latest revenue estimates, real per-capita revenues in 2006 will be only 0.2 percent above the level they attained more than five years ago at the start of the business cycle. In other words, the current revenue “surge” is merely restoring revenues to where they were half a decade ago.
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Claim That Tax Cuts “Pay For Themselves” Is Too Good To Be True: Data Show No “Free Lunch” Here, Revised 7/27/06
 
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This thread reminds me of an amusing anicdote:

Barstool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers", he said, "I'm going to reduce the cost of your daily beer by $20". Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his "fair share?"
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man, "but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia
 
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SWIL my man,

that's an awfully un-leftist post from you. I'm just not sure what to think.
 
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OrangeEmpire said:
Wow TennNC, that is your liberal utopia!

Imagine all the money that would be available for the collective good!

:)
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I know you jest, but I actually relate to many libertarian policies. A libertarian candidate is trying to get on the ballot for Gov. of NC here (Mike Munger), and I think I'd vote for him if that happened. He's a "Live and Let Live" kind of guy, like I view myself.

This may be an idealistic stance, but when I speak of collective good, it's in terms of what investments make the most sense in terms of providing the greatest return to taxpayers, irrespective of race, income, gender, etc. I just think that sometimes it's in our (everyone's) benefit to try to help the disenfranchised get back on their feet so they don't threaten everyone else's well-being. I'd rather see them pull themselves up by the bootstraps than me create more protections from them.
 
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BigPapaVol said:
I think it's immaterial since we're talking in % terms. If not, the numbers have to be normalized somewhere, whether in 50, 80 or current.
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As long as it is constant dollars, I agree ... the reference year doesn't matter...perhaps the constant dollars would really only matter if one plotted the change in GDP with marginal tax rates (as I think you suggested earlier).
 
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TennTradition said:
As long as it is constant dollars, I agree ... the reference year doesn't matter...perhaps the constant dollars would really only matter if one plotted the change in GDP with marginal tax rates (as I think you suggested earlier).
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but the value of the dollar doesn't matter if we're comparing annual receipts to annual GDP in % terms. constant dollars only really matter in year over year or long term comparisons using actual gross dollar figures. Showing GDP growth relative to marginal rates would require normalization, but inflationary impact would be minimal given that it's only relevant over short periods.
 
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TennNC said:
I just think that sometimes it's in our (everyone's) benefit to try to help the disenfranchised get back on their feet so they don't threaten everyone else's well-being. I'd rather see them pull themselves up by the bootstraps than me create more protections from them.
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I believe this goal is pretty common on both sides. The difference more often lies in the means to achieve the goal.
 
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Has there ever been an instance in U.S. history where we taxed our way to economic recovery?
 
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volinbham said:
I believe this goal is pretty common on both sides. The difference more often lies in the means to achieve the goal.
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That is a huge difference. Additionally, there is a difference of opinion about whether everyone wants the independence that might come from changing stations in life.
 
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BigPapaVol said:
but the value of the dollar doesn't matter if we're comparing annual receipts to annual GDP in % terms. constant dollars only really matter in year over year or long term comparisons using actual gross dollar figures. Showing GDP growth relative to marginal rates would require normalization, but inflationary impact would be minimal given that it's only relevant over short periods.
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So this is along the lines of what I was coming to see. There seems to be some fundamental problem with just looking at revenue as a % of GDP because GDP could plummet (hypothetically) and revenue could therefore plummet, but it would look like receipts were OK. That is when you also need to see a GDP in constant dollars over time, or it would seem that way to me....I realized the constant dollars in % terms don't mean much as I was typing my previous most...so I tried to get that across in that post and agree with what you're saying here (after early, egregious math errors :) ).
 
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TennTradition said:
So this is along the lines of what I was coming to see. There seems to be some fundamental problem with just looking at revenue as a % of GDP because GDP could plummet (hypothetically) and revenue could therefore plummet, but it would look like receipts were OK. That is when you also need to see a GDP in constant dollars over time, or it would seem that way to me....I realized the constant dollars in % terms don't mean much as I was typing my previous most...so I tried to get that across in that post and agree with what you're saying here (after early, egregious math errors :) ).
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It's certainly not a graph that you can use in a vacuum to draw conclusions. I'm arguing, as is the economist in the original post, that the relationship between revenues and GDP has remained in a very tight range, regardless of marginal rates. My point was that you probably have to additionally look at GDP growth (% real growth or gross dollars) in addition to make some meaningful determination about how the marginal rates truly impact tax receipts.

I think we've come around to the same point. Looking at GDP has to be done in year over year growth form or in real dollars, normalized to some date. I think you'll find that all real economists talk in terms of real growth rates or real dollars and avoid the meaningless nominal dollar figures that the press will use to skew stats.
 
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