Disappearing act: The myth of higher taxes as good for government spending

There’s nothing inherently wrong with taxes. Conservatives don’t like to admit it, but the reality is, in order for government to work, we need taxes.

However, our soon-to-be-former President seems to believe taxes should be punitive. The rich are rich, we hate them for being rich, so let’s tax them.

He’s admitted that taxing the rich won’t solve our deficit problems, but rather that the issue if higher taxes for wealthier people is a matter of fairness.

Unfortunately, the reality for all of us is that our politicians don’t seem to grasp the way taxes impact the world. For liberals, taxes is a means to an end: more taxes, more spending, more government, more power.

We have a spending problem, so let’s raise revenues.

Makes sense right?

The problem is, higher taxes on the rich don’t solve our problems. There are innumerable resources proving my point, countless white papers, news articles, and studies.

On the contrary, there’s compelling evidence to suggest that demanding wealthy people pay more actually results in lower revenues for the government.

Asking people to pay more actually brings in less? That can’t be right, except that it is.

We can disagree on the economic impact of higher taxes in terms of our global markets, but let’s focus simply on how it impacts the amount of money available for the government (to waste).

This article in the Wall Street Journal last April provides an interesting framing of this tax the rich issue: percent of GDP paid in taxes.

In other words, how much money in our economy is tax dollars.

Alan J. Renolds, the author of the work, notes:

The individual income tax brought in 7.8% of GDP from 1952 to 1979 when the top tax rate ranged from 70% to 92%, 8% of GDP from 1993 to 1996 when the top tax rate was 39.6%, and 8.1% from 1988 to 1990 when the highest individual income tax rate was 28%. Mr. Obama’s hope that raising only the highest tax rates could keep individual tax receipts well above 9% of GDP has been repeatedly tested for more than six decades. It has always failed.

The fallacy of liberal rhetoric is there in pretty obvious terms.

Reynolds goes on to note that at the height of the technology boom, when the stock market was exploding, cutting the capital gains tax actually resulted in more money flowing to the government. Furthermore, cutting those taxes actually resulted in an increase of tax revenues.

Capital gains accounted for just 13%-22% of reported income among the top 1% of taxpayers from 1988 to 2006, when gains were taxed at 28%—but that fraction swiftly reached 29%-32% in 1998-2000, when the capital gains tax fell to 20%.

The reason was simple: there was significantly more money to be taken by taxing many gains at a low rate than from taxing fewer gains a high rate.

One of the issues at work is the pragmatism of businesses. When you cut taxes like the capital gains tax, you make capital gains more appealing. The billions of dollars kept offshore by companies not wanting to pay the highest capital tax rate in the modern world suddenly come back.

Equating lower taxes with fewer tax dollars is one of the great fallacies of liberal policy and ideology. Just because you lower rates doesn’t mean less money will be flowing into the system.

It requires a massive blind spot in the perspective of our global economy to miss what’s going on here.

The Democratic-controlled Senate hasn’t passed a budget in three years despite the fact that it’s their constitutional obligation to do so. Not surprisingly, as a result, the national debt was at an historic $15 billion level as of an hour ago.

Democrats in Congress and the Oval Office consistently prove how flawed their approach is to tax policy when our soon-to-be-former President proposes a budget including tax revenues as high as 21% of GDP, somewhere we haven’t been since WWII.

Most of that would come from taxes.

New ones. Higher ones.

It’s literally as if a per-requisite to being a Democrat is to lack any understanding of economics, revenue systems, or really math of any kind.

Their dereliction of duty is as criminal as any of the big banks the OWS weirdos want prosecuted. At least in prison they might have to take a math class or two.

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One thought on “Disappearing act: The myth of higher taxes as good for government spending

  1. […] right. The math is the math. Except the math says you can lower rates and raise revenues. It’s happened before and could again. […]

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