1

Excellent point ... the lion's share of cuts should go to those making the lion's share of contributions.

Moreover, many of these "rich" are in the upper tax categories because they run small 'S' Corporation businesses ... so $200,000 isn't all that much to someone running a small but growing consulting, or flower or bakery business.

With these cuts, such small businesses can capitalize better ... that is buy stuff that makes their business more production, like a new computer or a tractor.

Overtaxking kills all this deader than a doornail.

2

This would be more damning if we had before and after income numbers as well as the percentages.

It's too easy for someone to say, as it is, "well, sure, they paid more in PERCENTAGES! but those richbastardthieves paid less in total taxes because the rates went DOWN!!"... adding the revenue numbers pre-empts that, and reinforces the main point.

3

Perhaps each of the three tax cuts mentioned in the above article was correlated with, among all U.S. citizens, the "rich" paying a higher [i]percentage[/i] of taxes right after the cut than right before the cut. However, we should signficantly increase -- not decrease -- the tax burden of the rich and use the money to help fund important initiatives, including health care, education and Social Security. They are the kinds of initiatives that help increase the percentage of people who are able to have good lives. Higher taxes for the rich will tend to generate more revenue. For example, if all people who earn over $ 20 million per year are taxed 0% that is going to tend to generate less revenue than if they are taxed 90%.

4

David,

---Higher taxes for the rich will tend to generate more revenue ---

Actually, it doesn't, as I pointed out in my follow-up post.

5

Overall, I agree with you here. I have a caveat though. I agree only if I grant the premise that the goal should be to cause the "rich" to pay a greater share of overall taxes. For the purposes of a point ot make to liberals, this might be a good starting point, but it is not a position I will grant, other than to help make a point.

I do have some criticism though. First, in some of your examples, you fail to define who the "rich" are for the sake of that example. Second, your point only holds if you don't take it to far.

Second, as it's stated now many liberals are prone to blow off this argument entirely because you've only addressed the percentage of taxes paid by the rich, and not the amount. Many liberals take it as an article of faith that cutting the marginal tax rates leads to less federal revenue. If you want to really make the point you're angling for to liberals, you need to be able to show them that the percentage paid by the rich increases, and that total revenues will increase. Otherwise they'll simply ignore you're argument because they think they'll have less to spend on all their social problems. (Just see David's response.)

Third, while it is generaly true that cutting the tax rates of the "rich" will result in them paying more taxes, this is not always true. You will find a point, although where that point is can be elusive, where this fails to be true. To make your point effectively, you probably should bone up on the Laffer Curve.

Finally, while it might be possible that your argument could change the minds of some liberals, or at least turn their heads, a big part of me rebels at using this type intellectual Judo. Yes, you might succeed in using their class warfare mentalitiy against them to change their mind on this issue, but they're still going to be running around looking for ways to soak the rich.

6

JP, where is your follow-up post? I must have missed it. And what evidence is there that taxing rich more tends to generate less revenue? Are you talking about all nations in the world? Developed and developing countries? For example, what evidence is there that taxing millionaires 0% will generate more revenue than taxing them 10%?

7

Let's say we have two possible worlds, X and Y. All the variables are identical in X and Y except that in world X the rich citizens of the U.S. have federal income tax rates of 0%. In world Y, the rich citizens of the U.S. have federal income tax rates of 90%. It is a necessary truth that the federal government will generate more revenue in Y than in X. It's a tautology. It is like saying "all bachelors are married."

8

"However, we should signficantly increase -- not decrease -- the tax burden of the rich and use the money to help fund important initiatives, including health care, education and Social Security. They are the kinds of initiatives that help increase the percentage of people who are able to have good lives."

Here's a simple real-world analogy that might help point out the problems with the above quote ... giving a child an allowance.

A couple things. First ... what do you mean by "good lives." For example, we have thrown so much money into our schools these days that in most major cities, if you divide the number of students against the money allocated, it comes up to $10,000 per student. About what it takes to put a kid through a modest private school. Yet are we getting anything near the academic results we consistently see, even in the middle-of-the-road private schools?

We have been funding the great society for almost 40 years. Are we any closer to defeating poverty than we were when back in the Johnson administration?

Look at the unemployment numbers. There is a very simple economic correlation between unemployment and unemployment benefits. That is, the longer the latter, the longer the former remains in their current state.

This isnt' to say we should throw widows and orphans into the street. By all means, we need to take care of those in true need. But there is a big difference between that and guaranteeing everyone a "good life"

9

Mean Dean, thanks for the thoughtful reply. Unfortunately, I'm not going to be able to engage in a discussion on the internet. But maybe we can talk on the phone. Here is my email address: dpcrocker@aol.com

Send me a message and I can give you my number.

As for "good life," I mean a life that includes being able to have good relationships, being able to have a good educated, being able to be healthy, and being able to choose among many different options. The emphasis is on the "able." Can a person, if he tries, do X? By "good life" I don't mean, for example, being in great physical shape. I mean being able to be in good shape. In other words, if one tries to be in good shape, one can achieve that goal. For example, Bill Gates and Michael Jordan have good lives. Someone in a coma does not. On this issue, I've been heavily influenced by John Rawls' Theory of Justice and the work of the economist and philosopher Amartya Sen. I recommend Sen’s Development as Freedom.

I don't mean that we should do what we can to ensure that every person is able to have an extravagant life. It is important, however, that people are able to be above a minimal level. Moreover, some people because of, for example, genetic factors are unable to have a good life as I am using the term. But it is important that all people who are internally capable of having a good life have the external conditions such that they are able to have a good life. Of course, people should be able to sit in front of the TV all day and smoke cigarettes. But if one tries to live a minimally decent life, we should try to make it so that it is not unreasonably difficult for him or her to achieve that goal.

Scandinavian countries, though far from perfect, have a higher percentage of people who have all the properties I mean by "good life" than does the U.S.

Some people talk a lot about economic growth. I can’t get into it right now, but we should be aware of the rate of GDP growth. However, I think rate of economic growth is overemphasized in our culture in terms of how important it is morally.

There is a lot that his been written on the issue of tax policy and economic growth. There also has been some interesting work done on the issue of how economic growth affects well-being. On the issue of tax policy and growth, I recommend Joel Slemrod’s [i]Taxing Ourselves: A Citizen’s Guide to the Great Debate over Tax Reform. I also recommend Slemrod’s essay [i]What Do Cross-Country Studies Teach about Government Involvement, Prosperity, and Economic Growth[/i]. I also think highly of Jeff Madrick’s [i]Why Economies Grow[/i].

On the issue of taxes and justice, I recommend Liam Murphy and Thomas Nagel's book [i]The Myth of Ownership: Taxes and Justice[/i]. They are good philosophers. Although I have problems with their theoretical foundation, they make some important distinctions.

Click on my name to an essay by William Gale and Samara R. Potter on President Bush’s first tax cut. Drop down to page 89 for an interesting chart on tax rate for upper income-earners and rates of growth.

10

In first visit here, GREAT tax cut note.

There is some tax revenue maximum greater than 0%; maybe 10%, 15%, 20%. This means any tax rate over that maximum results in BOTH less gov't revenue AND econ distortion. At the maximum (I guess around 14% -- the Russian flat rate), it will be extremely hard to differentiate between that rate and plus minus 4-8% in revenue maximization.

But the liberals don't really want maximum revenue, they actively want to punish success. The destructive envy of wishing bad on your too-successful neighbor. That envious worm drives the Angry Left, and also drives anti-Semitism, and surprise, these two envy hatreds are converging.

11

1. According to Tom, "There is some tax revenue maximum greater than 0%; maybe 10%, 15%, 20%. This means any tax rate over that maximum results in BOTH less gov't revenue AND econ distortion. At the maximum (I guess around 14% -- the Russian flat rate), it will be extremely hard to differentiate between that rate and plus minus 4-8% in revenue maximization."

Tom, could you elaborate on this? I'm not sure what you have in mind. And what evidence supports the claim?

2. According to Tom, "But the liberals don't really want maximum revenue, they actively want to punish success."

I doubt that is true of a significant percentage of the people that have all the properties you mean by the word "liberal." However, even if it is true of 100% of "liberals," that is not important to whether I'm justified in accepting or rejecting any particular idea on, for instance, tax policy. It seems like the claim is ad hominem.

3. According to Tom, "The destructive envy of wishing bad on your too-successful neighbor."

I'm not sure what you mean by that.

4. According to Tom, "That envious worm drives the Angry Left, and also drives anti-Semitism, and surprise, these two envy hatreds are converging."

What do you mean by "Angry Left?" And what evidence suggests that "these two envy hatreds are converging?"

12

David,

The notion of diminishing returns above a certain degree of taxation is illustrated by the Laffer curve. There are lots of reasons why revenue decreases. It becomes cheaper to hide revenue, it reduces the returns on investments at the margin. Essentially a high enough tax rate creates a situation in which one has to work much harder to earn only a bit more (it becomes much harder to earn $110,000 than $100,000)

The suggestion that the Gov't can improve the general welfare by transfering wealth, largely ignores the evidence to the contrary. You point to Sweden as an example of prosperity in the face of high income tax rates. You ignore their proximity to larger wealthier countries. Think of them as a not so industrious shopkeeper in a town of wealthy folk. The US isn't in that sort of a situation, in fact when the US economy heads south we see a world wide impact, in short we don't have the luxury of slacking off. Besides you will find that for all the hype the Swedes are not nearly as well off as we are, there hasn't been significant job creation in the private sector there in thirty years, they are living on borrowed time.

Then there is the issue of opportunity cost, you can't just pretend that there is no cost to the gov't taking wealth from individuals. The money they take (from the rich or the poor) would likely have been put to better use in the private sector, less of it would be lost to beauraucratic friction, it would be put to uses that generate wealth (as in investments) rather than merely being shuffled around as transfer payments.

13

John, thanks a lot for the reply.

You wrote this:

1. "The notion of diminishing returns above a certain degree of taxation is illustrated by the Laffer curve."

What evidence suggests that "above a certain degree of taxation" there are "diminishing returns?" Given what I know, there is good reason to believe that taxing U.S. citizens who earn $ 20,000 dollars per year or less 99% of their income might result in less revenue that taxing them, say, 10% of their income. But what if we tax people who earn $ 20 million dollars per year or more 75% of the income rather than 10%?

2. You wrote: "The suggestion that the Gov't can improve the general welfare by transfering wealth, largely ignores the evidence to the contrary."

What evidence do you have in mind? There is good reason to believe that the percentage of Scandinavians for whom it is relatively easy to live a life that is at least minimally decent is greater than the percentage of U.S. citizens for whom it is. Also, compare the state of Kerela in India with other states in India.

3. You wrote: "You point to Sweden as an example of prosperity in the face of high income tax rates. You ignore their proximity to larger wealthier countries. Think of them as a not so industrious shopkeeper in a town of wealthy folk. The US isn't in that sort of a situation, in fact when the US economy heads south we see a world wide impact, in short we don't have the luxury of slacking off. Besides you will find that for all the hype the Swedes are not nearly as well off as we are, there hasn't been significant job creation in the private sector there in thirty years, they are living on borrowed time."

I don't think I follow you. What conclusion are you trying to support?

4. You wrote: "Then there is the issue of opportunity cost, you can't just pretend that there is no cost to the gov't taking wealth from individuals. The money they take (from the rich or the poor) would likely have been put to better use in the private sector, less of it would be lost to beauraucratic friction, it would be put to uses that generate wealth (as in investments) rather than merely being shuffled around as transfer payments."

How are you using the phrase "better use?"

David