Posted by Heather Edwards on November 11, 2010
Obama insists that tax increases are necessary to reduce the deficit. But even in the best of economic times, tax hikes have not historically raised significant revenues. Peter Farrara makes the point that every time the capital gains tax rate has increased over the past 20 years, capital gains revenues have declined. The same is true in reverse: when capital gains rates have been cut, revenue has increased.
For example: $40.6 billion in year-2000 revenues were raised in 1968 with a 25% capital gains tax rate. In 1975, after the rate increased to 35%, revenues only totaled $19.6 billion; and, three years later, the same rate generated only $29.9 billion. However, when rates were lowered over a period of four years down to 20%, 1986 revenues totaled $92.9 billion, about three times the 1978 rate! When the rate was raised to 28% the next year, revenues again fell, to $56.2 billion, continuing to an even lower $34.6 billion in revenues for 1991. Predictably, when Congress again cut capital gains rates back down to 20% in 1997, revenues rose, from $62 billion in 1996 to $109 billion in 1999. Between 2003 and 2005, after Congress had further cut the rate, revenues doubled.
Doing away with tax hikes are only the first, but necessary step to restoring growth and prosperity. Art Laffer ominously predicts that if taxes are increased on January 1st, “…the train’s coming to come off the tracks…” “The tax boundary that will occur on January 1, 2011 tells me that GDP growth in 2010 will be some 6% to 8% higher than GDP growth in 2011. A year on year decline from trend of some 6% to 8% in GDP growth would represent a larger collapse than occurred in 2008 and early 2009.”
Will Obama finally abandon his outmoded Keynesian Economics plan? Tighten your belts, for if he doesn’t, the economy is certainly not going to get better anytime soon.
Posted in Capital Gains Tax, Government Revenue | Comments Off on Tighten Your Belt, Times are Not Going to Get Easier Soon
Posted by Heather Edwards on October 6, 2010
Donald Trump, in a conversation with John Stossel about how the rich will respond to higher tax on their income, frankly acknowledged that they will simply leave the country to avoid paying out more of their earnings.
“I know these people. They’re international people. Whether they live here or live in a place like Switzerland doesn’t really matter to them.” He continued, “I haven’t left yet…Look, the rich people are going to leave. And other people are going to leave. You’re going to end up with lots of people that don’t produce. And then that’s the spiral. That’s the end.”
Stossel argues that it’s already happening in places like Maryland and New York, where high earners have left the state, and Governor David Patterson confirmed that increased income taxes have resulted in far less than the projected $4 billion it was supposed to bring in. The bottom line: higher taxes do not typically yield increased revenue.
Art Laffer, famous for the Laffer Curve, is not surprised:
“It’s just economics,” [Laffer] says. “People don’t work to pay taxes. People work to get what they can after tax. They’ll change where they earn their income. They’ll change how they earn their income. They’ll change how much they earn, when they receive the income. They’ll change all of those things, to minimize taxes.”
Posted in Government Revenue | Tagged: tax increases | Comments Off on Higher Taxes Will Not Increase Revenue Flow
Posted by Brian Garst on September 12, 2010
On his Mad Money program, Jim Cramer recently listed 8 items to get the economy moving. He was dead wrong to include a retroactive reinstatement of the death tax in the list. For the sake of argument, I’ll pretend like he didn’t contradict himself by also calling for a freeze on the Bush tax cuts (which included the elimination of the death tax) through 2013, and instead just focus on the incorrect claims he made regarding the death tax.
Cramer said that the death tax is “the most painless form of a tax,” and that reinstating it allows for “a huge pick-up in revenue, a reduction in the deficit, and no damage done to the economy.” He is wrong on every count.
Directly, death taxes only contribute 1% to federal revenues, so there would be no huge pick-up. And when the economic damage done by the death tax is accounted for, it actually costs the government revenue.
Contrary to Cramer’s claim, the death tax does significant damage to the economy. In fact, economist Stephen Entin found that “[death taxes] probably do the most damage to output and income per dollar of revenue raised of all the taxes in the U.S. tax system.” By discouraging investment and savings, the death tax ultimately reduces both total jobs and wage growth. If Mr. Cramer wants to find ways to help the economy, he should look to decrease government distortions, rather reintroduce those that have previously been eliminated.
Posted in Death Tax, Economic Growth, Government Revenue | Comments Off on Cramer Wrong on Death Tax