Dear Limousine Liberals: Fee Free To "Pay More Of Your Fair Share" Here

As I’ve said, all things equal, I think its not unfair to ask those who earn a tremendous amount of money (e.g. top 0.1%+) to pay a some more in taxes as part of a larger program to reduce the budget deficit.  Surely, increasing taxes on “the rich” is not a panacea for our fiscal shortfall – no where close – so anyone who suggests otherwise should and likely can be safely ignored.  However, these very same (almost exclusively) liberal rich folk who – like our Exalted Leader President Barack Obama – have been calling on “the rich” to pay “more of their fair share” of taxes should start a trend by voluntarily putting their “hard earned” money where their collective mouth is.

Lucky for them, the Federal Government makes so-doing incredibly easy.  In fact, its so easy that all you have to do is fill out this convenient online form, or mail in a check to the Bureau of the Public Debt et voila,  You’ve done “more of your fair share” to reduce the National Debt!  It’s really as easy as that.  While such limousine liberals are at it, they can make sure they don’t take any voluntary deductions on their Federal Income Taxes, or take less than they are entitled to claim.  Oh, what’s that?  Even our President took full deductions for things like charitable donations?  Oh, oh my, such strong Leadership from our Dear Leader In Chief… Continue reading

When Pigs Fly: Liberals Need To Practice What They Preach

I’m still trying to find some sort of research on voluntary tax payments from self-identified democrats (I expect if I can gather such data, the number will be fantastically unimpressive), but until then, let’s talk about how our Nation’s Leading Democrat files his taxes:

Though tax increases alone cannot put the country’s fiscal house in order, the president should set a better example on his own tax returns.

That $245,000 the Obamas gave to charity, for example — deducting it on their Schedule A reduced their federal tax bill by roughly $85,000, and cut their Illinois state tax bill too. But you’re not required to deduct charitable giving, or to claim any tax favor. Deductions and tax credits are options. If you think the government deserves more of your income, don’t claim them.

Obama said last year that itemized deductions for the wealthy should be phased out — then on his own tax return, claimed a huge itemized deduction. Until those who advocate higher taxes for the well-off practice what they preach, the national debt situation may only get worse.

I’ll take it one step further.  Every single person advocating higher tax rates (especially for “the rich”) should release how much they paid in excess of their legally-required minimum tax.  You think Nancy Pelosi & Co. paid a single penny more in taxes than they were required to do so.

Challenge.

Of The Top 0.1% For The Top 0.1%…

As I’ve been saying for quite some time, I’m bothered by all the rhetoric not just from flapping heads and politicians, but from Those Who Should Know Better (e.g. Joseph Stiglitz), who argue that the entire top 1% of earners in the U.S. should be paying more in taxes, cost of living and position within that group be damned!

I’d thus like to thank Jeffrey Gundlach of Doubline for providing us with this chart, picked up by Zerohedge (h/t Edward Harrison of Credit Writedowns), showing that, as I’ve said, lumping in those who make ~$350,000/year with those who make millions (upon millions, upon hundreds of millions…) defies all reason and logic.  That is not to say those in the top 1% can’t afford to pay slightly more in taxes – certainly a few thousand dollars out of hundreds of thousands is less pain that a few thousand out of tens thereof – but comparing incomes that differ by several orders of magnitude is not just illogical but unfair no matter how you slice it.

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Reason Mag: We Don't Have a Tax/Revenue Problem, We Have a Spending Problem

While such arguments aren’t going to get anyone elected except in the most conservative districts, they should not be throw out with the bath water.  I’ve argued that realistically speaking, slight increases in taxes (but not in the form of explicit “rich” taxes) are not only politically possible, but not terribly punitive in the grand scheme of things.  In vacuo, I’d never argue for increased taxes, quite the contrary, I support spending cuts, but there’s really no way either party is going to risk the next election by pushing the spending-cuts agenda.  After all, why do today what you can put off until tomorrow (Congressional motto, methinks)?

A Closer Look At Arbitrary Numbers & Taxes

In the past week I’ve read at least 4 popular authors talk about increasing taxes on “the rich,” a group defined by – for reason(s) completely unbeknownst to me – one of two thresholds, either $250,000/year or belonging to the top 1% of earners (somewhere around $400,000-$500,000/year/household).  I have no problem increasing taxes on the SUPER rich, say, over $1,000,000/year, but to suggest that we should increase taxes on almost every successful doctor, dentist, lawyer, and small-to-medium business owner in the country seems a bit ludicrous to me.  Those who don’t make this magical $250,000/year may consider this outrageous, but many people who make that much, while certainly not poor by any stretch of the imagination, aren’t living anything like the opulent life of the guy in the DirectTV commercials.

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Taxing "The Rich:" Theory v. Practice

In 2001, Peter Orszag and Joseph Stiglitz published a short paper wherein they concluded:

…if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.

This is all fine and dandy in the ivory tower (or the White House, as it were to be less than a decade later), but in the realm of reality, theories only get us so far, no matter how seemingly reasonable their basis and underlying assumptions.

Today’s WSJ included an essay about the state of The State of California, specifically, its incredible reliance on the very-rich (top 1% +).  Many if not most commentators/politicians/etc seem to think that taxing “the rich” at a (vastly) higher rate than everyone else – especially “the poor” – not only makes perfect sense, but is more than “fair,” given the increasingly high % of income accruing to “the rich.”  This is all fine and dandy, except:

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This Week in Tax "Policy": Laffer Laughter? (update)

*edited from the original version *

Arthur Laffer recently penned an op-ed in the WSJ hawking his view that decreasing the tax rates on wealthy (or high-income, as it were, herein “The Rich” ) Americans will actually increase tax receipts from them.  First, this is of course not a new argument. Second, as a result of the first, I’m immediately skeptical that what follows is not Economics so much as Polinomics or what-have you.

He begins the piece with this impressive lede, which I read anxiously anticipating cold, hard data proving unequivocally that tax cuts for “the rich” are indeed beneficial for the Economy (…he said half sarcastically).

“Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”

Alas, while he makes several good points throughout the article, I finished wanting more; more data, more facts, more proof. As-written, Laffer makes some impressive claims without providing what I’d consider sufficient support, so I’d be remiss to take his word at face-value, absent said supporting material.
We all know that there are lots of factors influencing tax revenues from the rich, but the number one factor has to be the statutory tax rates government tells the rich they have to pay.

Of course, the only real thing compelling The Rich to pay taxes is the existence of said taxes in the first place, i.e. they pay taxes because The Government tells them they have to (or else!). However, an from an alternate interpretation of this statement – which was my initial one – he doesn’t seem to share whatever data/analysis is informing his conclusions with the rest of us. I’m not doubting that such material exists – and I realize this is an op-ed in the WSJ and not a research paper in an Economics journal – but for someone of Laffer’s stature to make such a (as-written) non-sequitur just reeks of political/ideological bias. Many popular studies on the relationship between tax rates and tax receipts have came to completely opposite conclusions, even looking at similar data.
The “Laffer Curve” (yes I just linked to Wikipedia, which then cites the underlying studies) may be an elegant concept in theory, but there seems to be a dearth of proof that its underlying idea – that there are situations where tax receipts will increase after a decrease in tax rates – has much, if any real grounding in reality.

Having not looked at income tax policy much since college, I’m fairly certain the amount of money earned by those at the top of the income scale has increased at a far greater rate over the past 20-30 years than it has for those not, and this increasing income disparity has a similarly far greater effect on income tax receipts than semi-arbitrary and inconsistent shifts in tax policy (i.e. rates).

To test this guess/hypothesis, I ran some #’s from the IRS and to see how tax rates and other factors affect the % of GDP “The Rich” pay in annual Federal income taxes.  While I hardly doubt tax rates (more specifically, the changes therein) are a material factor, I’m damn skeptical that they’re THE primary one.  Again, this is a rough analysis and I used relatively simple data sets which may very-well skew the results from what they might be were I to use more granular, detailed, and nuanced data.

That being said, from 1986 through 2007 (Laffer went back to 1978 but I didn’t have time to go that far back, although a quick look suggests another 8 years wouldn’t materially skew the results) here’s what I found:

As I suspected, changes in the contribution of “the rich” to Federal income tax receipts (as measured by receipts as % of GDP) has a 3x stronger correlation with the floor (the least “rich” of “the rich” so-to-speak) of the top 1% of earners bracket as it does with the Average Tax rate levied upon those within that bracket.  As I said, if I used more detailed numbers, this result might change, but I highly doubt the outcome would reverse, that is, that the changes in the tax rate would be shown to have a greater effect on receipts than (an increasing) income disparity.

If I’m missing something here please let me know, because I’m having a hard time with this Laffer piece. If the guy could have presented his argument with solid evidence, why the heck didn’t he? If he can’t, then he’s making a spurious – at best – “Economic” argument based on nothing more than “statistics” in the Mark Twain sense of the word.