How can the liberals be so lacking in knowledge of the actual effects of tax policy?

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Texting – Sears – Tyler – Hauser – Laffer

By: George Noga – January 24, 2019

 

This is a special mid-week posting of micro topics, many of which are timely, especially the segments about the progressive plan to raise marginal tax rates.

Micro Topics: CO2 emissions of electric vehicles often exceed those of gas vehicles, depending on the fuel used to generate the electricity and how long a charge lasts. The $7,500 tax credit is a wealth transfer from the middle class to the wealthy; nonetheless, it remains a darling of the left. . . . . . . Canada increased fines for texting while driving to $1,000 and loss of license. MLLG opposes distracted driving, but there are always unintended consequences of government actions. Where texting is illegal, drivers often relocate texting to their laps – out of sight of police but infinitely more dangerous.

Socialism & Sears: In the USSR, a man goes into a store and asks, “You don’t have any meat?” The clerk responds, “No, we don’t have any fish; it’s the store next door that doesn’t have any meat.” I have a stable of commie jokes; a favorite is where the USSR conquered the entire world but spared New Zealand just to know prices in the real world. These stories are so funny because they are true; commies had no way to know what things cost. We just learned Soviet economists (oxymoron) resorted to Sears catalogs to set prices for consumer goods – as did the Chicoms. Progressives are ignorant of the lessons of the USSR and the truth behind all the commie jokes.

John Tyler: Our national history spans but a few lifetimes and there are some amazing stories. My favorite is John Tyler (Tippecanoe and Tyler too), our 10th president (1841-45) born in 1790 during George Washington’s first term. Two of Tyler’s grandchildren are alive today.  The entirety of US history took place in the lifetimes of Tyler, his children and grandchildren, spanning 229 years and still going. Therefore, you should not be overly shocked to learn that the United States government in 2019 still is paying pensions to widows and children of Civil War veterans.

Hauser’s Law: Alexandria Ocasio-Cortez and progressive know-nothings (oxymoron) proposed a top income tax rate of 70%. They obviously know nothing about Hauser’s Law, which states that, regardless of tax rates, the individual income tax collects 18% of GDP – 20% in a strong economy, 16% in a weak one. In the 75 years since WWII, the top rate has varied from a low of 28% to a high of 92%, but the revenue it produced was constant at 18%. The Tax Foundation, when adjusting for the effects of behavioral changes, found that a 70% rate lost $65 billion in tax revenue over 10 years.

The Laffer Curve: Progressives also know nothing about the Laffer Curve. Economists know that as rates rise (starting from zero) tax revenues increase, but at a decreasing rate. Eventually a point is reached at which tax revenue is maximized. Beyond that point, tax revenues decrease at an increasing rate, i.e. the Laffer Curve. Higher marginal income tax rates actually result in less tax revenue. Economists have determined that tax revenue is maximized at a rate of 35% to 40%; once rates rise above 40%, total tax collections begin to fall and at an ever increasing rate.

The reason Hauser’s Law and the Laffer Curve work should be apparent; people (especially the wealthy) modify their behavior based on tax rates. If progressives want more tax revenue (within the existing tax code) they must do a Willy Sutton and go to where the money is, i.e. the middle class; there never are enough rich people. MLLG has written extensively about Hauser and Laffer and may soon need to devote a full posting to them amidst all the progressive jibber-jabber about hiking tax rates.

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