Strengthening Constitutional Self-Government

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Economy

No one left to tax?

A reader on Megan McArdle's blog does the math:

You can estimate the effects of various proposals in the best case, which is that each percentage point increase in the marginal rate translates to an equal increase in the effective rate. Going back to 2000 ("Clinton era") marginal rates on income over $200,000, let's call it a 5 percentage point increase in the marginal rate, would therefore yield $59 billion on a static basis. Going from there to a 45% rate on incomes over $1 million (another 5 percentage point increase) yields an additional $31 billion. Or, instead, on top of 2000 rates over $200,000, 50%/60%/70% on $500,000/$5 million/$10 million? An extra $133 billion, or nearly 1% of GDP. That's not accounting for the further middle class tax cuts that are usually proposed along with these "millionaires' taxes."

Now, compare this to deficits of $1,413 billion in 2009 and $1,293 billion in 2010, and using optimistic White House estimates, $1,645 billion in 2011 $1,101 billion in 2012, $768 billion in 2013, and continuing at over $600 billion after.

We simply can't balance the budget by taxing only the rich.  We have to raise taxes on everyone, or cut expenditures massively.

There's also a principle involved.  If we believe in private property, then we believe that property belongs to individuals.  The state may tax some of it in order to pay for the government's expenses.  High tax rates, except in times of emergency, tend toward the presumption that the government has first claim to the property, and citizens are only allowed to keep that which remains after the government has taken what it wants.  Possession of property is no longer a natural right in that scheme.  It is a right in the old sense--a dispensation granted by the government (which the government may take away at its whim).

I'll add that we are in an extraordinary situation.  Hence very high tax rates might be acceptable, for a short time, to get our fiscal house in order.  My guess is that many other Americans think that way, too.  But the situation is like the immigration problem.  Most Americans would be open to some kind of amnesty, if they believd the border was secure--and that this was not a repeat of the amnesty of the 1980s (fool me once . . .).  So, too with federal spending.  If the republic really is at risk, very high taxes are justified, but only so long as the risk remains.  Making high taxes permanent changes the relationship between citizens and the government, and the meaning of property rights, and is, therefore, not justifiable on American principles.

Categories > Economy

Discussions - 1 Comment

Agreed. As a related tangent, I am glad that Representative Hoyer is so involved with the Democrat side of the current budget negotiations, for I think one can safely presume then that the man is very resistant to budget cuts. Assuming he has given the issue rational thought, one supposes that his ultimate solution to the problem would have to be higher taxes. Elsewhise he is not a man of seriousness.

In that case, I would think that anyone considering on whether or not to bring a major business to his district--the southern half of which would seem to need it--would not be too enthusiastic about that point of view, and would probably choose to go elsewhere if he could. Which he probably could. And this is how areas, regions, and nations rise and fall. People do not have to just take it if they have a choice. How much talent did Europe lose to America over the last two centuries?

Mr. Hoyer has a safe district. I hope his district appreciates being the springboard for greater liberalism than perhaps they would be willing to vote for outright--and I hope they appreciate they will have to bear the cost of being that springboard, if needs be. Pity, because it's a nice area. But elections, as we are told, have consequences.

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