Home > Opinion > Peter Roff > Raising Taxes Might Help Democrats, But Not the Economy

Peter Roff

Raising Taxes Might Help Democrats, But Not the Economy

August 3, 2010 RSS Feed Print

The fight is on over the forthcoming Obama tax increases.

The White House is on record as opposing the extension of at least some of the lower tax rates that went into effect in 2001 and 2003, particularly those that have the most stimulating effect on the U.S. economy. In this they are in sync with congressional Democratic leaders who think they can maintain their majorities by allowing tax rates to go up.

[Check out a roundup of editorial cartoons on the economy.]

Their argument, that raising taxes on top earners in a time of economic difficulty is the “fair” thing to do, may have political appeal. After all, 47 percent of Americans--according to the latest figures--don’t pay any income taxes to begin with. Any scheme that involves taking from Peter to pay Paul will almost always have Paul’s consent.

The economic realities of such a scheme, however, are far different.

The historical data available from the IRS, noted economist Arthur Laffer wrote earlier this week in the Wall Street Journal, demonstrates again and again that “raising income tax rates on the top 1 percent of income earners will most likely reduce the direct tax receipts from the now higher taxed income--even without considering the secondary tax revenue effects, all of which will be negative.”

As Laffer explains:

Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35 percent from 50 percent, the highest capital gains tax rate to 15 percent from about 50 percent, and the highest dividend tax rate to 15 percent from 70 percent. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0 percent for almost all home owners. We've also cut just about every other income tax rate as well. During this era of ubiquitous tax cuts, income tax receipts from the top 1 percent of income earners rose to 3.3 percent of GDP in 2007 (the latest year for which we have data) from 1.5 percent of GDP in 1978.

As it has been shown again and again, raising tax rates depress rather than increase economic activity. And depressed economic activity decreases the amount of revenue flowing into federal coffers--which means higher rather than lower federal deficits.

The way out of the economic morass in which the nation is currently mired is to cut federal spending, not to raise taxes. The way to jump start the economy activity is to make productive activity, including investment, more attractive by keeping tax rates low, not by allowing them to go up.

See a slide show of 5 bad Democratic policy ideas.
Check out a roundup of editorial cartoons on the economy.
Follow the money in Congress.

Tags:: 2010 election,; deficit and national debt,; Congress,; economy,; democratic party,; recession,; taxes,; GDP

« Previous Post Next Post »

Reader Comments Read all comments (18)

Add Your Thoughts Comment Name State Email

Please enter the two words below into the text field underneath the image.

Your comment will be posted immediately, unless it is spam or contains profanity. For more information, please see our Comments FAQ.

Hunter, all you ever do is spew mindless uninformed rage. I don't think you've made a single intelligent, well researched comment the entire time you've been writing your highly obnoxious screed on this blog. Just because the left believes health care is a right doesn't mean that they believe that people should get a free ride. People here, like in Sweden and France, would contribute through payroll taxes or subsidized premiums; everywhere society bears the cost of providing health care as part of the social infrastructure. The important thing is that access to health care should never be based on one's ability to pay a market (or monopoly) rate for insurance and health care provision. People have more of a right to health care than do corporations have the right to gouge the public with outrageous premiums.
The reason that there is involuntary unemployment is that people hold money as an asset as they do other financial assets. Money's value is more fixed than that of financial securities which fluctuate due to speculative trends. In the current liquidity trap, money is being hoarded, not due a "bad business climate," but because the marginal efficiency of capital is lower than the rate of interest meaning that rates of return on real investment are lower than long term interest rates and highly risky given low levels of effective demand. Cash is preferable to investment because deflation is making cash more valuable and less risky. Cutting taxes for the rich and purchasing "toxic assets" to recapitalize commercial banks thus making loanable funds available is useless in a liquidity trap; sufficient capital already exists for investment but there isn't sufficient demand to purchase goods and services and hence investment will not take place in job creating enterprises. James Galbraith explains;
"The public deficit is just the obverse of net private savings. That is, when private credit is booming, investment exceeds saving and deficits tend to disappear. That's what happened in the 1990s. When credit collapses, deficits return. That's what's happening now. Large long-term deficits will occur, or not, depending only on whether we succeed in generating a new growth cycle..."
http://www.alternet.org/news/145401/why_progressives_shouldn't_fall_for_the_deicit_reduction_trap?page=2
This is point of fiscal stimulus. We must do more for job creation and worry less about deficits which tend to vanish anyhow during periods of economic growth which produce tax base that eliminate deficits on a solid, long term basis.

steve of IL 10:28PM August 04, 2010

All you progressive and liberals , what's happening with the economy and the bigger goverment takeover of our lives is what you want . You want higher taxes to pay for more entitlement programs , you want " free healthcare " paid for by the goverment ( in other words the " rich " business and other taxpayers ) , this is what you want . You want more goverment control of what we can eat , where we can eat , and what's in what we eat . You want goverment control of what we drive . You want goverment control over electricity and power , get the point !!
What we are getting is what you want , you only want even more from " Big Goverment "
You must then be willing to except 10 - 12 % unemploymeny , more businesses leaving this counrty , you must be willing to accept what is comming , no more Bush excuses , please .
You may be willing to live with what you want , the majority are not ...

Hunter of WI 8:54PM August 04, 2010

Bill, the entire quote is full of lies. Not distortions or half truths, outright lies. The US government hasn't taken over a single industry. The banks are reporting record profits and are paying back the government with interest. Ditto for the auto companies although they took most of their bailout money and invested it overseas. Not to patriotic!! By the way, bailouts are old news; Nixon bailed out Penn Central and Lockheed; Carter bailed out Chrysler; George H.W.Bush bailed out the Savings and Loans; George W. Bush bailed out all of Wall Street plus the automakers. Obama merely continued the bailout policy.
As far as the health care is concerned it was NOT socialized medicine. The public option was merely a government subsidized insurance program to provide health care for those who can't afford insurance. It would lower costs by providing competition and negotiating costs with providers as the government currently does with Medicare and Medicaid. The cost of the program over ten years would be less than we spend a year on any of the long standing health care programs like Medicare and Medicaid or even the nearly $200 billion in tax expenditures for employer provided health insurance. Your contention is ridiculous. By the way, the bill as it currently exists, with the insurance mandate, is widely supported by the health insurance industry. Angela Braley, CEO of Wellpoint which owns Anthem Blue Cross, testified about the industry's desire to see such a mandate before congress in November 2008.
http://energycommerce.house.gov/Press_111/20100224/Braly.Miller.Testimony.pdf
The problem with Limbaugh's statement is that he blames "liberalism" for the mess we're now in after eight years of the most extreme conservative administration in our post-WWII history. We've also had free market conservatism for about 30 years leading up to the current situation. The Limbaugh remark isn't merely ahistorical; it is a deliberate attempt to deceive the GOP's largely uneducated, low cognitive political base and get them to create enough hysteria to catapult the GOP to victory. The idea is to keep corporate America in the driver's seat at the expense of the people regardless of how this harms the national interest. Limbaugh, like Hannity, Beck, O'Rielly and the rest, is a lying shill; none of them are actually professional commentators or journalists. They are hired guns so to speak for the GOP and the rich.
True, uncertainty does delay investment and spending. But it is the right wing media with its lies that is causing the uncertainty. Obama has cut taxes, not raised them. His intention to raise them 4.5 percentage points on the top 2% of the country, so that top marginal tax rates are where they were during the Clinton presidency when the rich did extremely well, should not harm investor confidence. Card check has long been scrapped. The health care reform will lower, not raise, small business costs. It is the GOP that is harming the economy.

steve of IL 3:50PM August 04, 2010

Raising Taxes Might Help Democrats, But Not the Economy

Related Articles

Reader Comments Read all comments (18)

Peter Roff

Cartoons

Follow U.S. News

Like Us On Facebook

Latest Video

Photos »

The White House »

Political Cartoons »

Subscribe »

Congress »