But I also think the flat tax will boost the economy’s performance, largely because lower tax rates are the key to good tax policy.
There are four basic reasons that I cite when explaining why lower rates improve growth.
- They lower the price of work and production compared to leisure.
- They lower the price of saving and investment relative to consumption.
- They increase the incentive to use resources efficiently rather than seek out loopholes.
- They attract jobs and investment from other nations.
As you can see, there’s nothing surprising or unusual on my list. Just basic microeconomic analysis.
A few weeks ago we brought you a video from an Occupy meeting where the stated goal was to overthrow capitalism. A few commenters took issue with this, claiming it was an isolated statement and that Occupy is a loose-knit group.
I had the opportunity to be with the Occupy protesters at the RNC and the DNC over the past few weeks and I can assuredly tell you that it is not an isolated statement. True, there are many groups represented at the demonstrations, and maybe not all of them will outright say that they want to overthrow capitalism. But when you promote a socialist economy, by definition you are advocating the overthrow of capitalism.
I covered the “March on the RNC” in Tampa and was able to have a conversation with a socialist marcher about the economy:
A few of his comments deserve special attention.
“We need to tax the wealthiest people in the country, who aren’t paying their fair share - it’s not shared sacrifice for them.”
This is a common refrain among not only the Occupy movement but among liberals in general. Consider that the top 20 percent of earners - going way beyond the famed 1 percent - makes a little more than half the money yet pays two-thirds of the federal taxes. And once you hit $200,000 in adjusted gross income, your tax rate nearly doubles - going from an average of 11.9 percent to 19.6 percent.
Earlier this week, as the Democratic National Convention was getting underway, the U.S. national debt hit $16 trillion. Politicians – particularly the Republicans – went crazy online posting on social networks about how we should resist the Democrats and their desire to run the debt up even higher.
As if Republicans in Washington are much different.
The irony, of course, is that so many of the Republicans screaming about the debt are big contributors to (and causes of) it. But while we should definitely be concerned about debt, focusing primarily on it as our problem opens the door for raising taxes. Our national debt isn’t our primary problem; it’s just a symptom of a much, much bigger problem: spending.
If we control spending, we control debt. For far too long, spending has been out of control, and the result is an out of control debt.
We have an annual deficit (because of excessive spending), and the fight in Washington is over a fraction of that deficit. Republicans push for huge deficits, but their huge deficits are slightly smaller than what the Democrats want.
Dan Mitchell recently asked the question, “Does the $16 trillion debt really matter?” That’s a great article from Dan, well worth your time for a thorough read. In short, yes, it does. But focusing on the debt as the disease isn’t the answer.
Now that new numbers have been released by the Congressional Budget Office, it’s time once again for me to show how easy it is to balance the budget with modest spending restraint (though please remember our goal should be smaller government, not fiscal balance).
So often these days, we hear complaints about the divisive nature of partisan politics and a longing for a time when candidates were more genial and our politics more civil. Alas, in doing so we seek for the equivalent of the elusive white unicorn, something spoken of in hopeful measures but rarely seen in our nation’s history. Even our Founding Fathers, for whom I have the deepest respect and utmost admiration, were not always paragons of virtue in these matters. For example, the election of 1800 between Thomas Jefferson and John Adams, two men who had enjoyed fifteen years of friendship “without the smallest interruption,” was, shall we say, a most discourteous one. In the New England states, the Federalists warned that Jefferson was an atheist, and people would have to hide their Bibles should he be elected. By contrast, Alexander Hamilton wrote that Adams was a man of “distempered jealousy…extreme egotism” with an “ungovernable temper” which produced a natural tendency towards “detriment to any cause of which he is the chief…”
Still, an attack ad released last week by Obama surrogates at the super-PAC Priorities Action USA, which essentially implies that Romney is responsible for the death of a man’s wife, show just how deep in the mire Obama (who somehow obtained sealed divorce records of at least two prior opponents, which he used to destroy them) is willing to go to win re-election.
The ad features the bitter and forlorn visage of one Joe Soptic, a steel worker at GST Steel, one of the many companies invested in by Bain Capital. Soptic’s wife died of cancer, and he blames Mitt Romney for her death. With a tone meant to evoke in the viewer sadness for his loss and anger at Romney’s heartless complicity in her death, Soptic laments:
The former head of the Centers for Medicare and Medicaid Services (CMS) Donald Berwick infamously made the following statement in praising Britain’s National Health Service:
[A]ny health care funding plan that is just, equitable, civilized, and humane must – must – redistribute wealth from the richer among us to the poorer and less fortunate. Excellent healthcare is by definition redistribution.
ObamaCare- or the Patient Protection and Affordable Care Act- is the product of this same socialist ideological tradition that views government-run health care as a central component of any comprehensive wealth transfer scheme. However, the PPACA’s methods are more devious and radical than the NHS in accomplishing this goal. The main consumer-level redistribution provisions in PPACA are the refundable premium tax credits and cost-sharing subsidies available to individuals purchasing policies on the soon-to-be-established “exchanges.”
These tax provisions were at issue on Friday as IRS Commissioner Douglas Shulman testified in front of the House Oversight and Government Reform Committee. Shulman’s difficult job was to defend the Department of the Treasury’s recently issued regulations implementing PPACA’s tax credits. Why was that such a difficult job? That requires some background on how PPACA’s statutory provisions are structured.
International Data on Living Standards Show that the United States Should Not Become More Like Europe
I’m not a big fan on international bureaucracies, particularly the Paris-based Organization for Economic Cooperation and Development. The OECD, funded by American tax dollars, has become infamous for its support of statist pro-Obama policies.
Utah Senator Mike Lee has been speaking out against proposed tax increases. He makes some great points in this article on the Daily Caller last week.
Lee points out first that it’s a partisan issue. It seems like everything these days in Washington is strictly partisan. The bickering between parties gets old (especially when both parties are saying the same thing), but I don’t think this is typical Republican finger pointing. Lee is one of a select few senators who isn’t utterly useless; he is the type of senator who would call out his Republican colleagues if this weren’t specifically an issue of Democrats being ridiculous.
Despite his would-be willingness for exposing hypocrisy within his party, Lee does make a few points the Republicans would like you to remember as we head toward November.
For example, the pushing of tax increases to push class warfare, or, in Lee’s words, “dividing Americans by income and pitting them against one another.” Lee even goes as far to say that these calls for higher taxes are out of desperation because “the electorate realizes Democrats are out of ideas.”
He also says that the responsibility for fixing budget woes lies with the Congress, not with the American people, and that the proposed tax increases will stifle job growth. He’s right on all accounts, but this is all buzzword stuff that every Republican regurgitating through November.
Lee is one of the strongest members of the Senate on fiscal issues, and though he included the big buzzwords, he was exactly right when he said, “The proposal does not solve the problem of out-of-control deficits and debt.”
Debt and deficits. There’s the real problem.
If you were hoping that the recent economic report would bring a change in direction from the White House on taxes, you were no doubt let down. The Commerce Department reported on Friday that gross domestic product (GDP) grew by only 1.5% in the second quarter of the year and consumer spending was down, once again showing the weakness of the economic recovery.
When pressed on whether or not the weak economic growth would bring a change in direction from President Obama, who is trying pushing tax hike proposal through Congress, White House Press Secretary Jay Carney insisted that tax hikes during a slow economy weren’t a bad idea. Alan Krueger, President Obama’s top economic adviser, also said that the reason the economy was lagging was because state governments need more stimulus spending.
It seems, however, that not only will the White House push more stimulus gimmicks, they are going to continue to push a tax hike that will have anywhere from a 1.3% to 2.9% contraction in the economy.
But Keynesians pushing a tax hike during tough economy times is question, one that would probably earn the ire of the man himself. Christina Romer, who served as an economic adviser to President Obama, once noted that tax hikes hurt the economy:
We’re seeing more and more efforts to push for taxes to be collected on Internet purchases. Articles on this topic have been popping up all over the place lately (here, here, and here). The push makes sense in some minds. States with revenue issues need more revenue, and the Internet is the great untaxed frontier. (States with revenue issues more likely need a better fiscal policy more than they need added revenue, but that’s a huge topic for another post.)
You probably don’t have to wonder too much about whether or not I’d support the idea of taxing internet purchases. I’d oppose it primarily on the grounds that taxes are already too high, but there are other considerations as well. South Carolina’s Senator Jim DeMint addressed the issue recently and made the point that taxing Internet purchases would be unconstitutional:
Make no mistake: the online sales tax would be another unconstitutional mandate. If MFA [the Marketplace Fairness Act] becomes law, politicians in Washington would give California the right to force a business in another state to collect and pay California sales taxes.