February 6, 2013
You Got Your Tax Increase, Dems...Now Show Us the MoneyBy Gene Schwimmer
The so-called fiscal cliff has been avoided, at least for the time being, and all it cost was a tax rate increase on the nation's most productive taxpayers. Of course, conservatives are disappointed, but one also needs to appreciate that with all the Bush tax rate decreases set to expire automatically, Democrats had Republicans over a barrel. That being the case, Republicans didn't do so badly, considering. The higher rates that would have kicked in at incomes above $250,000 (for marrieds, $200,000 for singles) will instead apply only to incomes above $450,000 (for marrieds, $400,000 for singles). And the formerly temporary Bush rates on incomes of $450,000 and below have now been made permanent.
The bad news is that at least some Democrats, such as New York Senator Chuck Schumer, see the recent rate increases as just a first step, a prelude to demanding "additional revenue" as part of any agreement to deal with the debt ceiling.
Well, good luck with that, Chuck, or did you not notice that when your ability to hold taxpayers hostage to automatic tax rate increases disappeared, any leverage you might have had disappeared with it? But that doesn't mean that Republicans can sit idly, as the Democrats did with the fiscal cliff, and wait passively for events to produce a favorable result. Because as sure as night follows day, and Chuck Schumer follows a TV camera, Democrats will continue to argue for the "additional revenue" they believe to be absolutely necessary to reduce the budget.
And Democrats will continue to believe that their tax rate increases will actually produce the revenue they predict it will.
They will not, and this is how I know. The Federal Reserve Bank of St. Louis recently published a report, "The U.S. Deficit/Debt Problem: A Longer-Run Perspective," providing both a diagnosis and prognosis of the nation's deficit/debt problem. First, the diagnosis -- and, along with it, a thorough debunking of a myth Republicans have allowed Democrats to get away with for far too long: that our current deficits and soaring debt began in 2008 and were caused by the subprime and banking crises in the latter years of the century's first decade (emphases mine).
The top marginal rate in the early 1970s, by the way, was 71.5 percent on taxable income above $200,000 -- and the federal government still spent significantly more than it took in. You liberals who are anticipating utopian results from a top rate almost 45 percent less than that might want to take note.
Note also (I must be fair here) that the hyperbolic arc in federal spending began under a Republican president, Richard Nixon, and then continued to rise through the administrations of every president, Republican and Democrat. Why, over the long haul, Republicans apparently have had no more luck in balancing budgets than have Democrats becomes clear if one studies the below chart from the St. Louis Fed report:
As the report demonstrates (emphases mine):
Meanwhile, and in fairness to presidents and lawmakers from both parties (emphasis mine):
And once we know, contrary to conventional wisdom, that the percentage of discretionary spending -- the non-automatic spending over which Congress and the president exercise complete control -- has decreased over the past four decades, it should surprise no one that (emphasis mine) "OPI and SSM account for essentially all of the increase in government spending that has given rise to the deficit/debt problem."
One can argue whether the nominal growth in and absolute amount of discretionary spending are excessive; perhaps, someday, I will. But today I raise the matter not to defend either party from the charge of excessive spending, but only to demonstrate the potential ineffectiveness, if not sheer folly, of attempting to balance the budget by reducing discretionary spending. Been there, done that.
And that folly pales in foolishness beside that of trying to balance a budget with tax rate increases, and it is in debunking this bedrock liberal belief that the St. Louis Fed's report is most devastating:
Examining the above chart, we see that (emphases mine):
The study posits two primary reasons why this would be the case:
And to these two reasons why the relationship between tax rates and revenues actually collected ranges from ephemeral to nonexistent, permit me to add a third: when people believe, in their gut, that they are being taxed at an unfair rate, they will do whatever they can to "stick it to the man" and not pay the taxes.
But whatever the reason or reasons, the main point the report makes is that "there is only a weak relationship between marginal tax rates and tax revenue."
In plain English, the odds are slim to none that $650 billion Democrats expect to realize from their tax increase will actually manifest. Indeed, the federal government could even lose money, as happened when Britain recently raised her top rate (emphasis mine):
So either the Democrats have not been paying attention or "it's different this time," or else there's some combination of the two. I don't know; I'm not a liberal. But we conservatives are generous folks, so let's give the benefit of the doubt to our friends across the aisle, who think they can erase a $16-trillion deficit with nothing more than a left-wing and a nonsectarian prayer and assume, in arguendo, that the new 39.5-percent top rate does what Britain's 50 percent rate could not and actually produces the predicted revenue -- every penny of it. Even then, unless this time it truly is different, history and the St. Louis Fed's analysis point to a prognosis that is, how you say, not so good. That's because (emphasis mine):
Nor, I would add, can there be a permanent solution unless and until we reform Social Security, Medicare, and other transfer programs -- but especially Medicare, the biggest driver, by far, of the deficit/debt. It is absolutely essential to take the mandatory spending on these programs off autopilot. And, of course, we must repeal ObamaCare, which, at its core, constitutes a massive expansion of Medicare, not to mention the massive increases in health care costs and health care premiums that we are already seeing and that can only make an already horrendous problem even worse.
Obama and the Democrats, of course, will never acknowledge the fundamental, inherent flaws in all -- all -- of their entitlement programs. A pickup truck-driving Alabama redneck clinging to his guns and religion has nothing on the tenacity with which an Upper-West-Side liberal will cling to his belief that every problem can be solved, every budget balanced, by raising tax rates on a tiny sliver of the population. It would thus behoove House and Senate Republicans, if they can suspend being the Stupid Party long enough to do it, to keep track of the actual revenues raised -- or not raised -- by the Democrats' latest rate increase and publicize the results, which I fully expect to come up short. But I won't hold my breath.
What I will do is say that when it comes to tax revenues, this native Michigander is from Missouri. You're gonna have to show me.
You got your tax rate increase, Democrats. Now show us the money.
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