Re: Obama Understands Economics in Spite of Himself

On Dec 12, 2010, at 4:39 PM, Mike Findlay wrote:
> Historically lower tax rates correlate to higher tax revenues.  The  
> current deal doesn't have any deduction take aways or loop hole  
> closures does it? Whether it is scientific enough to say lower tax  
> rates cause higher revenues I don't know, but there is a certain  
> amount of common sense in it.

Lower & higher taxes tend to come during certain phases in the  
economic cycles so correlation doesn't necessarily equal causation.   
It could be that better economic times causes lower taxes rather than  
visa versa.  There are just too many variables to offer that as proof.

I've changed my view on this in recent years.  Now I'm fairly  
convinced that tax rates (to a certain point) pretty much do not  
matter from a macro-economic point of view, except in as much as they  
inequitably distribute wealth from one class to another, or they  
provide unhealthy incentives in the wrong places.  But I'm not  
convinced about revenue impacts or general economic impacts one way or  
the other.  From a macroeconomic point of view, dollars spent by  
individuals or by government pretty much end up in the same place.    
Put simply, except at the very low and very high extremes, I don't  
think tax policies matter economically (wierd to hear me say that, I  
know).

However, where they do matter is in distributing wealth throughout the  
economy, tax changes will lead to different behaviors in labor and  
spending.  Higher taxes generally mean less productivity as people  
feel like less of the fruits of their labor matter and they look for  
ways to reduce taxes either through decreasing their earnings  or  
hiding.  Tax imbalances create favoritism for gov't preferred  
businesses and financial institutions.  A truly "fair" tax would  
render less overall power to government entities, which is exactly why  
it will never happen.

regards,
-Lance


>
> When rates are perceived as high people actively seek ways to avoid  
> paying taxes, including not investing in potential money making  
> ventures.  If a project carries a relative amount of risk it may not  
> be worth attempting if you are going to end up giving 40% of your  
> potential profit away.  OTOH, if tax rates are perceived as low you  
> are more willing to take the same risk. Any horse racing van or  
> poker player for that matter, understands the concept - the  
> potential reward has to justify the risk, if it doesn't you aren't  
> going to bet your money.
>
> What drives me nuts is those who say maintaining tax levels at there  
> current rates will increase the deficit.  ??  If revenue is the same  
> the deficit, (budget), will be the same unless spending  
> increases................ oh how silly of me I thought we could  
> actually a year or two without increasing spending.
>
> Mike F.
>
>
>
> -----Original Message----- From: Bruce Geerdes
> Sent: Sunday, December 12, 2010 3:51 PM
> To: DADL (off topic)
> Subject: Re: [DADL-OT] Obama Understands Economics in Spite of Himself
>
>> Did you catch that? “[T]o lower rates and raise revenues.” It is  
>> the reality of that negative correlation — and not a desire to  
>> comfort the rich at the expense of the poor — that lies behind the  
>> proposal to keep the Bush tax cuts in place on higher incomes.
>
> Not necessarily. Another way, and the way I understood that they are
> pursuing, is to lower rates but take away a lot of current deductions
> and loopholes, thus raising revenue.
>
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