Thursday, December 6, 2012

Why Your Taxes Will Go Up Eventually, Even If You Are Not Rich

Caroline Baum writes:
The math doesn’t work! Raising top tax rates will produce about $800 billion of revenue over the next 10 years, compared with a $3.7 trillion revenue loss from all the Bush tax cuts. 
Shhh! The dirty little secret, which everyone seems to know but no one is willing to utter, is that middle-class taxes will have to go up. Not this year, or even next year, but eventually. There aren’t enough rich folks to finance the promises the U.S. has made to the elderly. Both parties have chosen to maintain this fiction a while longer.
Which brings us back to our theme. If the supply of labor is slow to respond to tax-rate changes, and the rich are good at avoiding taxes, who gets hurt?
I’m glad you asked. The wannabe rich. On this, [Arthur] Laffer is passionate (actually, he’s passionate about everything).
“Higher marginal tax rates prevent poor people from becoming rich,” he said. “The only way they can get rich is by earning income, which is taxable. Once you become rich, you have ways around it.” 
 Baum is mostly correct here, though, her view that because labor is slow to respond to tax hikes means they don't get hurt is inaccurate. It means those working for a paycheck are just boxed in and screwed. The smaller paychecks certainly are painful. As for the entrepreneurial wannabe rich, Baum (and Laffer) are correct, the higher taxes will, along with greater regulations, make it more difficult to become rich. It's another reason those already rich will get richer and the difference between what the rich earn and everyone else will continue to expand. And why your taxes will go up, while the protected rich will find a way to protect themselves from higher taxes.

9 comments:

  1. Wenzel writes: "those already rich will get richer and the difference between what the rich earn and everyone else will continue to expand"

    Why should a Rothbardian care? Under anarcho-capitalism, there would be a huge gap between the wealth of those who provide great value to their fellow humans and those who provide little value. I detect sympathy here with the socialist drumbeat "inequality is bad". Say it ain't so!

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    1. I should have said the rich will get richer and the rest of us will get poorer. Think banana republics.

      In a free market society, there will be no given as to the difference in income between the rich and those of lower incomes--but, further, almost everyone will be rich in terms of living standards. But what we are heading to now in the U.S. is a situation of elitist protected rich and a declining standard of living for the rest of us.

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  2. Ok, the statist's response is this, "get rid of all the loopholes and deductions for anyone making over a certain amount". That's where their mind and any attempt to understand the economics of the situation will stop. This is all theater, whether kabuki or not.

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  3. People are so stupid to continue to play out arguments in support of the machinery that pits us against each other in every subjective basis: race, gender, class, rich, poor, etc.

    Everyone should be looking toward the goal of taxing nobody at all. Then watch the human race flourish, far more capable of diminishing the "institutionalization of conflicting interests." (Norman Dodd)

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  4. And then there's the inflation tax, which will only get worse as the money printing becomes the only source of bond buying. It's going to hammer the lower middle class and poor.

    Frankly, I don't see how we avoid widespread social unrest as the economy unravels. Desperate people tend to do desperate things.

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  5. I am still curious, do libertarians have anything to say about the "fairest" way to increase taxes? Is such a concept even possible? Certainly cutting taxes is the best approach but that isn't on the table, It isn't even in the house. I see how an Austrian would say keeping lower capital gains taxes would lead to more capital investment and the effects of that. I remember Rothbard had an interesting view on consumption taxes. But the fact is, taxes will be going up, perhaps the "fairest" way would be to tax statists more but how could that be implemented? Or will it be dog eat dog, forming interest groups to push the higher taxes on others?

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    1. @Josiah: What is the "fairest" way for a marauder to rob his victims? I guess alphabetically would be fair. Or here's a crazy idea: stop robbing altogether.

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    2. My point is that taxes WILL be going up. Does the libertarian philosophy have nothing to say about this situation? Steve mentions the inflation tax. I can see how the inflation tax is especially wrong. Creates the business cycle and hides the true cost of government. I think borrowing may be a better way to finance the government than taxes since we could default on the bonds and then the bondholders would be the main sufferers. But as far as raising taxes goes, is the libertarian position bereft of helpful suggestions? Is there a least bad way to do it?

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  6. Also my blood boils whenever any commentator or analyst repeats that mind-numbingly presumptuous and evil nostrum about how people keeping their own money "costs" the government. Wahhh. Fuck the government.

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