RE: Obama Pushes $600 Billion in New Taxes in Debt Talks
It's foolish to talk about tax rates unless you also talk about how you define income. If you try to get there by raising rates, at the top end those higher rates scare investors away, and with them go jobs. If you get there by broadening the definition of income (eliminating loopholes, for one thing, but not limited to that), you can actually lower rates and generate larger revenues. And when you do that, you reduce the incentives to hide income, to play non-prouctive or counter-productive tax avoidance games, or to ship economic activity and jobs to lower-tax jurisdictions.
The argument about how much higher tax rates were before Reagan ignores this reality. Rates were higher, but off the same facts you would get a significantly lower taxable income than under today's law and regulations. What Reagan did, particularly in the 1986 law developed largely by Bill Bradley, was to trade lower rates for broader definition of income. That's how he managed to lower the top marginal rate from 70% to 28% without a huge adverse effect on tax revenues. I was preparing a lot of tax returns back in those days, and all of my clients were in essentially the same place after the Reagan tax cuts as they were before, becuase the elimination of deductions had just about offset the decrease in rates.
What that did was to put us ahead of the rest of the world in our ability to attract businesses with lower taxes. In 1989, at the end of Reagan's presidency, our top marginal corporate tax rate, for example, was 8% lower than the average developed country. Economic propsperity followed, and continued under Clinton, whose tax rate increases were so minor when compared to the rate cuts under Reagan that the entire process can be considered as a single integrated whole. The rest of the world saw what happened to our economy under Reagan and Clinton, and did the same. By 1999, nearing the end of Clinton's presidency, our top corporate rate had not changed but it was now equal to the average for developed countries. The "Bush tax cuts" did not touch the corporate rate, but other countries kept lowering theirs, so that by 2009, the end of Shrub's presidency, our top corporate rate was now 12% higher than the average developed country. Without changing a thing, we lost 20% in comparative tax advantage over a 20-year period. If you don't think that cost us jobs, then you weren't paying attention to GE, among others.
We are in competition with the rest of the world for the industries--and jobs--of the future. We have to win some battles against some strong and motivated competitors in order to maintain our economic position. We can't beat China on wages. In order to win the war, we have to win some battles somewhere. And taxes are one battle we can win.
What do I favor? Lower and flatter taxes across a broader definition of taxable income, and the addition of a consumption tax. The argument against that approach is that it's "regressive." But I happen to cling to this quaint notion that the well-being of the average lower or middle income class person is determined a lot more by whether or not he or she has a job than it is by his or her marginal income tax rate, and way more than it is by SOMEBODY ELSE's marginal income tax rate. And I also believe that raising taxes on investment income is a good way to chase jobs away, and lowering taxes on investment income is a good way to bring jobs here. I think the world economic experience over the last 50 years supports that. And I know Europe--socialist Europe--believes that, because their tax rates reflect those opinons. They have a broader and more comprehensive welfare safety net than we do, and they underwrite it with a substantially more regressive tax structure than we have--including consumption taxes. That's a deal I'd make if we could get it here.
(This post was last modified: 06-29-2011 04:02 PM by Owl 69/70/75.)
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Obama Pushes $600 Billion in New Taxes in Debt Talks
