I have never been a fan of big government and the welfare state and I really think we need to lower taxes and cut the size of the government and get back to what the founders thought it should be doing. I have tried to contact the White House about this over and over and over.
Because of Obama’s class-warfare tax hike and additional tax increases by kleptocrats at the state level, many successful taxpayers will now lose more than 50 percent of any additional income they generate for the American economy.
I discuss the implications of this punitive tax policy in this CNBC interview.
Normally, this is the section where I highlight certain points I made, or bemoan the fact that I failed to mention an important fact or overlooked a key argument. Today, though, I want to address the do-taxes-impact-growth issue raised by Robert Frank.
More specifically, I want to debunk the Congressional Research Service study that he indirectly mentioned about two minutes into the segment. This is the report that asserted that it doesn’t matter if we impose high tax rates on investors, entrepreneurs, small business owners, and other “rich” taxpayers.
The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.
The good news is that I don’t really need to debunk this CRS study because Steve Entin already has undertaken that unpleasant task. Writing for the Tax Foundation, Steve points out some rather fatal flaws in the CRS study.
The study makes no effort to determine the channels through which the tax changes ought to work to affect the economy, looks at the wrong measure of progress over the wrong time frame, and takes inadequate account of what other tax or economic events are occurring at the same time that might mask the results. …Other changes in taxes and other influences on the economy occurring at the same time can easily hide or counteract the effect of the top tax rate changes alone. It is often impossible to hold other things constant to allow one to see the impact of the single item one wants to assess. When these other influences are omitted from the model, the “missing variables” problem poisons the results. …one should look at the long-term change in the capital stock and the ultimate level of output, not the short-term rise in investment and the short-term change in the growth rate. If one looks only at the growth rate, and not at the level of GDP, one could conclude that the tax rate change has only a temporary benefit, when in fact it is permanently helpful. …Looking only at the amount of investment triggered in the year following the tax change misses the point. The same holds true in the opposite direction for a tax increase. It takes years to retire through attrition the excess capital made redundant by a tax increase. Looking only at the change in investment in the year after the tax cut, rather than the cumulative increase in the stock of capital over time, misses about 95 percent of the impact. You can’t predict this fall’s apple crop by counting the number of seedlings planted this spring. The CRS study omits important variables and poisons its results by not holding other factors constant. The variables it does examine are indirectly related to the relationship one should be studying, but the study does not follow them for long enough to get the whole picture. The study is as weak now as it was when it was first issued. Grade: F.
By the way, the Wall Street Journal pointed out that the author of the CRS study is not exactly dispassionate and neutral on these matters.
You won’t be surprised to learn that Mr. Hungerford has donated to the Obama campaign and Senate Democrats and worked as an economist at the White House budget office under Bill Clinton.
In closing, I did address the taxes-growth issue last year. I wasn’t debunking the CRS study, but I was exposing the errors in some very similar analysis by a writer for the New York Times.
Here’s the key passage from that post.
Yes, lower tax rates are better for economic performance, just as wheels matter for a car’s performance. But if a car doesn’t have an engine, transmission, steering wheel, and brakes, it’s not going to matter how nice the wheels are.
In other words, I was focusing on the fact that you can’t accurately and honestly examine tax policy without looking at the impact of other public policy issues.
But I think the Clinton years and Bush years make my point. Bill Clinton was bad on tax policy in 1993, but was good on almost everything else (including a cut in the capital gains tax rate in 1997), whereas George W. Bush was okay on tax policy, but was bad on just about everything else.
So here are a couple of very simple questions.
- Given what we now know about the increase in economic freedom under Clinton and the loss in economic freedom under Bush, is anybody surprised that the economy did better under Clinton than it did under Bush?
- Does anybody think that the economy prospered under Clinton because he raised tax rates in 1993?
- Does anybody think the economy was anemic under Bush because he lowered taxes in 2001 and 2003?
Depending on how you answer those questions, you may be qualified to work at the Congressional Research Service.
But if you understand that it’s important to look at the overall burden of government when measuring the impact of public policy on economic performance, then…well, I’m not sure whether I can promise anything other than you’ll have the satisfaction of knowing that you’re intellectually honest and economically literate.
Why are we spending more and more on welfare every year? What would the Founding Fathers have to say about this if they were still here today? We will look at that in a little bit. We need to cut Food Stamp program and not extend it. However, it seems that people tell the taxpayers back […]
The real truth about the financial condition of Social Security can be seen on the www.thedailyhatch.org
Uploaded by LibertyPen on Jan 8, 2009 Professor Williams explains what’s ahead for Social Security If you want to know the real truth about the financial condition of Social Security then check out these links below: Ark Times reader says Social Security is not Ponzi Scheme February 28, 2012 – 11:14 pm Social Security is a […]
FIRST PRESIDENTIAL DEBATE – Barack Obama VS Mitt Romney (Part 1) Published on Oct 3, 2012 by LearnTVMore Barack Obama & Mitt Romney Full Presidential Debate __________ I heard Arthur Laffer speak in 1981 when he came to Memphis to speak to a group of students. He told exactly what was going to happen the […]
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. If […]
Dear Senator Pryor, why not pass the Balanced Budget Amendment? (“Thirsty Thursday”, Open letter to Senator Pryor)
Rand Paul A balanced Budget Amendment is the only way (29-Jul-11)(GLOBAL FOCUS series – US) Uploaded by YouInformation on Jul 31, 2011 _______________ Dear Senator Pryor, Why not pass the Balanced Budget Amendment? As you know that federal deficit is at all time high (1.6 trillion deficit with revenues of 2.2 trillion and spending at […]
Washington Could Learn a Lot from a Drug Addict Uploaded by WashingtonCouldLearn on Jul 8, 2011 Washington’s chronic overspending is just like a junkie’s addiction to drugs. Unless the cycle of addiction is broken, our economic and unemployment situation will continue to suffer. Washington is out of time. To avoid hitting rock bottom, Washington must […]
Sen. Mitch McConnell: Americans Don’t Approve of Anything Obama Has Done Uploaded by HeritageFoundation on Dec 8, 2011 In an exclusive interview at The Heritage Foundation, Senate Minority Leader Mitch McConnell (R-KY) sharply criticized President Obama for engaging in class warfare and accused him of shifting the focus away from his own failed policies in […]
Milton and Rose Friedman with President Bush. Milton Friedman on Donahue 1979 (2/5) I believe the “no new tax pledge” ultimately will work. Milton Friedman believed we should starve the beast and that is good enough for me. “If taxes are raised in order to keep down the deficit, the result is likely to be […]
Dan Mitchell of the Cato Institute has some great videos and I have posted lots of them on my blog. I like to go to Dan’s blog too. Take a look at some of them below and then the links to my blog. It’s Simple to Balance The Budget Without Higher Taxes Uploaded by afq2007 […]
Reagan and Clinton put Obama to shame when it comes to creating jobs. An Amusing Comparison: Obama vs Reagan and Clinton January 7, 2013 by Dan Mitchell I shared a remarkable chart last year exposing Obama’s terrible record on job creation. It showed that the economy enjoyed big employment increases during the Reagan and Clinton years, […]