Thursday, October 25, 2012


Felix Salmon is strident:

But when they try to get to the specifics of tax reform, they start falling into blather, asking that it be “pro-growth” (an utterly meaningless phrase), and asking too that it include lower rates and higher revenues.

Maybe they should have just asked for a pony for everybody instead: that would be easier. You can’t have lower rates and higher revenues — not without eviscerating pretty much all of the tax deductions which much of the middle class has learned to rely upon. Mortgage-interest tax relief, the charitable deduction, even the deduction for state and local taxes: pretty much all of them would have to go. That wouldn’t just get blocked by Democrats: it would get blocked by Republicans, too. And because most of these tax expenditures go to the middle class, broadly defined, the one group which would see most of the benefits while bearing very little of the costs would be the top 1%: the very CEOs who signed this letter.

In other words, the letter basically just says “please cut our taxes, raise taxes on everybody else, and cut the benefits they get from Medicare, Medicaid, and Social Security, which are programs we individually don’t rely upon”. It’s gross self-interest masquerading as public statesmanship.
Okay, I think that here is a place where some degree of common sense really needs to return to the debate.  The idea that cutting tax rates improves growth has very little empircal evidence.  The strongest countries around are not necessarily ones with the lowest effective tax rates.  It is true that (in extreme circumstances) these rates can cause troubles, but very little evidence that the United States (or any other first world country) is near this threshold. 

But the idea that I find the most difficult is the idea that lower tax rates could lead to more revenue.  Seriously.  Outside of extreme cases, why would governments ever have taxes if this were true?  People dislike paying taxes.  Governments like to have money.  If not collecting taxes led everyone to have more money at the same time then it is hard to imagine nobody would have hit on this magic formula.  Surely there has to be at least one autocrat who was pro-growth in the past 5,000 years or so? 

Now you can argue that taxes may decrease the overall rate of economic growth.  I am skeptical about this claim, but it is at least not utterly absurd.  But to reduce taxes to increase growth presumes that either growth will be so rapid that these losses will be more than made up for in increased revenue (seems hard to credit as we'd notice gigantic effects like this) or that taxes will later be raised to make up the difference. 

I really wish more readers were as critical of these ideas as Felix is. 

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