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Feb 27, 2012

Raise Tax Rates - Collect Less

High Official:  Our deep and nuanced understanding of reality gives us the duty and privilege to plan, invest, and guide our society. We must collect more resources, and so we will raise tax rates.

Assistant:  Rates are quite high now, sir.
Official:  We will set them higher.

Assistant:  We will almost certainly collect less revenue and injure economic growth.
Official:  That doesn't feel right. How could that be? I don't believe it. What fun is there in not raising rates? That is one nuance too far.

Why Doesn’t Obama Realize that Higher Tax Rates are All Pain and No Gain?
02/27/12 - by Dan Mitchell

[edited]:  Higher tax rates cripple growth and drive more people into the underground economy.

Even the International Monetary Fund agrees in this analysis of the Greek economic situation. At some point, tax rates become so punitive that the government collects less revenue. A remarkable admission. IMF Survy Online, December 16, 2011:

[edited]:  Reducing the Greek deficit is going to be hard without structural spending reforms. Their deficit will be 9% this year, well above their target of 7.5%.

Thomsen: "We have reached the limit of what can be done by increasing taxes. Any further measures should be done by reducing government spending."


Obama's Tax Priorities

Obama on Taxes - 12/16/10 - American Thinker by Allan J. Favish. Obama wants to raise the capital gains tax rate.

Transcript of the April 16, 2008 debate between Barack Obama and Hillary Clinton, moderated by Charles Gibson. [edited excerpt]

Gibson:  You favor an increase in the capital gains tax. You said on CNBC,  "I certainly would not go above what existed under Bill Clinton."

The capital gains tax is now 15%. It was 28% under Bill Clinton, almost double what it is now. Actually, Bill Clinton in 1997 signed legislation that lowered the capital gains tax to 20%. And George Bush has taken it down to 15%.

Obama:  Right.

Gibson:  In the 1980s, when the capital gains tax increased to 28%, revenues went down. And in each instance when the tax rate decreased, revenues from that tax went up and the government took in more money.

So why raise it at all, given that 100 million people in this country own stock and would be affected?

Obama:  What I've said is that I would look at raising the capital gains tax for purposes of fairness.

We saw an article today that the top 50 hedge fund managers made $29 billion last year. But, they are paying a lower tax rate than their secretaries. That's not fair.  [And not correct] Click, then see the entry "Rich Pay Higher Tax Rates Than Secretaries" at the upper right.

Economist Mark J. Perry:  The US federal income tax is highly progressive. Warren Buffett is wrong in his "analysis" of tax rates on himself and his employees.

Most secretaries would pay a federal tax rate averaging 9-12%. Most "super-rich" bosses with incomes of $200,000+ would pay a tax rate averaging at least 25%, about three times the average of their secretarial staff. If you include payroll taxes on everyone, the super-rich are paying at twice the average rate of secretaries.

I do not want oppressive taxation. I want businesses to thrive, and I want people to be rewarded for their success. But, I also want our tax system to be fair, and to finance health care, and to invest in infrastructure and schools.

You can't take out a credit card  [borrow massively]  from the Bank of China in the name of our children and our grandchildren, and then say that you're cutting taxes.

I believe that you pay as you go. You don't propose tax cuts unless you are closing other tax breaks for individuals. You don't increase spending unless you are eliminating some spending or you are finding some new revenue. That's how we got an additional $4 trillion worth of debt under George Bush which is helping to undermine our economy. This is going to change when I'm President of the United States.

Gibson:  But, history shows that when you drop the capital gains tax, revenues go up.

Obama:  Well, that might happen, or it might not. It depends on what's happening on Wall Street and how business is going. The biggest problem that we have on Wall Street is that we have a housing crisis that President Bush has not been attentive to, and that it took John McCain three tries before he got it right.

If we can stabilize that market and we can get credit flowing again, then I think we'll see stocks do well. And once again, I think we can generate the revenue that we need to run this government and hopefully to pay down some of this debt.


Repeated experience shows that lower tax rates produce higher economic growth, more jobs, and increased tax revenue. Despite this experience, Obama says "maybe yes, and maybe no".

Obama has two priorities: A fair tax system, and one that raises more revenue. These oppose each other at our current levels of taxation. Higher tax rates are more fair in Obama's judgment, but they will raise less revenue. What does he really want?

Actually, to collect much more revenue, he must collect more tax from the people earning $50,000 to $200,000 per year, because that is where most of the personal income is. Sorry.

Obama proposes the goal to "stabilize the housing market and get credit flowing again."  But, he does not provide a policy which would accomplish that. Lowering tax rates has brought countries out of recession. Raising rates has never done it.

The 50% Rate English Experiment

We don't have to rely on past results. England has run the experiment again, at great cost, to show us how the world works. They raised the income tax rate on the rich.

50% tax rate 'failing to boost revenues’
02/21/12 - Telegraph UK by Robert Winnett and James Kirkup

[edited, rearranged]
The amount of income tax collected fell sharply last month. This is the first formal indication that the new, higher 50% rate is not raising the expected amount of revenue.

The British Treasury received £10.35 billion in personal income tax payments in January, £509 million  (5%)  less than January 2011. Most other taxes produced higher revenues over the same period. This is the first year following the introduction of the 50% rate, which was expected to raise individual tax revenues by more than £1 billion.

A Treasury source said the drop in revenues was partly due to highly-paid individuals arranging their affairs. There is some fear that it is forcing entrepreneurs to relocate abroad.

Liberal Democrats have insisted that the 50% rate must stay, because it is important to demonstrate that the rich are paying their fair share.

Like Obama, the English Left is determined to take more money from successful people, regardless of raising more funds for government. That is true dedication to an ideology of "fairness".

Where the Money Is

The bank robber Willie Sutton was asked why he robbed banks. He supposedly replied "Because that is where the money is". His full reply is more interesting.

[edited]  Why did I rob banks? Because I enjoyed it. I loved it. I was more alive when I was inside a bank, robbing it, than at any other time in my life. I enjoyed everything about it so much that one or two weeks later I'd be out looking for the next job. To me the money was the chips, that's all. Go where the money is, and go there often.

Maybe the Left is more like Willie Sutton than like an efficient, pragmatic manager. They want to go for the money and go often. The amount collected is of secondary importance.

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