Tax vs. Revenue - Scoring - 2011

I read an editorial this morning by the Robertses (Cokie & Steve). I usually enjoy their commentary despite their center-left orientation. One statement in today's column, though, drove me nuts, given a vast body of emperical experience that contradicts it. they said the "Republicans' . . . 'Pledge to America' . . . promises to to cut taxes and reduce the deficit at the same time - a total impossibility." (my emphasis). Why categorically ("total") advance the notion that simultaneous tax and deficit reduction are mutually incompatible? Because there is nothing besides the statement to support the statement.

This notion has been proven false by Republican and Democratic administrations alike, and by Democratic and Repblican congresses alike. Lowering tax rates increases tax revenue. Increases in revenue decreases the deficit if spending does not increase. Logic and experience show this. When rates are lowered economic activity increases, resulting in more revenue. When projecting budgets and revenue "static scoring" assumes taxpayer behavior will remain unchanged as rates go up or down. "Dynamic scoring" takes into account behavioral changes that accompany tax (rate) increases and decreases. The Robertses would be correct if static scoring is borne out by experience. Experience shows that with every tax decrease, there has been a revenue increase. Kennedy deliberately calculated that behavior would change and revenues would increase when tax rates were lowered at his urging. He was proved right. the Reagan cuts made for a sharp U-turn and lasting recovery in the recession of the early 80s. After 9-11, there was no stimulus to keep the economy from tanking, but there was a 2001 tax cut, followed by another in 2003. These not only avoided disaster (think "jobs saved"), they helped fuel decent growth through mid-2008. And the "rich" (liberal term) or "employers and investors" (conservative terms) respond better to the swings in their rates than those who are employees and not investors. So cutting taxes of the "rich" generates more revenue than cutting taxes of the "middle class," especially since with progressive tax rates the "rich" are soaked (nicked? touched?) much heavier in the first place.

Maybe the Robertses are relying on what I call "extreme logic" to make their point. Of course if, on the one extreme, the government is taxing at a 5% rate and lowers it to zero, revenue will go down. But on the other end, do they really believe people will keep working and investing if their marginal rates are raised to 100%?

The Bush tax cuts are set to expire on January 1, 2011. The Obama administration (and Democrat congressional leadership) are in no hurry to avert that disaster. My question is whether their inaction can be explained by something other than incompetence or cynicism.

Your turn.

LeBronomics: Myopic Soak-the-Rich Tax Policy Likely Cost the Knicks a Superstar

What's a post about LeBron James doing on this blog? Well, I love talking sports just as much, if not more than I love talking politics. I couldn't pass up the chance to simultaneously do both! Anyway, I just thought it was interesting to see last week that, despite LeBron's well-documented love affair with the Yankees, his close friendship with rapper Jay-Z (part owner of the soon-to-be relocated New Jersey Nets to Brooklyn, NY), his desire to become the richest athlete in the world (which the NY market would best facilitate), his love for playing in NY's Madison Square Garden (often called the "Mecca" of basketball), and the predictions of many so-called experts, LeBron chose to "take his talents to South Beach," joining forces with Dwayne Wade and Chris Bosh of the Miami Heat.

Why?

Of course, according to LeBron and many talking heads on TV, playing alongside Wade and Bosh, two fellow all-stars and U.S. Olympic teammates, gives him the best shot at a championship. Although this is true, there's more to LeBron's decision than meets the eye.

Consistent with his desire to be the richest athlete on the planet, I'm sure LeBron's "crew" advised him that NYC has the highest state and city income taxes in the country at a 12.85 percent for top-earners, on top of what the feds already take for their share. Assuming a 5 year contract worth 96 million, LeBron will save 12.34 million by playing hoop in Miami vs. New York because there is no state income tax in Florida. To be sure, LeBron would still have plenty to put food on the table if he signed with the Knicks and no one, besides LeBron of course, would cry tears over the fact that he'd be out an extra 12.34 million. However, this makes for an interesting case study about the limits of a soak-the-rich tax mentality.

Is it any wonder why we're seeing a sizeable exodus from NY to places like Florida and Texas, 2 states that choose not to soak their successful citizens? Yes, top earners in New York get nailed on their state taxes if they are there, but lawmakers don't have the power to mandate that top-earners stay in NYC or even locate there to begin with. Eventually, as we've seen here, a soak-the-rich mentality can deter ambitious and successful people like LeBron James from coming and will encourage other ambitious and successful individuals to leave. I think it's safe to say that die-hard Knicks fans can at least partly blame their well-meaning, but short-sided lawmakers in Albany for LeBron choosing Miami over New York.

[P.S. - Nic, could you copythis post over to ArmchairPoliticians when you get the chance? Thanks!]

Obama's Proposed Stimulus

Just in case you missed it (I almost did), here was the last comment made on the previous post...

I just thought I would make a new post for this comment so that everyone can add their input. So what do you all think?

Obama's "Change"

One of my classmates forwarded the following email to me the other day. Check it out:

“Yesterday on my way to lunch, I passed one of the homeless guys in that area, with a sign that read 'Vote Obama, I need the money.'

Once in the restaurant my waiter had on an 'Obama 08' tee shirt.

When the bill came, I decided not to tip the waiter and explained to him while he had given me exceptional service, that his tee shirt made me feel he obviously believes in Senator Obama's plan to redistribute the wealth. I told him I was going to redistribute his tip to someone that I deemed more in need--the homeless guy outside. He stood there in disbelief and angrily stormed away.

I went outside, gave the homeless guy $3 and told him to thank the waiter inside, as I had decided he could use the money more. The homeless guy looked at me in disbelief but seemed grateful.

As I got in my truck, I realized this rather unscientific redistribution experiment had left the homeless guy quite happy for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn.

Well, I guess this redistribution of wealth is going to take a while to catch on with those doing the work.”

What do you guys think? Is this a fair characterization of Obama’s policies? If not, how do you spin Obama’s now infamous conversation with Joe the Plumber? Can you think of a country which has successfully experimented with socialism in the past? What would make this time different? Is this the "change" America needs? Do you think more free handouts for one class, paid for by the hard work of those in another, are really going to “help” those in the former? Comments? How about those tongue-in-cheek pictures?

Should the U.S. push states to institute a "Junk-food tax?"

This cartoon is actually a bit outdated. Sources now put the U.S. population at almost 70% overweight....and climbing. This is an enormous area of concern for the United States. Obesity and obesity related diseases are accounting for a high-percentage of health related costs. Obesity leads to diabetes, hypertension, atherosclerosis, stroke, and countless other conditions. Children are now contracting type II diabetes (typically considered to be adult-onset diabetes) at ages like 12, 11, even 10 or younger. There's no doubt this condition is an enormous contributor to rising health care costs. What might be the cause? It's no one thing but an abundance of high-fat, high-sugar foods is a major cause. Cheap calorie-packed fast food is another cause. The fact that children drink more soda than milk (one can contains 34 packets of sugar) is adding to it. We experienced a similar epidemic a few years ago with tobacco consumption. Instead of just letting tobacco kill everyone, the Government stepped in and states began instituting high taxes on tobacco, using revenue to fund state budgets and also wage a war warning of the risks of tobacco consumption. Tobacco consumption went way down, state budgets were gaining a lot of money, and people were healthier. My question is, why couldn't this be applied to high-fat, high-sugar foods? In fact it already has. In Alabama they instituted a 2-cent per 12-oz tax on just soft drinks and generated $44 million in a year. So if obesity is a contributor to rising health costs, and obesity is largely caused by an unhealthy lifestyle, why not tax the behavior caused by it instead of making the rich pick up the tab? I wrote a 10 page research paper on this very subject last year for an English class and actually presented part of the paper to a body of about 300 students. Could this work in America? Is it unfair to the companies that are producing this food? Would Americans be outraged at paying more for their unhealthy foods? Would the effect be similar to the tax on tobacco in curbing consumption of these junk-foods? I am interested to hear other opinions on this idea..