As Loony As Ever

Lefty locals are in a tizzy that Obama finally called off his class warfare against the rich, by extending Bush tax cuts to all. Because they have so many fellow lunatics hereabouts, these types actually think they’re normal. We know they’re unhinged.

Concerning the trigger for their latest outburst, lets take a look.

Every grownup understands that one does not raise taxes during a recovery, that is, if one wishes for a recovery. Obama’s economic advisers agreed. Michael Boskin reminds us in a recent article that, “Former Obama adviser Christina Romer and David Romer of the University of California, Berkeley, estimate a tax-cut multiplier of 3.0, meaning $1 of lower taxes raises short-run output by $3.”

Gerald O’Driscoll, once with the Dallas Fed and now with the Cato Institute, also agrees. “The Bush tax cuts should not be allowed to expire. No matter how the administration spins it, their expiration would entail a large increase in marginal tax rates in the midst of economic weakness. That would further impede savings and capital accumulation, discouraging firms from expanding and hiring workers.”

Anyone who is familiar with historical data (which leaves out the left) knows that raising income tax rates on say the top 1% of income earners reduces direct tax receipts - that is the way it always has, and always will work out because these top 1% simply stand aside.

From Art Laffer, “Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.”

Curious is it not that the nursery crowd for example, whose bottom line has just been trashed by BO, is furious when BO finally does something right, something which will work to resuscitate their bottom line?

Once again looking for historical precedent (and thus again leaving out the left) we encountered the following:

“Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”

—President John F. Kennedy,

Oh, that.


Robert Craven