Wednesday, July 11, 2012

Tax Rates and Growth (Wednesday LINKS)

One thing you will hear a lot over the next few months is that increasing taxes on those making over $250,000 a year will hurt the economy.  It is the reverse trickle-down theory.  "We're being trickled on right now, we just don't realize how wonderful this trickle is."  (I don't like that sentence any more than you do, but we're keeping it, ok?).

I've heard that explanation so often that I had never thought whether it was true.  Seems obvious right?  Rich people have less money, they spend less money.  But here are some charts to consider.

First, the government does not tax people, it taxes dollars.  Those making over $250,000 a year would still enjoy all of the tax cuts up to that amount.  It is only that income over $250,000 that will have a higher tax rate.  Check out this graph from The Center for Tax Justice:
You'll see that even under President Obama's approach, the top 1% still end up getting the greatest tax cut, even though it is $50,000 less than they may otherwise receive under the GOP plan.

Second, were is the data that a lower top marginal rate causes or sustains growth?  I don't exactly remember the "Booming Aughts", do you?  I remember the booming 90's, with a top marginal tax rate of 39.6%.  Things weren't so bad in the 80's either, with top earners paying a 50% marginal tax rate.  But if the Bush Tax Cuts were the foundation of growth, and not just war-time deficit spending, where's the beef?  Consider this graph from the Center for American Progress:

Admittedly, the lower marginal rates have been weighed down by the most recent recession, and no one is suggesting that higher marginal rates causes economic growth, but it certainly doesn't appear to impede it.  In fact, the times of greatest average GDP growth have occurred with a top marginal rate of 75-80% (mostly under the Presidency of Ronald Reagan).  You'll also note that economic growth in real, inflation-adjusted GDP has been at its weakest with lower marginal taxes of the recent age:
Between 1960 and 1969 the top marginal tax rate was between 70-80%.

The real taxes to look at, and be concerned about in terms of economic growth, are those that you are paying.  That is not just self-interest, it is basic economics.  High taxes are bad when they are stopping you from spending.  Each individual can only buy so many TV sets.  If more consumers have more expendable income, the economy grows.  If a smaller segment of consumers receive the benefit that would otherwise be spread out over a greater number of consumers, their individual discretion drives the economy, and there is no prohibition against saving/investing that money overseas.

I'm a little out over my skis in talking about economics, but I did want to share these thoughts and these graphs.  I wholly acknowledge that the graphs are from advocating sources (except for maybe the St. Louis Reserve) and would welcome any counter-points to include links to outside data.  I just don't think we should accept as true the idea that high marginal tax rates automatically stifle growth.  It seems like a very convenient line for wealthy boosters of "grassroots" political movements to send down to the masses.


Jim Johnson's 1-2-3 inning for the American League may have been just about the only thing that went right for the DH-propping team, which was drubbed 8-0 by the National League.  If this were any other season, Johnson would be all the talk of trade rumors as he was shopped around to contenders. 

Howard County middle school reading scores have declined from 92.7% to 90.9% passing.  This dip joined an overall decline across the State from 83.5% to 82.1%.  A reasonable evaluation of this may be that a 1.8% difference is within the variability of alternating classes of individual students, but I would not expect a reasonable assessment, particularly on the heels of last year's controversial decision to incorporate reading into the inter-disciplinary work-load and not maintain it as a stand-alone class.

Hindsight being 20/20, I think returning paddle-boats to Lake Kittamaqundi should have been a higher priority for CA since their discontinuation in 2003.  This has been a very popular change and one that was ripe for the picking.

County Executives from across the State, including Howard, sent a "what the heck" letter to the Public Service Commission requesting a better communication system for power outages and exploring the possibility of burying power lines.

The Board of Elections has certified the same-sex marriage petition for inclusion on the 2012 ballot.  There is good reason to believe that Maryland will be the first State to affirm same-sex marriage by referendum, which could be a death knell for opponents across the Country as their most successful weapon is disarmed on he national stage. 

Featured Blog Post of the Day: HoCo Matt looks at the various entry points of civic engagement and participation, particularly the less traditional solicitations of community input.  Implicit in Matt's piece is that we can't expect the previous generations method's of engagement to work, or otherwise require those looking to participate do so in ways institutionalized by those currently in power/influence.  I met up with a friend yesterday who noted that those currently in positions of influence on the Village/local level have very little incentive to encourage new participants who may one day challenge them for their spot.  This will have to be outside pressure and dedication, which presents a very concerning "chicken or egg" question of what makes people get that I've been trying to answer for three years.

That's all for today.  Have a great Wednesday doing what you love.