The Wall Street Journal blog Real Time Economics is reporting that a 60% majority of economists surveyed by the National Association for Business Economics say the current rates for capital gains and dividends should not be raised to expire at the end of the year as currently scheduled. A further 22% think the rates should be extended for middle-income payers, but not the wealthy.
At least 60% of economists surveyed by the National Association for Business Economics said lower tax rates on capital gains and dividends should not be allowed to expire as provided under current law. Another 22% said the lower rate on capital gains and dividends should be preserved for middle-income taxpayers, but not for the wealthy.
The findings point to increasing nervousness about the impact the expiration of tax cuts could have on the struggling recovery, as Congress gears up for a fall debate on how to deal with the tax cuts.
…Opinion among economists was a little more evenly divided with regard to the expiration of individual income tax rates. Fifty-four percent of those surveyed by NABE favored extending the current rates, while 33% favor Obama’s plan to let rates rise on the wealthy.
In order to provide the most economic impact, tax rates on capital gains and dividends should remain low – or better yet, be eliminated – for all Americans. As this recent Wall Street Journal correctly points out, “rich people are the most responsive to changes in tax rates.” Thus, it would be a mistake to succumb to class-warfare and narrowly target tax relief.
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With the public unconvinced of the wisdom of soaking the rich, the latest hot idea floating around in statist circles is not to soak the rich, but rather the really, super-duper, ultra rich.
In a class-warfare filled screed, James Surowiecki wrote in the New Yorker on the need to “Soak the Very, Very Rich.”
A better tax system would have more brackets, so that the super-rich pay higher rates. (The most obvious bracket to add would be a higher rate at a million dollars a year, but there’s no reason to stop there.) This would make the system fairer, since it would reflect the real stratification among high-income earners…
Ezra Klein then blogged at the Washington Post that he is “very sympathetic to the idea that there should be more tax brackets,” reasoning that “It would be a lot easier to fight the super-rich than to fight the super-rich, the really rich, the pretty rich, and well-off.” If there was a bracket just for the super-duper-really rich, you see, it could be more easily raised to unconscionable and economy killing levels without public objection.
Adding more tax brackets would complicated an already inexcusably incomprehensible tax code, resulting in increased economic waste and compliance costs, more expenditures on lobbying and even greater uncertainty than is currently holding down economic growth.
Furthermore, tax policy should not be decided based on which group is easiest to demagogue and demonize. Nor is it the purpose of the tax code to enshrine into law a particular view of economic fairness, which in the case of Surowiecki and Klein, means redistribution.
There is one legitimate reason and one legitimate reason only for taxes, and that’s to raise the funds necessary for the limited functions of constitutional government and rule of law. There is no honest assessment of those functions as enshrined in the US Constitution which can find that the present revenues received by the state are insufficient to provide for those functions.
I’m sure it’s too much to ask, but rather than ruminate on which of its citizens the government and its statist boosters should declare war on next, the Ezra Klein’s of the world should think about how government spending can be reduced, and our federal government brought back into the bounds of legitimate, constitutional governance.
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Congressman Pete Stark informs us that the federal government is largely without limits:
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Sometimes economic battles are fought by theorists without any strong empirical evidence existing on either side. Today’s battle, with Obama administration tax-and-spend Keynesians on one side, and supply-side economists on the other, is not such a case. As Richard Rahn shows in his Washington Times column, the evidence is really quite clear. Reagan’s supply-side cuts produced a strong recovery by the same point in time where Obama’s Keynesian “stimulating” has not.
Our choice now is simple. We can follow an economic model which has no empirical evidence suggesting it will work by allowing the taxes on capital gains, dividends and death to rise as planned at the end of the year. Or, we can keep those rates low – better yet still, we can reduce them – and get the results for which supply-side economics has already proven capable.
Cross-posted at Double Taxed.
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Paul Ryan schools Chris Matthews on spending cuts:
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Basketball is not my sport of choice, so I had no vested interest in the outcome of the recent drama surrounding LeBron James. Even though I still consider Florida my home state, I don’t care that he’s chosen to play in Miami. I am, however, struck by the degree to which LeBron’s decision mirrors that of so many ordinary Americans and businesses. Namely, I note that he’s spurned high tax jurisdictions for income-tax free Florida.
Obviously, LeBron made his decision on more than just economic factors, though it’s fair to say that pay and other monetary factors mattered to some degree. Although the sports community narrative involves James joining basketball super stars Wayne and Bosh – as well as some cries about the fairness of this team construction – the fact that all came together in Florida shouldn’t come as any surprise. From 1999-2008, more Americans have migrated to the zero-income-tax-having Sunshine State than any other. Meanwhile, the other states involved in the LeBron saga – Ohio, Illinois and New York – are 3 of the bottom 6 in net migration, with more Americans fleeing New York than any other state in the union.
These patterns should not come as any surprise when you contrast Florida’s lack of an income tax with the top marginal rates of Ohio (7.93%), Illinois (3.0%) and New York (12.62%). But perhaps more importantly is the degree to which businesses are motivated by the same considerations. Corporate taxes and regulatory environments shape corporate decisions every day, with states like New York and California increasingly driving businesses away as they look for more favorable environments. This kind of tax competition is an important check on bad government policy, but it can be painful when you’re in one of the states being driven into the ground by short-sighted politicians. While LeBron James just might have considered these factors in his decision, that ordinary Americans and businesses do is without question – and the consequences for high tax jurisdictions are as clear as Cleveland’s outrage.
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Ray D. Madoff writes in the LA Times that failing to confiscate the acquired wealth of individuals when they pass away will “harm our democracy.” She reaches this odd conclusion primarily by arguing that, absent an intrusive government willing to pick the pockets of the deceased, our democracy would be harmed by “concentrations of wealth.” She buttresses this argument with the factually incorrect claim that, while “few Americans own an enormous amount … a large number of Americans own hardly anything at all.”
This is simply untrue. Owning a small percentage of American wealth is not the same thing as owning hardly anything. Madoff ignores that owning a small, or even “unequal,” share of the American pie is still much better than having a large, “equal” or “fair” portion of almost any other, for the simple reason that America creates far more wealth to go around in the first place. This is because America has historically rewarded risk-taking and innovation, while other countries have been more concerned with Madoff’s brand of fairness. The consequence today is that even our poor are better off than the middle and upper classes of other countries. To understand the backwardness of her agenda, just look at the year she cites as the pinnacle of redistributive fairness, 1976, which was also the heyday of stagflation and malaise.
She also attempts to wave away concerns about double-taxation by arguing that “there is no general principle that says income or property gets taxed only once.” She supports this claim by saying that the same money is often taxed multiple times as it is earned, spent and passed along. But each of these activities is economic in nature and represents a separate action. Paying sales tax while spending the same money one has payed income tax on is not the same as having one’s estate pillaged by the state upon death. Death is not an economic activity.
Contrary to her claims, death taxes are harmful to the economy. They discourage savings and investment by encouraging people to spend money before it is taxed away, leading to job loss and slower economic growth. Death taxes also hit hard small, family businesses, or those with significant assets tied up in land, like farms. Would anyone expect major corporations to stay competitive if they had to liquidate and sell off half their assets every few generations?
Madoff’s biggest failure, however, is that she completely ignores the important role of the family unit in economic life. Households have always been recognized as an economic entity because of the manner in which families work together to advance their economic condition. To say that a parent has no right to pass on the fruits of their labor to their children and grandchildren is to completely ignore the unique role of the family in economic life. There’s no more moral justification for taxing estates after death than there is for taxing the allowance a parent might give to a child. Death and taxes are both be said to be inevitable, but there’s no reason they have to come together.
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Formerly communist Russia is beating supposedly capitalist America at our own game. In order to attract new investments, Russia will eliminate their capital gains tax in 2011.
Russia will scrap capital gains tax on long-term direct investment from 2011, President Dmitry Medvedev has said.
Mr Medvedev said that in terms of improving Russia’s investment climate “we, I hope, are moving forward”.
…Its oil revenues fund, which has been financing the deficit, is expected to end next year, and the government wants to attract more foreign investment to boost the economy.
In recognizing that the correct capital gains rate is zero, Russian politicians seem to understand tax policy better than our own. Meanwhile, the U.S. capital gains rate will increase from 15 to 20 percent in 2011 if Congress does not extend the cuts enacted under Bush. The recently passed government run healthcare bill also included a 3.8% rate increase that will take effect in 2013.
Maybe the Russians will just be capturing the investments that Americans don’t want.
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While Illinois, like so many state governments, is already struggling to pay for overly generous public pension plans, 15,000 union members marched on the state capital demanding yet more money in the form of higher taxes.
According to ALEC’s Rich States, Poor States, Illinois is ranked 47 out of 50 for its economic outlook. It also already has the 10th highest worker compensation costs among the states. Raising taxes to pay public workers yet more would be a disastrous move for the state, and likely foster continued migration of the wealthy out of the state in search of lower tax jurisdictions.
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Obama wants our thanks, so he has mine over at Right Wing News.
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I am a libertarian-conservative blogger living in the DC area. I have a Master's degree in Political Science and work in public policy, but please don't hold that against me.
