Tax collections have remained steady at about 18-20% of GDP since 1950. The government could certainly raise the top marginal rate back to the 70% rate of the 1970's, but they won't be likely to collect any more revenue. The proportional relationship between tax revenue and GDP has persisted with top marginal rates as high as 91% and as low as 29%. According to the data, the only way to increase tax revenue is to increase GDP. For a more detailed account of "Hauser's Law," follow this link:
http://www.theneweditor.com/index.php?/archives/8036-You-Cant-Soak-the-Rich.html
People off all stripes practice tax avoidance (both legal and illegal) as taxes get higher. And it's not just the domain of the uber-rich hiring tax lawyers to find obscure and complicated loopholes. If you are a cigarette smoker in New York, you know that the $3 per pack tax has made it more profitable for thieves to hijack a cigarette truck than an armored car. The black market is thriving as are cigarette sales in neighboring states. Why? Because nobody, rich or poor, wants to pay a tax rate that's confiscatory. It removes the incentive to work, produce and invest.
Wednesday, May 21, 2008
Wednesday, May 07, 2008
More evidence that markets are self-correcting...
Drivers in Boston are trading in their SUV's for fuel efficient sedans....and it didn't take a single piece of government legislation. Consumers will mandate fuel efficiency standards much more efficiently than Uncle Sam. Read the whole thing.
http://www.boston.com/news/local/massachusetts/articles/2008/05/06/frustrated_owners_try_to_unload_their_guzzlers/
http://www.boston.com/news/local/massachusetts/articles/2008/05/06/frustrated_owners_try_to_unload_their_guzzlers/
Monday, May 05, 2008
Energy Policy
So here's what passes for energy policy from the remaining three presidential hopefuls:
Clinton/McCain: A "gas tax holiday" which would eliminate the 18.4 cent federal gas tax during the summer driving season. Think about the math for a minute. The average driver logs about 1,100 miles per month. Assuming average MPG of 19, that's 174 gallons of gasoline. Estimated tax savings for your average driver: $31.96 or 36 cents per day. McCain says this will give low-income Americans "a little break" over the summer. Little is a huge overstatement. If this policy proposal is influencing your vote, then your vote can be had for a daily 10-piece pack of juicy fruit.
Obama/Clinton: A windfall profits tax. Obama rightly calls the gas tax holiday what it is - pandering for votes. His idea (and Clinton's with a few differing details) is to take an additional 10% of oil company profits and redistribute them as the government sees fit. This is a very slippery slope. Microsoft made about $14 billion dollars last year. Is that a "windfall?" How about banks? Citigroup had over $62 billion in net income from 2004 to 2006. Why not take more of those profits, redistribute them, and make mortgages more affordable for everyone? In the long-term, any policy of this nature is self-defeating. If each dollar of marginal income is taxed at a higher rate, investment will inevitably decline. As investment declines, production declines and prices rise.
Politicians would be better served to start telling their constituents the things they don't want to hear. The era of cheap oil is over. We need to be thinking about ways to decrease demand and increase supply. Higher gas and oil prices are actually quite necessary to achieving this goal. With higher prices, new technologies become economically feasible. Consumers demand automobiles which provide the best combination of fuel economy, size and power. It would be nice if the government would enact policies that provide long-term leadership instead of myopic gimmicks.
Clinton/McCain: A "gas tax holiday" which would eliminate the 18.4 cent federal gas tax during the summer driving season. Think about the math for a minute. The average driver logs about 1,100 miles per month. Assuming average MPG of 19, that's 174 gallons of gasoline. Estimated tax savings for your average driver: $31.96 or 36 cents per day. McCain says this will give low-income Americans "a little break" over the summer. Little is a huge overstatement. If this policy proposal is influencing your vote, then your vote can be had for a daily 10-piece pack of juicy fruit.
Obama/Clinton: A windfall profits tax. Obama rightly calls the gas tax holiday what it is - pandering for votes. His idea (and Clinton's with a few differing details) is to take an additional 10% of oil company profits and redistribute them as the government sees fit. This is a very slippery slope. Microsoft made about $14 billion dollars last year. Is that a "windfall?" How about banks? Citigroup had over $62 billion in net income from 2004 to 2006. Why not take more of those profits, redistribute them, and make mortgages more affordable for everyone? In the long-term, any policy of this nature is self-defeating. If each dollar of marginal income is taxed at a higher rate, investment will inevitably decline. As investment declines, production declines and prices rise.
Politicians would be better served to start telling their constituents the things they don't want to hear. The era of cheap oil is over. We need to be thinking about ways to decrease demand and increase supply. Higher gas and oil prices are actually quite necessary to achieving this goal. With higher prices, new technologies become economically feasible. Consumers demand automobiles which provide the best combination of fuel economy, size and power. It would be nice if the government would enact policies that provide long-term leadership instead of myopic gimmicks.
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