Soak The Rich is Not a Panacea:
When the tax debate arises, we hear one side say that “we just want everyone to pay their fair share.” The opponents to this line of thinking almost always trot out the statistics that show that in 2006 the top 1% of taxpayers paid nearly 40% of all individual income taxes paid and that the top 5% paid over 60%. The numbers climb to over 86% for the top fourth of all tax payers. That means that 99% of taxpayers contribute 60% of the taxes collected, 95% of taxpayers pony up 40% of all taxes collected and that 3/4 of all taxpayers account for just 14% of taxes collected. (2008 Tax Foundation) President Obama ran, and was elected, on a platform that pledged for no new taxes for people making less than $250,000 which in 2008 would mean that those in the top 3 or 4% of taxpayers would get their taxes raised, again referring to the Tax Foundation. Apparently, the administration feels like the top 3 or 4 percent of taxpayers are not paying their fair share even though they already pay about half of all taxes paid.
Now, keep in mind that there is a theory out there called Hauser’s Law. It is described below (source)
Hauser’s Law is a theory that states that in the United States, federal tax revenues will always be equal to approximately 19.5% of GDP, regardless of what the top marginal tax rate is. The theory was first suggested in 1993 by Kurt Hauser, a San Francisco investment economist, who wrote at the time, “No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP.“.
So, if taxes are always 19.5% of GDP, then we need to increase the GDP and lead the tax rates alone, right? But, current political thought doesn’t go along with Hauser.
But, here is a real world consequence. I have a friend who has a business that employs 20 some odd people. I gave him a hard time saying that he needs to write me a check. He told me something interesting. He said, “I’m not going to make less money.” So, his solution will be to let a couple of employees go. So, raising his taxes will cost two jobs and, two additional tax payers. The Manhattan Institute wrote some years ago an article that showed when New York City raised taxes, city jobs were lost and city jobs were gained when taxes were lowered.
Arthur Laffer and Stephen Moore put out an op-ed piece on Monday in the Wall Street Journal(Soak the Rich, Lose the Rich-May 18, 2009 WSJ).
They point out that from 1998 to 2007, 1100 people a day moved from the nine highest state tax states, which includes CA, NJ, NY and OH and that most relocated to the non-income tax states that include FL, NV, NH and TX. Over those years, the non-income tax states had 32% greater income growth and 89% more jobs created than their high tax state counterparts. CT, NJ and NY in recent years increased the tax rate on those making over $200,000 to 5%, 8.97% (nearly a 50% increase) and 7.7% respectively. In the years 2002-2005 those states all had a significant reduction in taxpayers in that bracket. CT ranked 46th, New Jersey 49th and New York 50th in the percentage increase in wealthy tax filers during those years. And remember, that is well before the current economic downturn. These people simply moved.
The problem here is that so many legislative issues regarding taxation seem to assume a static economy or static environment. The truth is that there is a constant flux in any economy and the personal situations of any individual. There are consequences to actions and sometimes they are unintended.
The article takes on the idea that lower taxes inevitably leads to cutting services to the poor, lower quality schools and lower police protection. The authors boldly state, “they’re wrong.”
They point to New Hampshire having no sales tax or state income tax. Yet, their schools produce the 4th highest test scores in the nation and spends $5000 less per student than New York. They also cite the fact that California has the highest paid teachers with students who score second lowest in testing.
They wind up with Texas. The Texas governor says that Tejas doesn’t just compete with other states, but with other nations and tries to create a competitive business environment to stay in the arena with the likes of China, France, Germany and Japan. Texas is indeed a whole other country. Texas has no state income tax yet, in 2008, created more jobs than the other 49 states combined.
The states with the highest tax rates are generally the ones in the most fiscal trouble. Most of us won’t be affected by the current notion of taxing the highest income folks in our nation and states. So, we don’t care and think it’s okay. But, higher taxes on the big shots can negatively affect us all. My friend will let two people go. Wealthy taxpayers are leaving states meaning those states get nothing from people who were putting several dollars in state coffers. Fewer jobs are created in states with high tax rates than those who have no state income taxes. Don’t you think our lawmakers should think this out instead of playing to the crowd? What sounds good in a speech isn’t necessarily a good solution to any problem.
On This Date in History: A man in Berlin, Germany thought that dimples would be a good idea. But, not everyone has dimples. So, the Prussian Martin Goetze went to work on a device to make dimples. He found success and on this date in 1896, the US Patent office issued Patent No. 560,351 for a dimple maker. In his patent, Goetze said, “In order to make the body susceptable to the production of artistic dimples, it is necessary…that the cellular tissues surrounding the spot…should be made susceptible to its production by means of massage…the knob of the devices arm must be set on the selected spot…the cylinder serves to mass and make the spot where the dimple is to be produced malleable.”
In other words, this guy makes a brace and bit device that has a rounded tip on the bit that is rotated round and round to massage the place where you want a dimple. Good thing he had this patented….someone else may have stolen his idea. But, I doubt if he ever acheived Shirley Temple-like dimples on anyone. That creation came from the hand of one greater than man. However, I’ve seen some dimples on the backside of some bikini whales down at the beach that may be from the hand of Goetze.
Weather Bottom Line:
Enjoy the week. Big ridge moves in. Another cool start Tuesday but the mercury will climb as the week progresses. Don’t be surprised to see mid 80′s by Thursday or so. The ridge will block out everything. It will drive a developing area of low pressure in the Bahamas across Florida and along the Gulf Coast states. I told you yesterday to expect the National Hurricane Center to be aggressive with this system and….well…it’s another Colonel Klink Moment! Later in the season, they would not waste the time or money sending a hurricane hunter to investigate this. But, I suspect that it’s a good chance to test out their systems and do a run through so they will send one out on Tuesday, even though they admit there is a low probability of it developing into a tropical cyclone. There will probably be some reporting on this due to the pre-season nature of the system which gives a good opportunity to promote the fact that hurricane season is upon us in less than two weeks. If you’ve got plans to vaction in Florida or along the Gulf Coast in the next few days, take a deck of cards, some jigsaw puzzles and other games for the kids. Here’s the NHC report from Wednesday:
ABNT20 KNHC 182335
SPECIAL TROPICAL WEATHER OUTLOOK
NWS TPC/NATIONAL HURRICANE CENTER MIAMI FL
735 PM EDT MON MAY 18 2009
FOR THE NORTH ATLANTIC…CARIBBEAN SEA AND THE GULF OF MEXICO…
SATELLITE IMAGES AND SURFACE OBSERVATIONS INDICATE THAT THERE HAS
BEEN LITTLE CHANGE WITH A WEAK SURFACE LOW LOCATED JUST TO THE
SOUTH OF THE CENTRAL BAHAMAS. SOME SLOW DEVELOPMENT OF THIS SYSTEM
IS POSSIBLE DURING THE NEXT DAY OR TWO AS IT MOVES GENERALLY
NORTHWARD AT 10 TO 15 MPH. AN AIR FORCE RESERVE HURRICANE HUNTER
AIRCRAFT WILL INVESTIGATE THE SYSTEM ON TUESDAY…IF NECESSARY.
THERE IS A LOW CHANCE…LESS THAN 30 PERCENT…OF THIS SYSTEM
BECOMING A TROPICAL CYCLONE DURING THE NEXT 48 HOURS. ANOTHER
SPECIAL OUTLOOK REGARDING THIS SYSTEM WILL BE ISSUED TUESDAY