Week of 08/02/2010: An Exciting Week for Taxes

It’s been an exciting week for taxes.  For some reason, the federal “deficit” has suddenly surfaced as a crisis now, only after the explosion of spending since January 2009.  Tax increases are frequently put forward as a way to “solve” the “deficit crisis.”  Historical data and actual experience would suggest otherwise.  Here is some information to help you decide which candidates get your vote in the November 2010 elections.


Highlights of the week of 08/02/2010

Arthur Laffer explained Monday in The Wall Street Journal the effects which changes to tax rates really have as measured by actual IRS data, and how raising taxes is not the answer.

Six members of the House of Representatives from New York want to shield their own constituents from the coming tax increase if and when the Bush tax cuts expire, and let the rest of the United States pay more taxes.  In an odd sort of way, they seem to agree with Arthur Laffer that raising taxes is not the answer. 

Treasury Secretary Timothy Geithner attempted to explain how increasing taxes by letting the Bush tax cuts expire will help economic growth.  The IRS is part of the Treasury Department.  Perhaps Secretary Geithner can have Arthur Laffer take some time to walk him through the actual IRS data.


How Taxes Affect Your and Your Family
Taxes are important to individuals, families, and businesses for a number of reasons.  Tax rates are one form of government intervention in the economy along with government spending, regulation, and direct involvement.  Generally, less government intervention means more economic freedom and growth.  Historical data show lower tax rates, fewer taxes, and less overall government intervention in the economy drive higher economic freedom and growth for individuals, families, and businesses.

The “liberal” and “progressive” ideology currently popular in Congress, the White House, and elsewhere holds the following things as bad:

• Any individual wealth.

• Financial rewards for being successful.

• Any business which grows and succeeds.

• Any income “disparity.”

The liberal/progressive response to these “bad” things is to raise tax rates and increase government intervention in the economy in an attempt to make the economy work according to the liberal/progressive agenda.  Unfortunately, this ideology flies in the face of the reality of historical data and actual experience.

As you decide which candidates get your vote, it is important to know where they stand on taxes, government intervention in the economy, and economic freedom and growth.  This affects you and your family.  A good source of information on where federal and state candidates stand, and what they have done and said is the Project Vote Smart Web site.

Arthur Laffer’s Look at History and the Data
Arthur Laffer provided a public service in his opinion-page article Monday in The Wall Street Journal.  Mr. Laffer earned a PhD in economics at Stanford University and taught at the University of Chicago Graduate School of Business.  As a part of the Reagan administration’s economic team in the 1980’s, Mr. Laffer has first-hand experience in how to turn economies around and get them growing.  Highlights from the article and historical data:

• In the early 1960’s, the Kennedy tax rate cuts resulted in increased government tax receipts from “the rich.”  This was also a time of robust economic growth.

• From 1968-1981, tax rates were increased under multiple Democrat and Republican presidents, and government tax receipts and economic growth stagnated.

• In the 1960’s, 1980’s, and 2000’s, when tax rates on dividends and capital gains were reduced, government tax receipts from these sources grew, and economic growth was robust.

• IRS data from individual and business tax returns for 1996-2008 are provided on the IRS Web site.

A good question is why certain politicians support the expiration of the Bush tax cuts and higher taxes in general?  According to historical data, this does not help economic growth, does not create jobs, and does not help individuals and families.

New York Representatives for Lower Taxes, Sort of
Certain Representatives from New York get bonus points this week for creativity with taxes.  New York is a high-tax, high-cost state, and various New York politicians have attempted to sell living in New York as a luxury, and paying high New York taxes is a privilege.  Now come increased taxes with the expiration of the Bush tax cuts, and the response of voters appears to have certain New York Representatives a little worried about the future of their careers in Congress.  These Representatives and their congressional districts in New York are:

Jerrold Nadler (8th District, NY)
Timothy Bishop (1st District, NY)
Steve Israel (2nd District, NY)
Carolyn McCarthy (4th District, NY)
Carolyn Maloney (14th District, NY)
Nita Lowey (18th District, NY)

Their creativity is something called the “Tax Equity Act” which has little to do with equity.  Jerrold Nadler is the sponsor of this legislation, and the others are cosponsors.  This legislation will let taxpayers in high-tax, high-cost states, such as New York and California, avoid paying all of the tax increase from the Bush tax cut expiration, while taxpayers in low-tax, low-cost states with strong economies would pay the full tax increase.  Among other things, high-tax, high-cost states like New York and California would basically export their higher tax rates to low-cost states.

Something for voters in these New York congressional districts to consider when deciding which candidates get their vote:  these Representatives apparently think New York’s high taxes are just fine, and taxpayers in other states should share this experience.  The good news is New York voters in these districts get to decide in the November 2010 elections whether or not they want these Representatives to serve them in Congress for another two years.

Treasury Secretary Timothy Geithner Attempts to Sell Tax Increases
On Wednesday, Treasury Secretary Timothy Geithner attempted to sell the tax increase which would result from letting the Bush tax cuts expire.  According to Mr. Geithner, continuing the Bush tax cuts "would hurt economic recovery by undermining confidence that we are prepared to make a commitment today to bring down our future deficits."  Two problems, among many, with Mr. Geithner’s statement:

• According to historical data, tax rate increases do not work in the way Mr. Geithner suggests.

• Unless the White House and Congress restrain and reduce spending, no changes to taxes will affect the “deficit.”

Mr. Geithner earned a master’s degree in International Economics and East Asian Studies at the Johns Hopkins School of Advanced International Studies, and should understand basic economics.  Perhaps Mr. Geithner is just doing his job as a soldier in the Obama administration.