George Rebane
[This piece is the second of a four part series on taxes, jobs, and income that includes, in order of posting, ‘The Administration Discovers Shortage of Engineers’, ‘Higher Tax Rates = Lower Revenues’, ‘More Green Companies Heading for Greener Pastures’, ‘Employment and Income Inequality’.]
The progressives’ calcified mindset does not admit to the truth of the title, no matter the data that supports it. This reconfirms to many conservatives and those of libertarian bent that there is a larger agenda at work here which involves the economic castration of America – they can’t all be that stupid.
An example of the right/left debate that highlights this is found on these pages in the comment stream of ‘The Liberal Mind – Tax Rates Don’t Affect Earnings’. There we find the tired and well-worn liberal arguments citing Eisenhower era rates and the belief that more taxes on the rich increase government revenues. Some liberals actually do believe that such higher revenues could then be applied to their conceptions of ‘social justice’. But I’m afraid that the globalists among them know better, and pursue higher taxes in America under that façade as an effective avenue to their one-world objective.
In the 16jun11 WSJ Alan Reynolds of Cato again presents US government data, and argues ‘Why 70% Tax Rates Won’t Work’ with a note to Robert Reich (the ‘70% man’) that says – “The income tax brought in less revenue when the highest rate was 70% to 91% than it did when the highest rate was 28%.” (see nearby table from the article)
Reynolds goes on to detail the history of revenue production from tax rates reaching back to 1951. He concludes with –
… the Joint Committee on Taxation recently reported that 51% of Americans no longer pay federal income tax.
Since the era of 70% tax rates, the U.S. income tax system has become far more “progressive.” Congressional Budget Office estimates show that from 1979 to 2007 average income tax rates fell by 110% to minus 0.4% from 4.1% for the second-poorest quintile of taxpayers. Average tax rates fell by 56% for the middle quintile and 39% for the fourth, but only 8% at the top. Despite these massive tax cuts for the bottom 80%, overall federal revenues were the same 18.5% share of GDP in 2007 as they were in 1979 and individual tax revenues were nearly the same—8.7% of GDP in 1979 versus 8.4% in 2007.
In short, reductions in top tax rates under Presidents Kennedy and Reagan, and reductions in capital gains tax rates under Presidents Clinton and George W. Bush, not only “paid for themselves” but also provided enough extra revenue to finance negative income taxes for the bottom 40% and record-low income taxes at middle incomes.
Of course, none of this will make a dent in the progressive chorus, because they are singing to voters already embracing the Peter/Paul Principle, and those for whom such information is not accessible.
[22jun2011 update – the following letter in the 22jun11 WSJ rebuts Robert Reich’s criticique of Reynold’s analysis, and extends the argument presented.]
In his rebuttal (Letters, June 18) to Alan Reynolds’s June 16 op-ed “Why 70% Tax Rates Won’t Work,” Robert Reich claims that Mr. Reynolds “distorts my proposal and ignores my argument.” And, well he should, because it’s impossible to address Mr. Reich’s “proposal” because it is not based on historical fact and misrepresents today’s reality.
For many of the glory years Mr. Reich celebrates, when tax rates ranged from 70% to 91%, there was no Alternative Minimum Tax and no limit on nearly all deductible expenses including the “three martini lunch.” Consequently “tax shelters” were ubiquitous and used by even the least significant investor. Taxes paid, and even prepaid to state and local governments, were fully deductible along with installment interest on credit cards, personal borrowing and more, including nearly all medical expenses. Even when the AMT was introduced, it only captured a handful of the highest income producers. Today, the AMT has become so oppressive that each year Congress exempts millions of middle-class wage-earning taxpayers from its clutches. It does, however, capture vast sums from the evil “millionaires and billionaires” the left so despises—except when they fund left-wing fantasies.
Very simply, the effective tax rates when marginal rates were stratospheric were not dramatically higher than today.
Mr. Reich proposes further tax reduction for those earning less than $100,000. Today about 22% of those making between $50,000 and $75,000 have no federal income tax liability or “negative liability.” As many as 9% of households with incomes between $75,000 and $100,000 are similarly exempt. His scheme would exempt much of the middle class, which is a disproportionate user of government, reducing its stake in the governance of America even further and making it more vulnerable to the volatility that has so damaged the economy during the Obama presidency.
Mr. Reich is simply proposing a vast expansion of government’s reach into the economy and relies on the premise that high earners aren’t paying their “fair share.” That is flat out false—they pay the vast majority of the costs of government. Further, his proposal assumes that the earnings of despised “millionaires and billionaires” belongs to our government, which will pay us an allowance after its choices of where to spend are honored and the earners’ choices of where not to spend are dismissed. Karl Marx lives.
Royal S. Dellinger, CPA
rebanesruminations.com 
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