George Rebane
[This is the linked transcript of my regular KVMR commentary broadcast on 6 December 2013.]
Developed nations around the world are up to their ears in unmanageable debt while facing demographic tsunamis of workers getting ready to retire with un- or underfunded pensions. In response, more people in governments and finance worldwide are beginning to eye wealth taxes as the preferred attempt toward a solution. Never mind that in the end the numbers will not add up, it’s the populist politics in the interim that matter. So what’s new?
First let’s recognize a huge cognitive disconnect that the hoi polloi are not supposed to notice. On the one hand, progressives have always held that tax rates don’t affect economic behavior, and on the other, global financial institutions like the International Monetary Fund are now calculating “revenue maximizing top income tax rates” for various countries. I hope everyone listening understands that the Laffer Curve is not only alive and well, but now also a much used policy tool.
Laffer Curve? Economist Art Laffer told us years ago that government revenues don’t always increase as tax rates are raised on their citizens’ income. In response, the tax and spenders immediately joined voices to denounce such nonsense, all the while being repeatedly surprised by falling revenues as they continued to raise taxes. Today smidgeons of sanity are quietly returning with the realization that the more you confiscate from a person’s last earned dollar, the less he’s willing to risk and work to earn it. To most muddled minds this common sense lies somewhere between rank heresy and rocket science. (more here)
In any event, the mavens at IMF have estimated that for most nations, the top revenues on their Laffer Curve come at about 60% marginal tax rate. And for the US, peak revenues can be had from up to a top rate of 71%. But a major disconnect still exists with even this quiet resuscitation of Art Laffer’s teaching. The liberal mind fundamentally believes in stasism – social policies affect only things their planners anticipate, and all other aspects of society will remain static and continue as before because such policies never have ripple effects. Even the IMF admits that its “revenue maximizing approach takes no account of the well-being of top earners (or their businesses).”
Since no one knows how to grow economies at rates sufficient to reduce debt to sustainable levels, sky high taxes are the acknowledged third way of attempting to solve the world’s sovereign debt problems. Everyone admits that the other two – repudiating debt or hyper-inflating it away – are not such good solutions. But then, given Dr Laffer’s diminishing revenues from higher taxes, the third way will not quite solve the problem either. What to do?
Well, there is always one more way to go, as taught by acknowledged educators like Willie Sutton, and it works for both bank robbers and governments. All you need is guns. Never mind taxing what they are currently earning, go straight for what they already own. Tax their assets. More and more governments, along with leftwing think tanks like the New America Foundation, are adding what they call a ‘one-off tax on private wealth’ to their bag of revenue ratcheting tricks. Anyone want to bet that, once hooked, any such one-off tax will not be repeated by heavily indebted governments?
A final way to make retirement more equitable for US retirees is to simply tax the bejeezus out of the asset pools and generated income that have accrued to those greedy old codgers who were able to assemble a comfortable nest egg during their working lives. Why should they live high off the hog in their sunset years when others are having to skimp by on Social Security?
Let’s instead come up with Social Security B, a supplemental retirement income to help “close the gap” for those who qualify. Of course, we now know where the funds will come from to serve this new piece of social justice. And when you start confiscating people’s assets, we all know that everything else in the world will stay the same and muddle on as before.
My name is Rebane, and I also expand on this and related themes on NCTV and georgerebane.com where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively. However my views are not necessarily shared by KVMR. Thank you for listening.
rebanesruminations.com 
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