Wednesday, January 30, 2008

Tax the "Rich" More? One Economist's View

Arthur Laffer provides data (imagine that, data) that you can review about the problems that result from raising tax rates on citizens with high income.

"Surprise, surprise: The effective average tax rate for the top 1% of income earners barely wiggles as Congress changes tax codes after tax codes, and as the economy goes from boom to bust and back again (see chart).

The question is, how can that effective average tax rate be so stable? The answer is simply that the very highest income earners are and have always been able to vary their reported income and thus control the amount of taxes they pay. Whether through tax shelters, deferrals, gifts, write-offs, cross income mobility or any of a number of other measures, the effective average tax rate barely budges. But this group's total tax payments are incredibly volatile.

For the low- and middle-income earners, the effective average tax rate has tumbled over the past 25 years, and so have tax revenues no matter how they're measured.

Using recent data, in other words, it would appear on its face that the Democratic proposal to raise taxes on the upper-income earners, and lower taxes on the middle- and lower- income earners, will result in huge revenue losses on both accounts."

I've never met anyone who said that their taxes should be more. I've met many people who recommend changing the rate on another group. And it's increasingly clear that economic effects across millions of humans with emotions, a towering pile of government interventions, in a globallly networked transaction economy, are not easily understood intuitively.

So let's use some data to learn. If you'd like a good start, check out Basic Economics.

Alternatively, you can try to learn economics from members of your state and federal legislatures.

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