On the August 30th Tax Prof blog, Paul Caron referenced an August 29, 2007 U.S. News and World Reports "capital commerce blog" item by James Pethokoukis, Can Republicans Explain Why Higher Taxes are Bad? Pethokoukis noted that with the presidential campaign well under way, Republican candidates "seem to be assuming that their Democratic rivals are going to push for repeal of all the Bush tax cuts". Instead, Pethokoukis says, it's likely they "will call for only the tax cuts on wealthier Americans to be repealed--such as raising the top rate from 35% to 40%." He notes that the candidates don't address that issue.
Maybe Pethokoukis is thinking about the surveys that show Americans are supportive of progressive taxation. With that as a given, those who want to end the progressive income tax system tend not to talk about progressive taxation in a way that is understandable and reminds Americans of the reasons they favor it. The opponents tend to talk about "fair" taxes (even when they mean regressive ones) and "flat" taxes (even though most flat tax systems still have multiple rates and most such systems would require lower income taxpayers to pay a much higher share of the tax burden than a progressive tax). So Pethokoukis has caught the "all taxes are bad" crowd out with his notice of their avoidance of the discussion of shifting the share of the tax burden back towards the upper side of the income distribution .
What I found interesting was the comment on the Tax Prof blog by "Dewey." Dewey makes the following three arguments against raising taxes (he doesn't at all address the issue of raising taxes only on the top income distribution, or raising taxes there while lowering taxes on the lower and middle income distribution--this is a generic "all taxes are bad" argument).
first, population growth demands lower taxes
- the population is growing
- larger number of people require larger numbers of jobs
- larger number of jobs require larger investments
- larger investments are hindered by taxes
- therefore, we should not raise taxes
Second, we can lower taxes to get more revenues
- lower taxes increases revenues
- therefore we don't need to raise taxes
Third, competitiveness demands lower taxes
- larger numbers of jobs will be avaialble in the global marketplace
- we need to be competitive in the global market place
- taxes disadvantage our competitiveness in the global market place
The second point is the Laffer curve--a nice-sounding hypothesis, unproven, and not widely accepted. The first has a number of hidden and unverified assumptions--that saved taxes will be put to the kind of investment that creates jobs at home (instead of returns from investments abroad), that saved taxes will be put to investment rather than spent on frivolity, that investment is currently at a level below the amount sustainable in creating new jobs, that the tax burden is already so high that it deleteriously impacts the kind of investment needed, etc. Consider that about 50% of US public corporations paid no federal income tax whatsoever in 2003. Or that hefty investors can't find investments worthy of their piles of cash--Warren Buffet is one example that springs to mind of having large cash hordes in his investment engine because of the lack of worthy investments. The third point about competitiveness also makes a number of assumptions--that the main competitors of US companies abroad are foreign companies, and not US companies or affiliates, that tax rather than infrastructure and other issues is the major inhibitor to US success abroad, that US corporate success abroad has positive benefits for the domestic economy that outweigh the obvious negatives of moving jobs overseas, that US multinationals bear a substantial tax burden currently, etc. These points are each as vulnerable as those in the first bullet.
Maybe this explains Pethokoukis' observation that candidates have been mum in response to the reasonable strategy of raising taxes on the uppermost distribution in order to keep them lower for the lower and middle classes.....
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