Saturday, April 16, 2011

The Persistence of Bad Ideas

In 1984, facing what seemed to him and others like massive federal deficits as far as the eye could see, Walter Mondale declared it a patent necessity that federal taxes be raised. He went on to lose the election in 49 of the 50 states, carrying only Minnesota, his home state.

Later, running for the Senate, he lost in Minnesota, making him the only person in US history to lose statewide elections in all fifty states.

Today he writes in the WaPo that tax increases are again a necessity. And he says that the political risk is for those who don't raise taxes, because Americans want taxes raised.

We figure he's an expert in what works politically, given his record.

Ah, but he says the record favors his view. Really?

Mondale says that the record of American presidents shows that tax increases are necessary to balance the budget. Hmm. We recall that a certain Calvin Coolidge managed both to cut taxes and balance the budget.

Mondale complains that tax revenues are at their lowest percentage of GDP in 40 years. True enough. He says that tax rates are the lowest in decades. We think that's a falsehood, as they aren't as low as they were before Clinton raised them, the Bush cuts notwithstanding.

Still, let's ask about cause an effect. Are tax revenues low as a share of GDP because of low rates or because of low economic activity? The history of tax revenues in the industrial era is a history of rising revenues when the economy is strong and sinking revenues when it's weak. It's also a history of permanent cuts in tax rates stimulating economic activity in ways that raise tax revenues.

Mondale wisely does not say that higher rates on the wealthy will generate the money to bring the federal fisc into balance. He does say that it's necessary for fairness when many people are suffering. Apparently the tax code exists to make everyone miserable.

In the end, we couldn't bring ourselves to finish Mondale's whiny, self-important, factually challenged article. Which is most certainly why Mr. Mondale is the losingest politician in the history of the world.


Anonymous said...
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Tom_KY said...

The way that I understand the raising of taxes on the wealthy is from a current rate of 35% to a Clinton-era rate of 39%. So, if I make $300,000 my tax liability is increased from 105,000 to 117,000 - a $12,000 tax hit.

This difference no longer gives me an incentive to produce? Really?

Cut defense, cut entitlements, raise taxes a mind-blowing 4 percentage points and let's get back on track.

Tom_KY said...

And from today's WSJ

Tom_KY said...

Must be a hot topic - a lot of discussion on the internets about taxes and debt today.

In the last 15 years, the elite of the elite have seen their incomes increase over 80% while their tax rate has fell off more than 13 percentage points during the same period.

“If the richest 400 Americans simply paid the same effective rate in 1995 as they did in 2007, the government would have collected over $3 billion in additional revenue.”

That’s not nothing.

I'm always surprised by people who defend the rich, while not being anywhere near an income-level that approaches "rich". I like rich people, know a lot of rich people, but don't get giddy when they get tax breaks and don't get defensive when they might have to pay more. I'm paying about $50.00 more dollars in tax this year than last and I haven't had one rich person rush to my defense.

Reminds me of the scene in "Bronx Tale" when the mob boss is telling DeNiro's son that Mickey Mantle doesn't care about him.

Jon A. Alfred E. Michael J. Wile E. SWNID said...

Thanks for refuting your own position. Three billions don't matter to a budget in the trillions. Taxing the rich is so much political theater.

Tom_KY said...

"That's not nothing" could be re-phrased to "that's something" - is that more to your liking?

It does matter if you extrapolate that to the top 1% - or 3 million people - with a reduction in government spending, you start to make a significant dent.

Or, we could keep the status quo. By the time our democracy turns into a dictatorship, I will be too old to care.

Jon A. Alfred E. Michael J. Wile E. SWNID said...

Not really, because this is a very steep parabolic function, and the curve declines quite sharply below the first 400 households to the rest of the top 1%. Beware of mathematical sleight of hand. After the Gateses and the Buffetts and the Zukerbergs and the Brins and such, the pickins aren't nearly as robust.

And how much of their stock do we want them to sell to pay Uncle Sugar? They don't keep their cash under a mattress. Nothing like selling the nation's capital to pay for redistributive entitlements.

Keep on the blogs, Tom, and you'll see the arithmetic that shows that taxing all the income earned in the US above the magical $250k/household/year threshold yields not enuf to balance the out-of-control budget. And that's a ridiculous premise, of course. This tax-the-rich thing simply perpetuates the myth of the free lunch (menu: the rich!).


Lost in all this is the very real openness of the GOP to negotiate changes in the tax code to eliminate deductions along with lowering marginal rates, a strategy designed to redirect economic activity from tax-favored areas to more productive ones. Thus, corporate-welfare recipients like GE would pay something on their billions of profits while less well connected businesses would get a break on their marginal rates. Economic activity would be stimulated, and the dynamics of tax-cut economics would be unleashed on a plan that the CBO would score as revenue neutral while in fact becoming revenue positive.


Let's remember that the real debate is about spending, not revenue. Do we really need to spend 25 cents of every dollar on the federal government's hodgepodge of special-interest payoffs? How in the world did even Lyndon Johnson get by on about 80% of that?


Who wants the status quo? We fiscal realists just want a federal budget that spends within historic boundaries. No need to chicken-little-ize this.