Huffington Post says ‘tax it all.’ Seriously.

Yesterday the Huffington Post’s Jeffrey Sachs criticized a recent Wall Street Journal editorial, claiming that the Journal “distorts the truth about taxes.”

In the Journal piece, the claim is made that even if we taxed all the income of the top one percent of taxpayers, that would not raise enough funds to close the deficit. Sachs takes issue with the numbers, he claiming that taxing “total income of the top 1% would close the budget deficit entirely.” He sees an error in the numbers the Journal uses, and I think he might be right. I can’t figure out the arithmetic the Journal uses.

But while Sachs takes great relish in showing — at least in his mind — that the Journal is wrong in its numbers, Sachs himself can’t be taken seriously. After all, he is proposing to tax 100 percent of the adjusted gross income income of the top one percent of earners.

While liberals might want to take all the income of our country’s high-earning people, this is a plan that can’t be taken seriously, especially by a purportedly serious person as Sachs. It could possibly work for one year — if you could pull off a surprise and make the 100 percent tax rate retroactive, after everyone has already earned the money for the taxable year. Any other plan will fail. That’s because we know that when marginal tax rates rise, people takes steps to have less income. Some decide to work and risk less, so they have less income. Others seek to shelter income from taxes, and since almost all such tax shelters are an economically unproductive use of funds, we are all poorer as a result. And some people lie and cheat in order to avoid taxes. But we can be sure that people will takes steps to have less taxable income as tax rates rise.

Try as we might, raising tax rates won’t generate higher revenues (as a percentage of gross domestic product), due to Hauser’s law. W. Kurt Hauser explains in The Wall Street Journal: “Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration’s budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues. Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this ‘Hauser’s Law.’”

People react to changes in tax law. As tax rates rise, people seek to reduce their taxable income and make investments in unproductive tax shelters. There is less incentive to work and invest. These are some of the reasons why tax hikes usually don’t generate the promised revenue.

Any plan to reduce the deficit by raising tax rates will have to overcome this tax-avoiding behavior. Hauser’s law says this is not likely to happen.

The subtitle to Hauser’s article is “Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie.”

Hauser's LawHauser’s Law illustrated. No matter what the top marginal tax rate, taxes collected remain an almost constant percentage of GDP.

3 thoughts on “Huffington Post says ‘tax it all.’ Seriously.”

  1. Bob,
    Mr. Sachs states that “every baseline scenario by the Congressional Budget Office and the Office of Management and Budget shows a deficit between 2013 and 2021 that is less than 6 percent of GDP” soaking the rich in the out years would be successful over the long term.

    The WSJ did not get it wrong.

    The CBO estimates that in the next two years the deficit will be 9.2% and 7.4% of GDP, then suddenly drop below 6%. Based on the assumption that the AMT is not indexed and Medicare payment rates are not adjusted up….and the budget doesn’t include any significant increases.

    http://cboblog.cbo.gov/?cat=8

  2. It was good to hear from Mr. Sachs after he returned from the George Soros funded monetary conference in New Hampshire. Soros spoke to his minions there. Obviously, higher tax rates would apply to the folks making over $200k per year but George Soros and the rest of the far left uber billionaires along with Warren Buffett, the Hollywood left would all keep clipping municipal bonds or using some other federal income tax loophole.

    Sachs has gotten his marching orders from the big boss.

    I found it interesting that the Obamanation managed to pay only about an effective marginal income tax rate of about 20% of his multi-million income last year. Where’s his maximum contribution to federal taxes?

    If the anointed one and his billionaire buddies: Soros, Buffett, Peter Lewis, etc. want to pay more, let ‘em do so. The feds and even Kansas have a “tax me more,” fund that they can receive their excess funds. These funds usually ooze along generating a tiny pittance among the guilty minded, mathematically challenged, or readers of left wing blogs in terms of funding contributions.

    Today, the top 10% income earners generate most of the income tax revenues nationally and in the 41 states with income taxes. The last figures indicate that the bottom half of income earners generate only 3 or 4% of federal income tax revenues. That is a fact. Sweden imposed tax rates that were within a fraction of 100% back in the 1960′s and managed to export their most productive and highly paid citizens who became tax “refugees” setting up residences in low tax venues like Monte Carlo.

    Today, it is scary the number of people I have heard from who are now looking at moving abroad. That does not limit their federal income tax liability, but who knows how many folks may decide to follow in the tax footsteps of our treasury secretary Tim Geithner or the former chairman of the house ways and means committe Charlie Rangel and begin to utilize “creative accounting.” Chiseling on taxes didn’t keep those two guys from getting and in Geithner’s case, still holding high federal office. Why can’t we all be like Geithner?

    That’s the Greek problem. In some parts of the world, gaming the system becomes a fact of life after the politicians make a hash out of everything.

  3. They don’t care about raising revenues. That is a false premise they use to pull the wool over most people’s eyes and play class warfare to get themselves more votes. They are just trying to make us a more and more collectivist and gov’t controlled state to increase their own power and wealth at our expense, and we’re watching it happen before our eyes–IF we care to look. They have to take away more and more of people’s personal freedom, including income, to achieve this. I believe everyone in politics knows this crap doesn’t work, but “working” (achieving the supposed revenue increases) is not the real goal. It is a means to a gov’t controlled end.

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