OVER THE YEARS I HAVE WRITTEN quite a few budget articles. Then
I stopped because the readers stopped. Budget numbers are dull, and
complications quickly multiply. Most people have a hard time
keeping their family’s budget straight, let alone the federal
government’s. That’s a pity, because America’s financial picture
today is grave.
A thousand Internet commentators are predicting a crash (without saying when). In contrast, Democrats downplay the issue because they believe our problems can be solved by raising the tax burden on the rich. With class warfare his main preoccupation, President Obama seems obsessed by the idea that he has a golden opportunity to punish the productive. But if he gets his way, the budget picture may well go from bad to worse.
Here’s my one-paragraph sermon on budget basics. Tax rates are prices. Taxes are quantities. Yet they are frequently conflated, as in the phrases “tax cut” and “tax increase.” When tax rates are increased, what happens to revenues? The Congressional Budget Office assumes that they go up by the same proportion. But they don’t. Imagine you are running a money-losing department store, and everyone gives you the same advice: “Raise prices on your luxury goods!” So you do, and the rich shoppers go somewhere else. Now you are worse off. Prices higher, revenues lower. You have learned a lesson. When it comes to prices (or taxes), the rich can move, or move their money, or both.
Unfortunately, confused readers generally work to the advantage of liberals, whose permanent goal is to expand the power of government. As a rule, reporters draw attention to national budget problems only to persuade us that “more taxes” are needed. They mean more revenues, and they assume higher tax rates will produce them.
Read more: http://spectator.org/archives/2012/10/30/taxes-wont-save-us
A thousand Internet commentators are predicting a crash (without saying when). In contrast, Democrats downplay the issue because they believe our problems can be solved by raising the tax burden on the rich. With class warfare his main preoccupation, President Obama seems obsessed by the idea that he has a golden opportunity to punish the productive. But if he gets his way, the budget picture may well go from bad to worse.
Here’s my one-paragraph sermon on budget basics. Tax rates are prices. Taxes are quantities. Yet they are frequently conflated, as in the phrases “tax cut” and “tax increase.” When tax rates are increased, what happens to revenues? The Congressional Budget Office assumes that they go up by the same proportion. But they don’t. Imagine you are running a money-losing department store, and everyone gives you the same advice: “Raise prices on your luxury goods!” So you do, and the rich shoppers go somewhere else. Now you are worse off. Prices higher, revenues lower. You have learned a lesson. When it comes to prices (or taxes), the rich can move, or move their money, or both.
Unfortunately, confused readers generally work to the advantage of liberals, whose permanent goal is to expand the power of government. As a rule, reporters draw attention to national budget problems only to persuade us that “more taxes” are needed. They mean more revenues, and they assume higher tax rates will produce them.
Read more: http://spectator.org/archives/2012/10/30/taxes-wont-save-us
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