In the “conservatism is based on stupidity and lies” category: ITEP shows that low taxes are bad for growth
Posted by Charles II on June 25, 2012
Institute on Taxation and Economic Policy:
One of the most frequently repeated talking points used by lawmakers seeking to reduce or eliminate income and estate taxes is that doing so will usher in an economic boom. Recently a number of observers, led by supply-side economist Arthur Laffer, have sought to bolster this argument by claiming that states lacking an income tax or estate taxes have economies that far outperform those in the states with the highest top tax rates.
Three new reports from Institute on Taxation and Economic Policy show that the truth is exactly the opposite.
residents of “high rate” income tax states are actually experiencing economic conditions at least as good, if not better, than those living in states lacking a personal income tax. As Figure 1 shows, the nine “high rate” states identified by Laffer have actually seen more economic growth per capita over the last decade than the nine states that fail to levy a broad-based personal income tax. Moreover, while the median family’s income, adjusted for inflation, has declined in most states over the last decade, those declines have been considerably smaller in “high rate” states than in those states lacking an income tax entirely. Finally, the average unemployment rate between 2001 and
2010 has been essentially identical across both types of states.
How did an economist come to exactly the wrong conclusion? By combining–in a study of state tax rates– federal and state taxes to muddy the waters. Also, by choosing as the time frame for his study the period when growth was picking up due to the real estate boom (which, of course, was greatest in low/no tax states like Florida and Nevada). In other words, by sculpting his data and methods to fit his desired conclusion. In layman’s terms, by lying.
Laffer also claimed that Tennessee’s estate tax cost 220,000 jobs. Unfortunately for him, he produced zero credible evidence for this assertion. But he did make a testable prediction: that people are moving from Tennessee to Florida to escape the estate tax. The data do not show this.
God help us, people like Laffer are in charge. They are completely corrupt, blind, drunk on ideology.
4 Responses to “In the “conservatism is based on stupidity and lies” category: ITEP shows that low taxes are bad for growth”
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Phoenix Woman said
This should be a no-brainer: Taking money from those who hoard it and giving it to those who spend it is just about the best economic stimulus there is.
Charles II said
I think there’s some nuance to it, PW. In the 1970s, inequality had fallen enormously… but business had ceased to invest in technology. In part this was because true entrepreneurship had been stifled and returns on investment generally sucked. Were the tax cuts of the Reagan era the solution? No. But the incentives had shifted too far away from investment and long-range thinking.
We need to have the lowest taxes consistent with a just, equitable, and fiscally-sustainable society. The problem for Laffer & Co. is that we have taxes too low for a just, equitable, and fiscally-sustainable society.
Phoenix Woman said
Meanwhile, all the places that are worth living in have — drumroll, please — taxes a lot higher than what Laffer recommends.
Though really, what we need is a new economic system on which to base human society. Modern capitalism is far too prone to runaway greed and far too dependent on runaway growth to be a sustainable option.
Charles II said
Basically any system in which power becomes concentrated in too few hands, or so widely dispersed that basic rights and needs become unenforceable will fall of its own weight.
The advantage of capitalism is the use of prices to signal shortages and surpluses, stimulating investment and technological advancement in the case of shortages, and manufacturing efficiencies in the case of surpluses. Additionally, ownership of private property encourages maintenance of it (cf. the tragedy of the commons).
That does not say that other systems could be developed, just that all systems are subject to corruption. I favor cautious experimentation over utopian ideas. I do think that most of our problems would resolve fairly quickly if the American people were re-engaged, as full partners, in our system of government.