Of Laffer, Deficits, and Poverty

Every once in a while, you see something that just plain makes your haunches bunch up in disgust. Apparently, this happens more to conservatives than it does to liberal, but I digress. Today, I should like to go over something that makes this happen to me every time I encounter it.

While looking into this little declaration from The Nation's Idiot, one area I thought I would start out with an examination into the continuation of Laffer-curve thinking. Whilst digging around on that, I found a piece apparently written by Laffer himself, from January of 2004. It is unfortunate, but expected, that this should appear on The Heritage Foundation's website -- unfortunate because The Heritage Foundation is as conservative a think-tank as MoveOn.org is liberal. This particular excerpt got me to thinking:

In 1913, the federal progressive income tax was put into place with a top marginal rate of 7 percent. Thanks in part to World War I, this tax rate was quickly increased significantly and peaked at 77 percent in 1918. Then, through a series of tax-rate reductions, the Harding-Coolidge tax cuts dropped the top personal marginal income tax rate to 25 percent in 1925.

That's right -- when the income tax was instituted, it's highest percentage was 7%. And within five years, it went to 77%.

This becomes all the more disturbing when we consider that not too long ago, someone took the time and effort to calculate the effective "flat tax" rate for America. And they found that this rate was ~40%:

The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.

That's not a big range, particularly when you notice that it covers an income rise of 2,500%.

So I have a modest proposal: Ask your senators or representative if they have a clue about this. If they don’t, regardless of party, they shouldn't be in office. Vote accordingly.

So yes, while we discuss the FedGov deficit, what we fail to discuss is the impact on the expenditures and incomes of the average citizen; most especially the poor.

We have allowed ourselves to fall in to the fallacy of thinking that, merely because their incomes are untaxed, our lowest earners are themselves untaxed. And this simply is not so. Sadly, the practices of our government's "Glorious Leaders" seems to be equally economically inept: take, for example, the overwhelmingly under-reported fact that the most recent SCHIP expansion is based on a demonstrably regressive tax. And it is with this that this article comes full circle: While the national income tax's position on the Laffer curve is debatable, our sin-taxes are demonstrably and definitively on the right-hand side of the Laffer curve. And so, two things will result:

• The nation's poor will be unfairly taxed as compared to the rich, if Bush's veto is overridden.
• There will still have to be another source of revenue to cover the failure of this new, regressive, tax to generate $35 Billion.

And remember, folks -- I'm a proud, card-carrying member of the "He-Man President Bush Hater's Club". While it is arguable that this lack of economic understanding is itself understandable in the everyday man -- it's called "rational ignorance" for a reason -- the problem with making allowances for such when it comes to our leaders is that it leads, demonstrably and as evidenced above, in horribly frequent "unintended consequences".

So, then -- for those of you still paying attention, please consider the following: Rather than leaving the welfare of our nation's poor -- you can't really call them destitute; we don't have people starving to death here like still happens in other first-world nations like Japan -- wouldn't we be better off if we, you know, reduced that 40% flat tax rate to something more sane?

The poor would be able to purchase more, or have more left over -- so the actual loss in tax revenue there would, you know, go to a good cause, like upwards mobility amongst the poor. And as to the rich... well, it is still arguable that decreases in their tax rate will still generate higher revenues.