more "responsible" calls for higher taxes
"Of course, we'd still feel safer with Bernie Madoff in charge over Bernie Sanders, but isn't it interesting how commies like Piketty might technically be right, even if we should mostly still ignore them"
https://www.ft.com/content/a4e01ef4-3c8d-11e7-821a-6027b8a20f23
"Americans grouse about taxes. But only 8 per cent of them are bothered by what they themselves pay; 67 per cent feel that someone else — the rich, the poor, corporations — is not paying their fair share, as Vanessa Williamson notes in Read My Lips: Why Americans Are Proud to Pay Taxes.
That perception of opacity and unfairness, exemplified by the Panama Papers or the reluctance of President Donald Trump to release his own records, is associated either with hostility against the lower “47 per cent” of the population (Mitt Romney’s criticism in 2012 of poor Americans who do not earn enough to pay income tax) or members of the 1 per cent sheltering money in the Cayman Islands.
The key point is that Americans do not mind paying taxes; as Ms Williamson’s research shows, they view it as a civic duty that entitles them to “respect from other citizens”. But they do worry the system is not fair or efficient.
They are right. A few days ago, Congress began a debate over tax reform that is likely to last some time. Both Republicans and Democrats believe the system needs an overhaul. But unfortunately, the Trump administration and the Republicans in Congress are proposing the same old solution: tax cuts for the wealthy and for companies.
The argument is that trickle-down economics will somehow magically start working to bolster growth, even though there is no evidence over the past 20 years that this has been the case. Tax cuts in 2001 and 2003 during George W Bush’s administration did not juice growth, nor did any Obama era cuts.
In fact, the biggest growth surge in recent memory happened during the Bill Clinton years in the 1990s, against a backdrop of rising tax rates.
The notion that cutting taxes on rich individuals and companies is the way to bolster underlying economic growth dies hard. Even liberals who favour a more progressive system inadvertently tap into that mythology.
If the past few decades have shown us anything, it is that, as the rich have got richer, they have not created higher trend growth for the economy overall. In the 1950s, the top marginal tax rate for individuals was 90 per cent and the corporate rate was over 50 per cent. Today, the corporate rate is roughly 35 per cent (most companies pay far less) and the individual rate 39.6 per cent. Yet real per capita gross domestic product is growing about half as fast. That is why some economists and policymakers are beginning to consider a radical idea: not only are higher taxes not bad for the economy, they may even be good for it.
As the most recent International Monetary Fund Global Economic Outlook pointed out, high income inequality and the populism it breeds is the key threat to economic growth. There is little doubt that falling tax rates over recent decades have fuelled the wealth gap; countries such as the US and UK that had the largest reductions in top tax rates also showed the biggest increases in inequality.
What is interesting is the lack of evidence that lowering those rates raised investment, the key part of the trickle-down mythology. As a Roosevelt Institute analysis points out, business in the US is investing marginal earnings and borrowed funds at 25 per cent the rate of the 1960s. When you consider that tax rates were so much higher then, arguments from groups such as the Business Roundtable or the US Chamber of Commerce that companies would invest more in the US if tax rates were lower seem nonsensical.
It is likely that companies would put any extra money from a lower rate on repatriation of foreign cash into share buybacks. The 2003 dividend tax did not increase investment, but the 2004 repatriation holiday bolstered buybacks 21.5 per cent. That has the effect of disconnecting the markets from the real economy and potentially heightening the risk of a market crash, something that researchers within the US Treasury department have worried about for some time.
It also jacks up the pay of executives, leading top earners to push for more salary than they ordinarily would, according to research by economists Emmanuel Saez and Thomas Piketty. That is part of their argument for a much higher tax rate on rich individuals.
Even using a classical economic analysis of the optimal tax rates for the rich (based on how high taxes could be without removing the incentive for the rich to work more), you would come up with a top rate of about 57 per cent, much higher than today’s level. Messrs Piketty and Saez tally up more inputs, like the propensity of executives to rent-seek when taxes are low and when they are high executives do not shift more of their wealth into lower taxed capital assets, and they come up with a higher optimal rate of 83 per cent.
Nobody is suggesting that rich Americans or companies should pay that level of tax. But it is wrong to believe that cutting taxes bolsters growth and that paying them, what ever Mr Trump might say, is stupid. As Ms Williamson points out, it is one of the few things that holds society together."
