My Oh My

As I perused the Wall Street Journal this morning, I was positively stunned to see this headline.

High Tax Rates Won't Slow Growth

Holy fucking balls on a Popsicle stick!!

Well, it is the opinion page so I suppose they can be forgiven for such heresy.

But they sure do make a convincing argument with (ahem) numbers, facts and stuff. Let's start with a few basic ones.

The share of pre-tax income accruing to the top 1% of earners in the U.S. has more than doubled to about 20% in 2010 from less than 10% in the 1970s. At the same time, the average federal income tax rate on top earners has declined significantly.

Of course, this begs a key question.

Will taxable incomes of the top 1% respond to a tax increase by declining so much that revenue rises very little or even drops? In other words, are we already near or beyond the peak of the famous Laffer Curve, the revenue-maximizing tax rate?

What is that Laffer Curve thing again?

The Laffer Curve is used to illustrate the concept of taxable income "elasticity,"—i.e., that taxable income will change in response to a change in the rate of taxation. Top earners can, of course, move taxable income between years to subject them to lower tax rates, for example, by changing the timing of charitable donations and realized capital gains. And some can convert earned income into capital gains, and avoid higher taxes in other ways. But existing studies do not show much change in actual work being done.

So what would that rate be on the top earners before we would see a decline in revenue?

According to our analysis of current tax rates and their elasticity, the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50%-70% (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s. To reduce tax avoidance opportunities, tax rates on capital gains and dividends should increase along with the basic rate. Closing loopholes and stepping up enforcement would further limit tax avoidance and evasion.

Holy SHEEEIT! That's a higher rate than even I have considered!!! So, what does it say that the fucking Wall Street Journal is recommending it? I've been told several times that they are a reputable source, after all.

Assuming the revenue problem is solved, how about the issue of economic growth. After all, we've been told time and again that high taxes mean less growth.

Will raising top tax rates significantly lower economic growth? In the postwar U.S., higher top tax rates tend to go with higher economic growth—not lower. Indeed, according to the U.S. Department of Commerce's Bureau of Economic Analysis, GDP annual growth per capita (to adjust for population growth) averaged 1.68% between 1980 and 2010 when top tax rates were relatively low, while growth averaged 2.23% between 1950 and 1980 when top tax rates were at or above 70%.

Good grief, that can't be true, can it? Well, let's get back to revenue.

One cannot evaluate the ultimate growth effects of raising more revenue without identifying what is done with the revenue. If part of the revenue is used to reduce the federal debt, more of savings go into capital investment, enhancing growth. The fact that those paying higher taxes will reduce their savings somewhat does not fully offset this effect as some of their higher taxes would come out of consumption.

If some of the additional revenue is used for public investments with a high return, such as education, infrastructure and research, it raises growth further. The neglect of public investment over the last few decades suggests that the returns could be quite high.

Which is exactly what the president has been saying for his entire term. So why are the Republicans and others on the right against this given these facts?