[FoRK] so is it for real now?

J. Andrew Rogers andrew at ceruleansystems.com
Tue Oct 14 13:16:08 PDT 2008


On Oct 14, 2008, at 10:01 AM, Stephen Williams wrote:
> It is probably political suicide to get too far into suggestion  
> income tax increases.  Obama however has strictly limited increases  
> to the over-250K crowd, and in that area is reasonably aggressive.


I do not care about this issue much, but it ignores the consequences  
of this in practice every time punitive income tax rates are levied on  
high income brackets:  compensation structures are altered to shield  
more of the aggregate compensation from the income tax.  These types  
of taxes tend to underperform because the tax base evaporates with  
predictable regularity.  It makes good political theater to  
aggressively tax very high incomes, but it does not generate much  
revenue and discourages transparency in corporate compensation.  You  
cannot force people to earn high incomes and it is virtually  
impossible to prevent alternative compensation in practice.

The other issue I would raise is that when punitive top brackets start  
to under-deliver revenue, the punitive tax brackets have this reliable  
tendency to climb pretty far down the income ladder to make up for the  
loss of expected revenue in the top bracket. That is never what is  
being proposed, but over the long term that is what tends to happen  
when you have large bracket disparities.


> Republicans seem less able to stomach that since much of their power  
> seems to come, or at least is directly influenced, by those super  
> rich who are working to avoid taxes at all costs.  It should be  
> mentioned that there are, I believe, plenty of Democratic supporters  
> who are in the rich category and don't mind contributing more if it  
> is useful.


The super rich, Democrat and Republican alike, are not significantly  
impacted by income tax rates.  If you are significantly impacted by  
top bracket rates, you are pretty much upper-middle class by  
definition.  I would expect the greedier among the "super rich" to  
applaud higher income tax rates, since it is essentially a political  
bait-and-switch that primarily impacts the non-wealthy.

Punitive income tax rates in the upper brackets adversely impact class  
mobility and might be philosophically disagreeable on that basis, but  
there is no need to perpetuate the myth that we are soaking the  
wealthy with high income tax rates.


> If you take Obama's proposal on the income tax side and scale it up  
> more, while dropping or making the other changes more wise, it  
> sounds like you would be happy, right?


I do not care much about his income tax proposals, as the adverse  
consequences to the economy are under the noise floor of the adverse  
consequences of stupid capital gains tax policies.  If he wants to  
naively fumble around with the economy, income tax policy changes are  
a pretty decent sandbox as such things go -- lots of levers and dials,  
only a modest economic impact.

I do see that Obama's latest set of economic proposals pretty much got  
a "wtf?" even from the economists that support him:

http://www.marginalrevolution.com/marginalrevolution/2008/10/the-new-obama-e.html


Cheers,

J. Andrew Rogers



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