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L.A. Times: It's Time to Kill the Economy   November 18th, 2010
"How to kill the economy for dummies" by the L.A. Times       


More observations...

I hate to draw attention to something this stupid, but I can't resist.

In an OpEd article, the LA Times states that "it's time to tax the rich." My first reaction was, "I'm sure glad these guys don't make policy." Unfortunately, people that think just like them do make policy.

LA Times: President Clinton in 1993 proposed to raise the highest marginal tax rate immediately from 31% to 39.6%... And what were the consequences? In the seven years that followed, the unemployment rate decreased steadily, every single year, until it reached 4% in 2000.

Was it the tax increase alone that caused this spectacular drop in unemployment? Probably not.

Was it the "tax increase alone" that caused the drop in unemployment? The very question sets up a hugely erroneous premise: That a tax increase decreases unemployment at all.

It doesn't.

While we can have a rational discussion on how much or how little a tax increase (on the wealthy or anyone else) harms the economy, to insinuate that a tax increase reduces unemployment is just so silly as to be an insult to the intelligence of the reader. In fact, I feel like my I.Q. dropped about 20 points from reading the oped piece in question.

The only way a tax increase could theoretically reduce unemployment would be if the citizens that are subject to the increased tax would otherwise stuff the cash under their mattress. But in the real world where the money is invested, making the money available to markets through investments is going to produce more employment more efficiently in the private sector than the government can by confiscating the money and inefficiently spending it on government jobs, or dolling it out in government contracts to favored vendors.

Unemployment didn't decrease in the 90's because of tax increases. Unemployment decreased in spite of tax increases, and because of an unsustainable technology bubble that later burst causing losses in the stock market and an increase in unemployment. In short, the effects of the technology bubble temporarily exceeded the drag on the economy created by the increased taxes. But the increased taxes didn't create the technology bubble, nor did it reduce unemployment.

LA Times: It is clear that the private market is unable to create the jobs we need. The level of uncertainty in the economy is such that most investors are choosing to wait, and banks are reluctant to make loans to those who are reckless enough not to.

It is false that the private sector is unable to create jobs. It's the only thing that can create jobs. The level of uncertainty in the economy is what's causing a lack of a real recovery, and that uncertainty is because no-one knows what bad policy the Obama administration will implement next. For example, tax increases like those proposed by the LA Times.

If Obama were to announce a plan even remotely similar to what the LA Times is proposing, the stock market would crater and unemployment would skyrocket as businesses decide against expansion plans and investments that they're already hesitant to make.

LA Times: The highest tax rate is currently 35%, and if the George W. Bush tax cuts are allowed to expire, this rate will return to 39.6%. But charging the same tax rate for all levels of income above $380,000 is unfair. The highest marginal tax rate should be what it was during the Eisenhower years -- 91%

You almost have to wonder if this oped is an attempt at comedy.

Whenever the cost of an activity is increased, that amount of activity will decrease. If you raise the cost of a movie from $10 to $20, I'm going to go to the movies less often. If the price of a gallon of gas increases from $3 to $6, I'm going to drive less. And if taxes are increased on activities that produce income, there will be less activity that produces income. If you want to discourage an activity, make it more expensive--and if you want to discourage work and expansion, increase taxes.

And how can it even be ethical for someone's work to be taxed in such a way that the government gets to keep more of the earnings than the individual who earned it?

To put it in context: Taxing someone at 91% is effectively the government saying, "You will work 12 months per year. You can keep the money you earn in January, but the government gets to keep everything you earn from February through December." Are you kidding? There's no way I can be convinced that that's anything short of extortion.

Not only is such a high tax rate unethical and extortion, it's bad economic policy. The highest tax rate was 91%, but Democrat President John F. Kennedy recognized that such a high tax rate was bad economics, and he proposed lowering them.

"Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits... In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now." - President John F. Kennedy

The problem isn't that the government doesn't collect enough taxes; it's that no amount of revenue will satisfy the government's thirst for spending. If government revenues are increased, government spending will just increase even more. That's what history tells us. And considering who's president, there's absolutely no reason to believe it would be different now.

The LA Times should've instead printed an oped entitled "It's time to cut spending."

Because when someone starts suggesting it's necessary to confiscate what an individual earns from February through December and only let them keep January, that's a huge red flag that we have a moral responsibility to reign in government spending.

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