Smart statists understand that there are very strong Laffer Curve effects at the top of the income scale since investors and entrepreneurs have considerable ability to control the timing, level, and composition of their income. So if higher tax rates on upper-income taxpayers don't collect much revenue, why is the left so insistent on class-warfare taxation? The answer, I think, is that soak-the-rich taxes are a "loss-leader" that politicians impose in order to pave the way for higher taxes on the middle class. Indeed, I made this point in my video on class warfare taxation, and noted that are not enough rich people to finance big government. As such, politicians that want to tax the middle class hope to soften opposition among ordinary people by first punishing society's most productive people. We already know that tax rates on the so-called rich will jump next January thanks to higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and higher death taxes. Now the politicians are preparing to drop the other shoe. Excerpted below is a blurb from the Washington Post about a member of the House Democratic leadership urging middle-class tax hikes, and let's not forgot all the politicians salivating for a value-added tax.
Tax cuts that benefit the middle class should not be "totally sacrosanct" as policymakers try to plug the nation's yawning budget gap, House Majority Leader Steny Hoyer (D-Md.) said Monday, acknowledging that it would be difficult to reduce long-term deficits without breaking President Obama's pledge to protect families earning less than $250,000 a year. Hoyer, the second-ranking House Democrat, said in an interview that he expects Congress to extend middle-class tax cuts enacted during the Bush administration that are set to expire at the end of this year. But he said the extension should not be permanent. Hoyer said he plans to call for a "serious discussion" about the affordability of the tax breaks. ...The overarching point in Hoyer's remarks is the need for a bipartisan plan that includes spending cuts and tax increases, in the tradition of deficit-reduction deals cut under former presidents George H.W. Bush and Bill Clinton. Drafting such a plan would require a reexamination of tax cuts enacted in 2001 and 2003, Hoyer says -- cuts that benefited most taxpayers.
Hillary Clinton recently opined that Brazil was a great role model for the idea of soaking the rich with higher tax rates. She didn't really offer evidence for that specific assertion, but Politico reports that she did say that "Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — they're growing like crazy."
I'm not sure if "growing like crazy" is an accurate description, particularly since poor nations normally have decent growth rates because they start from such a low baseline.
But let's excuse that bit of rhetorical excess and focus on the really flawed portion of her remarks.
Contrary to her direct quote, Brazil does not have the "highest tax-to-GDP rate in the Western Hemisphere." It may have the highest tax burden in South America. And it may even have the highest tax burden in all of Latin America, but its overall tax burden of about 24 percent of GDP is slightly below the aggregate tax burden in the United States.
I suppose I should issue a caveat and say there's a very slight chance that the recession has temporarily pushed U.S. tax receipts as a share of GDP below the Brazilian level, but that isn't apparent from the IMF data. Moreover, there's no doubt that the tax burden in Canada is significantly higher than the Brazilian burden.
So Secretary Clinton either was unaware that the United States and Canada are in the Western Hemisphere, or has no clue how to read fiscal statistics.
But let's suspend reality and assume that Brazil has a higher tax-to-GDP ratio. Would that somehow be proof that Brazil is a role model for class-warfare taxation? There is no precise definition of that term, to be sure, but high tax rates on the rich presumably are a necessary component of any class-warfare system. Yet Brazil's top tax rate is 27.5 percent. That's not exactly a low-rate system such as Hong Kong, and it's 27.5 percentage points higher than the zero-percent rate in the Cayman Islands, but it also happens to be significantly lower than the 35 percent (soon to be 39.6 percent) rate in the United States. If that's class warfare, sign me up for the Brazilian approach.
I suppose it's possible that Brazil's top tax rate recently has been boosted, but that didn't show up in a Google search. And even if the rate was just increased, that would hardly be proof of Secretary Clinton's strange hypothesis that high tax rates and/or high tax-to-GDP rates are a magical formula for growth. That would require looking at future economic performance with the higher top tax rate, not the recent growth rates with the 27.5 percent top tax rate.
But pointing out Secretary Clinton's mistakes seems a bit rude and I do like to be a gentleman, so let's at least give her points for consistency. Earlier this year, she urged higher tax rates on the so-called rich in Pakistan, so at least she doesn't discriminate in her desire to punish success.
Every economic theory -- even socialism and Marxism -- agrees that saving and investment (a.k.a., capital formation) are a key to long-run growth and higher living standards. Yet the tax code penalizes with double taxation those who are willing to forgo current consumption to finance future prosperity. This new video, narrated by yours truly, explains why the capital gains tax should be abolished.
Unfortunately, Obama wants to go in the wrong direction. He wants to boost the official capital gains tax rate from 15 percent to 20 percent - and that is after imposing a back-door 3.8 percentage point increase in the tax rate as part of his government-run healthcare scheme.
The video concludes with six reasons why the tax should be abolished, including its negative impact on both jobs and competitiveness.