The Misconception of Taxes

Of course supply side economics work. Determining where we are at on the Laffer curve is a whole nother issue though. The problem is our tax code. We need simplification, lower rates across the board (I'd still rather see a tax on consumption over a tax on production), less loop holes, less spending out of Washington, a sound monetary base (fiat currency isn't going to fly), a cut in corporate tax rate (let's bring some jobs back and attract some capital), a free market in education (this is a biggie, since government has a vested interest in keeping Americans in the chains of ignorance), free trade (not government managed "free" trade), and less intervention in the free markets. Needless to say, I remain pessimistic. The bureaucrats have everything to lose and nothing to gain by giving this nation back to the people that built it.

One of the best things about data is that you can make it support your view of the story. Sure the Reagan tax cut stimulated economic expansion. It also had an unintended consequence of stimulated a massive transfer in wealth. Before 1985, the typical executive made about 35 times the national average income. Now the typical executive is paid over 400 times the national average income. Before Reagan, the company I worked for provided health care. After Reagan, the CEO of the company got a $10 million bonus when he doubled the amount the employee pays for health care. That is just one example of the many ways the supper rich have transferred wealth from others to the executives who are in control. Before Reagan, people got a fair days pay for a fair days work. Now the executives pay workers less but take a bigger share. Now, more companies are being taken private by the executives who take massive wealth from the companies. Over 100 years ago the robber barons ruled. They didn’t give a fair days pay because they didn’t need to. They could keep the money to light their cigars. When the excess greed was taxed away, the greatest number of people earn the greatest amount in the history of the world. We are returning to another robber baron era. Reagan had the right idea but the solution had a big problem. It didn’t throttle excess greed. Before Reagan we had bracket creep that placed excess taxes on too many people. The brackets weren’t wrong, the bracket creep was wrong. The brackets should be based on the national average income. There should be a very low tax on the national average income. The tax on perhaps 2 or three times the national average income should be slightly higher. There should be an even higher tax on 100 times the national average income. Anyone being paid 1,000 times the national average income should have an extremely high tax rate because nobody earns the labor of 1,000 people every year. When executives see that they will pay a very high tax on their $100 million bonus, they won’t give it to themselves. They will put is back into the company. They will provide a better product for a better price with more pay for employees and a better return for investors.

Great article. Now all we need is a movement to the Fair Tax to eliminate loopholes.

One of the respondents to this article brought up executive pay as a reason why supply side economics doesn't work. To be honest, I've never understood this argument. CEOs are as a group overpaid - there are some that deserve rock star status, but they are few and far between. Way too many are paid like rock status, instead of like the lounge singers that they are. Also, there are so few CEOs out there - the S&P 500 have well, just 500 of them, although they employ 10s of millions. Why don't you just compare salaries to the top 500 althletes out there? Or just Kobe Bryant? Again, CEOs are way overpaid in my book and often rewarded for the wrong thing. That doesn't mean that everyone who isn't a CEO is suffering because of that. I believe that if you want to see how people are doing, you should do exactly that - track people and see how they're doing. The studies that do show a good amount of incoming mobility - people continuing to do better. There are certainly some whose incomes and lifestyles are not improving or getting worse. I believe that they get more press than the rest who work hard and have made real gains in our lives and don't give what a CEO makes a second thought.

Brian, Just wanted to wish you success on your new blog, and the new gig at FOX. Will be visiting regularly. John Kosar Asbury Research

I own my own small business. I could easily grow the business, but with current tax rates so far, it is not just worth it. I have 'enough' that I will not work any harder so the governement can take half of it. It's sad, because I would be providing more jobs, etc.

If you doubt that Supply Economics works - look at the change in the definition of "Poor" in this country vs. previous decades: Today, a poor person has an apartment, color TV (LCD possible); phone, cellphone, cable TV; microwave, and a car. Years ago, the poor were worried bout only paying the rent and the food bills - everything else was an extrangence.

When I saw the comment that: "One of the respondents to this article brought up executive pay as a reason why supply side economics doesn’t work.", I read all the comments twice to see who suggested that supply side doesn't work. Since I could only find my comment about excess executive pay being a problem, I think the comment must be about my post. Obviously the reader didn't understand my comments. I am against big government. I am against excess taxes. I know that freedom promotes creativity. I also know that everything must be in balance. I have heard people say that they don't know of any good regulations. Well, the white line down the road is a good government regulation. We do need some lines on the roads. Too few lines or too many lines would both be bad. Some people do earn more than others and should be paid more than others. Who can say what is fair pay and what isn't? I don’t know the answer to that question but I do know that there is such a thing as too much pay for some and too much profit. A tyrant dictator can come from too little government or too much government. When a dictator controls a country, the dictator gets all the profit from everyone. All the profit is too much for anyone. When excess greed takes all the profit, it doesn't matter if the dictator came about as a result of too much government or too little. The Robber barons of 100 years ago came about because of too little government. We have been returning to the robber baron control since Reagan. I don't suggest returning to old high tax on everyone except those who don't pay in but get "earned income" redistribution from workers to non-workers. I do suggest a method for limiting the robber baron return. I don't care who is being paid 1,000 times the national average income, they can't earn that amount. We all breath the same air. We wouldn't allow a few to deploy a method of charging others for the air we breath. OH WAIT. We are considering a carbon credit so that might be a bad example. Perhaps it is a good example because those who are leading the push for the plan are some of the new robber barons. If you want to give up your freedom, then you should support unlimited concentration of wealth. If you enjoy freedom, you should fight to keep a balanced approach that allows the accumulation of wealth but also prevent the excess concentration of power and wealth in the hands of a few.

Prior to the tax reform act that Congress passed and President Reagan signed, it was true that the rich were not paying their share of income taxes. The top rate was 70% (and 90% before President Kennedy lowered it.) The problem was loopholes that wealthy people were able to use to reduce their taxable income. A lot of them were able to reduce it to zero, so they paid nothing. The law that Reagan signed actually lowered the top rate to 28%, but removed a good portion of the loopholes. If a person was not actively engaged in an activity, they were not allowed to deduct a loss, or the losses were limited. That was when the taxes paid by the wealthy began to increase. 28% of something is always more than 70% of nothing. The liberals have managed to keep that misconception that the wealthy don't pay much tax alive. They do it to incite class warfare and try to divide the country. That is the only way they can win, they can't win with facts and issues. They must divide with lies and half truths.

We can discuss anecdotes and we can discuss facts. Sure loopholes existed in the past as well as now. Look at the supper rich who give their billions to their own charitable foundation. They give their money away but get to keep their money with a zero tax rate. Their foundation they control and get perks from must give away 5% of the income which is much lower than any tax rate. They also get to pat themself on the back for being philanthropists because they have the ultimate tax loophole. If a person gives themself a foundation where they get to keep control of their money, it shouldn’t be exempt from their tax. If a person gives an aloha contribution, it is gone so they don’t get to keep their money. We have all heard the stories about the rich not paying tax in the past. We have heard the stories about how the loopholes were eliminated with Reagan’s tax plan. We also heard about the only 1,000,000 illegal aliens that was really 3,000,000 and how Reagan’s amnesty would fix the problem because the law had a method to turn off the employee magnet. Neither of the fixes Reagan envisioned resulted in reality. The supper rich still have loopholes but they also have a lower tax rate with loopholes. We still have employers hiring illegals and the number of them is many times more than when Reagan fixed the problem. I and millions of others lived through the redistribution of wealth to the executives which began in 1985 and continues to today. We saw our retirement plans raided. We saw our health plans destroyed. We stopped getting pay increases. All the while, we saw executives get ever larger pay packages and hundreds of millions in bonuses and post dated stock options. They got better retirement that sometimes included company paid living expense and travel. We see them get golden parachutes even if they destroy a company. We see an ever larger numbers of companies being taken private with the money the executives took from the company stock holders, employees, and customers. Perhaps the a national sales tax (called the fair tax) would be a good plan if it had a kicker to throttle the excess greed of the new robber barons. Just add a paragraph or so that says something about people receiving over 100 times the national average income must account for their total income and face an excess concentration of wealth tax or anti-greed tax. No income tax for anyone who is receives less than 100 times the national average income. Have a series of brackets that increase to a top bracket at 1,000 times the national average income. This excess concentration of wealth or anti-greed tax would apply for anyone receiving any form of benefit (money or goods or services or stock options) in any structure including trusts or self controlled foundations. If the national average income is $30,000, then 100 times that is $3,000,000 and 1,000 times that is $30,000,000. Anyone getting $3,000,000 per year and only have to pay a sales tax should be very happy because that is a very rich income. Anyone being given more than $30,000,000 per year should feel very greedy.

Let's lower the taxes and if someone does better than us, let's applaud and perhaps emulate. Stop whining about those that are either smarter or luckier or better looking than you. Regulations are needed. Greed does not self-regulate. That said, I still detest the idea that Obama is going to insert some fairness into the system with dramatic tax hikes. No thanks. I supported Bush and those tax cuts and the economy thrived. We did very well and expanded and hired many employees. The chance of greater rewards encouraged more risk taking. Excessive taxes dampen enthusiasm for both hard work and risk taking. Reagan understood this and opened the floodgates of American entrepreneurialism. If an alien was watching our economy above, he'd likely declare the Reagan years as an impressive and important tipping point. Supply-side economics is one of the best ideas to unleash its power on our economy. We need not tamper with it. Intelligent regulation is one thing. Draconian taxes and complicated fiscal policy won't achieve fairness. Attempts by the Left to employ 'simple' solutions such as Soak The Rich merely end up harming the people they claim to represent.

How about a graph that shows the complete economic picture??? Do people really think that some convoluted article that focuses on one narrow statistic is informative???

Art makes a very good point when he says” Regulations are needed. Greed does not self-regulate.” However; I think Obama has the right idea but the wrong reason and the wrong solution. Redistribution from one person to another is a bad reason. His levels are too low. A better structure would be to have a tax rate of 28% for earnings up to 100 times the national average income. That is: with $30K as the national average, the tax rate for earnings up to $3,000,000 per year should remain at 28% or even lower. Once a person is paid more than 100 times the national average, it is unregulated greed that does not self regulate that Art mentioned. Excessive taxes do dampen productivity. Not being paid also dampens productivity. There is a balance for everything. We need to free all people to receive their due. Nobody should receive the due of others. When unregulated greed controls the board rooms, the people outside the boardrooms don’t get their due. I am opposed to soaking the rich. I am also opposed to allowing unregulated greed to return the country to one run by the robber barons. Don’t overt tax anyone. Don’t soak the rich. Just stop the unregulated greed.