re: #109 Talking Point Detective

Maybe I’m misreading your post?

Are you aware that most economists agree that the Bush tax cuts meant at least 100 billion less in revenues? And add to that the additional debt service.

Are you aware that most economists agree that unemployment benefits more than pay for themselves?

I didn’t say anything about unemployment benefits, except, by implication, that they, along with everything else under the sun, have to take back seat to the first two items.

If there isn’t a continuing resolution, come New Year’s Day, everybody working for the federal government has to work for free. Everybody supplying goods and services to the federal government, supplies them for free. This just won’t do.

If the current tax law expires, the tax code reverts to a law that was built around dollars worth quite a bit more than today’s dollar. The alternative minimum tax, for instance, is not indexed against inflation. There was a time when it made some sort of sense to impose high rates on the wealthy, defined as those making $75K a year and up. That sort of law is sitting on the books, waiting in the wings. If there is no compromise on SOME SORT of extension of the current law, that old law, with all its unrealistic rates, will take over.

As to your question, am I aware that failing to increase tax rates above where they are now will mean failing to get revenue that could have been got with higher rates, I answer, yes, and no.

Income earned in 2010 has already been earned, pretty much. If the tax rates for income earned in 2010 go higher than anyone expected them to be, then everybody will have to cough up some extra dough. Of course the federal govt will collect more than it would have by not increasing rates.

But that’s a one-time effect. Going forward, higher rates are no surprise. Everyone will know, at the beginning of the year, how much of any high-end income he or she will get to keep, and how much will go to taxes.

Taxation is a tricky business. The law of supply and demand applies to labor as well as to other economic goods. The higher taxes go on any sort of activity, the less will be supplied. Raising taxes on high earners will result in more revenue per dollar earned, but out of a smaller grand total of dollars earned. Then the math begins. Depending on HOW much higher tax rates go, the overall revenue could go up, or down. It’s not an automatic thing, that raising rates results in more of a take.

Was Kennedy a Republican? No. Of course not. But he engineered a big tax cut and the economy did very well, and federal revenues ended up higher than they would otherwise have been, if you average over several years.

The current deficit is a long term problem. Tax rates need to be set with a view to the long term. Maybe they can go higher without undercutting revenues all that severely. Maybe economists know this to be the case.

They can’t leap to the rates written into the old law that will take effect if no compromise is reached. At least, that’s what I think. Averaged over the next several years, using that law rather than what we now have would probably result in reduced federal revenue.