Obama Cuts Obama’s Fault, Part 2, Fractal
Tax rates do have an effect on employment and where companies locate. A company must answer to its shareholders. Thusly tax rates will effect where new plants or buildings are constructed. For example if you need to construct a plant to put together computers and you need to be in it in months instead of years, California would not be the first state you would look, it would most likely be Texas or some other business friendly state.
Obama Call for Higher Taxes
For anyone that have taken and passed Econ 101 they will be glad to tell you the impact of raising marginal taxes. Art Laffer, of the Reagan administration, showed us that higher taxes did not always resolute in higher revenue. Using a curve there is a point at which increasing taxes results in decreasing the amount of revenue that is generated.
Depending on how taxes are structured and where the deductions are it is possible that if you had a 29 percent rate you would generate twice as much revenue, as if you there was a 70 percent rate. Treasury Secretary Andrew Mellon and President Kennedy had twice before proved that lower taxes rates would generate higher receipts. Both times they were proved right.
President Reagan in the 1980’s, with input and direction from Art Laffer, once again proved that if the tax rate was to high, lower rates would increase revenue. Laffer, expanding on Mellon, argued that as taxes rose and became prohibitive that revenue would decrease.
The Laffer Curve, Part I: Understanding the Theory
With the current top federal rate scheduled to rise to 39.6 percent in 2013 from the current 35 percent, this does not include 1 to 2 points more for phased out deductions. However if you look at the other that will be deducted 6.2 percent for Social Security, up to $106,000, and 1.45 percent with not cap; 39.6 percent jumps to 47.25 on income up to $106,000 and 41.05 percent for income over $106,000.
If you live in a state such as California that 47.25 percent becomes 57.75 percent when you add in California income tax rate of 10.5 percent. But what if you look at the total cost as most employers cut wages to make up the difference in what they have to pay in taxes. The Social Security rate becomes 12.4 percent and Medicare becomes 2.9 percent. So that federal rate of 47.25 becomes 54.9 percent and adding in ObamaCare that adds 0.9 percent more to bring the total to 55.8 percent. With top rate of 55.8 percent and adding in California income top tax rate of 10.5 percent the top rate on someone in California become 66.3
The Laffer Curve, Part II: Reviewing the Evidence
A small business owner has no reason to stay in a state like California if they are going to be giving over two-thirds of their income to the state and federal government. A move to say, Texas would allow them to keep almost half of their income.
Progressives like Obama like to point to times like the 1930s -1950s, when the top rate, marginal rate, was between 79 and 94 percent or even Carters 70 percent rate. At those times there were at least viable tax shelters. Without restoration of those shelters 70 percent and higher rates would just drive invest out of the United States. They have assumed that their vision of beauty will come from chaos as though we are in some type of perfect fractal. But as an attractor in a fractal the progressives will provide us unlimited chaos.
The Laffer Curve, Part III: Dynamic Scoring
The Rest
On the road to 70 plus percent income tax did anyone stop at the grocery store to check prices? So here is the break out: rich, middle class, and poor, none of which can afford the repercussion of a new 70 percent tax.
According to OECD, Organization for Economic Cooperation and Development, the higher tax rates have impacted income in Europe. Per-Capita income is about 30 percent less than that in the United States. Higher taxes have not helped them and now they are headed west. Higher taxes will not solve this problem. European companies are investing in the United States now to offset the higher rates in Europe. Higher Taxes on this side of the Atlantic will not improve revenue. Those companies will look at investing in other countries to offset the economic downturn in Europe and in North America.
Related:
Obama Cuts Obama’s Fault, Part 1
Obama to Withhold Grandma’s Check
Debt Limit Gauntlet
Obama Declares You, Millionaire
Department of Redistribution: Time has come?
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