December 6, 2012

FREELOADING:

How I Know Higher Taxes Would Be Good For The Economy (Mark Sunshine, 12/05/12, Forbes)
 
I am one of the non-believers because I don't think that low taxes always encourage high growth or investment.  In fact, I am virtually certain that current low tax rates are a disincentive to economic growth and risk taking.

Traditional tax cut economists think that since ultra-high taxes discourage work and investment, lower and lower taxes must endlessly improve incentives.  They use mathematical models to "prove" their theories and pretend that incentives work the same in high tax environments as in low tax times.  Unfortunately, they are wrong.

Once tax rates are low enough so that ordinary folks don't think that the government will just confiscate the fruits of their labor, real people in the real world stop obsessing about taxes.  Instead, most normal people work to satisfy their personal economic goals.  They earn money to buy a their desired level of life style and economic security and they continue to work hard until they perceive that they have achieved their objective.

Some workers never get to their economic promised land and have to work hard up to and through retirement.  But some taxpayers earn enough to buy essentially everything that they need and have saved enough so that they can live off of investment earnings.  For those taxpayers, lower tax rates just make it easier to still live the life style they want without working very hard or taking risk.

Let me give you a couple of real live examples of how low taxes hurt incentives.
Posted by at December 6, 2012 5:16 AM
  
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