Andy McCarthy’s Tax “Knowledge”
Andy McCarthy writes, in what I understand is not an April Fool’s Day post, that:
We know that lowering marginal tax rates can increase federal revenue, but it’s clear that the President won’t cut taxes (not even for “95 percent of Americans”). So we need a Plan B.
Every time I read this kind of thing I wonder: Why on earth does McCarthy think that Obama is stubbornly refusing to cut taxes when doing so would raise revenues? Tax cuts are broadly popular, and with the increased revenue Obama could reward his supporters in the public employees’ unions. Shouldn’t AFSCME, NEA, and AFT be constantly clamoring for lower taxes and higher revenues? I mean, how stupid are we supposed to believe Democrats to be? They’re just all in the pocket of big accountant, I guess.
53 Responses to “Andy McCarthy’s Tax “Knowledge””
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April 1st, 2009 at 6:06 pm
Movement conservatism is a cult.
Making yourself believe unbelievable things, demonstrating that you have the discipline to do so, is necessary for acceptance.
Tax cuts increase revenues.
The Community Reinvestment Act and ACORN caused the financial meltdown.
A spending freeze during a deep recession featuring deflation is a good idea. Yes it is. Oh, yes it is.
April 1st, 2009 at 6:08 pm
Given the fact that the President has already signed a tax cut into law, what we have here is a sentence best described as a cage match between dishonesty and insanity. In other words, it is the perfect crystallization of the essence of the Corner.
April 1st, 2009 at 6:11 pm
This video explains the logic behind Republican thinking: http://fwcon.wordpress.com/2008/03/01/why-some-tax-cuts-increase-revenue/
Although he does screw it up by saying that the ‘01 Bush tax cuts increased revenue, and he also made the gross mistake of thinking that the Laffer Curve is an economic reality.
This paper http://www.economics.harvard.edu/faculty/mankiw/files/dynamicscoring_05-1212.pdf actually attempts to get at a dynamic scoring.
April 1st, 2009 at 6:12 pm
well, what confuses them is that you can cut tax rates and under the right circumstances, still have a revenue increase.
that doesn’t mean that the revenue increase matches the foregone revenues of the higher tax rates, even if you assume dynamic scoring.
April 1st, 2009 at 6:19 pm
Wouldn’t implementing the No Taxes At All (the NT double AA) proposal mean that Obama would soon preside over the richest and most popular government in the history of the world times ten, give or take a factor?
April 1st, 2009 at 6:22 pm
howard, would you care to translate that for us? Is that some version of the famous Incompetence Dodge, i.e. that Cutting Taxes To Increase Revenue is still and always a great idea, it’s just never worked because it’s never been tried properly?
Trickle-Down cannot fail, it can only be failed!
April 1st, 2009 at 6:27 pm
Max, I’ve always wondered about that myself—whether there would be a recognition that a 0% tax rate would not produce any revenue, and that therefore the idea that cutting tax rates increases taxes collected does have an endpoint.
And what about a .1% flat tax on income? Would Republicans believe that this taxation level would produce greater revenues than the current structure?
April 1st, 2009 at 6:31 pm
Ah, but here’s the Captain Kirk question (that will make their logic circuits melt down): if lowering marginal tax rates actually increases revenues, why does the proposed GOP budget allow people to voluntarily pay a higher rate (and assume for projection purposes that they’ll pay it)? Doesn’t that option actually harm the supposed supply side effect of the cuts and thereby hurt the economy? Wouldn’t it result in lower revenue than if the rates were just mandatorily lowered? How can Supply Side Jesus work his magic if people are voluntarily paying higher rates?
And for that matter, doesn’t the assumption that people will voluntarily pay a higher rate (i.e. act irrationally from an economic perspective), completely undercut the foundational premise of supply-side theory, i.e., that people’s behavior and productivity is directly tied to their marginal tax rate? Just saying.
April 1st, 2009 at 6:33 pm
I thought we dumped Laffer curves and moved on to Multipliers?
April 1st, 2009 at 6:41 pm
warrenterra, sorry i was unclear.
what i meant was the poor dears on the right, not knowing how to think, get confused readily. they see a linear sequence: tax cuts one year, higher revenues the next year, and from this draw the conclusion that tax cuts increase revenues.
and what i was trying to say was that the fact that they never achieve the revenue that the old rates would have brought is just overlooked, because that would require them to think things through.
clearer?
April 1st, 2009 at 6:41 pm
Warren Terra: The idea is that revenues generally increase from year to year even when the tax rates stay the same because there’s generally growth. So you could cut taxes and have the gross amount of revenue go up because the rate of growth (even if you assume no stimulus effect from the tax cut) offsets the decrease in the percentage of income that’s taxed. But just because revenue went up from year x to year y despite a tax cut doesn’t mean revenue would not have been even higher in the absence of the tax cut.
April 1st, 2009 at 6:46 pm
I did notice that in the Laugher Curve lecture JimboSlice provided the optimal tax rate seemed to be 45%.
Whoops.
April 1st, 2009 at 6:49 pm
Howard, I see your meaning now. Reading your original comment, it seemed like all this “under the right circumstances” was a version of my facetious “trickle-down can only be failed” credo.
April 1st, 2009 at 6:53 pm
Note to those (eventually) arguing with an intelligent right winger: Just as the 100% tax rate point of the Laffer curve is only interesting as a thought experiment, so is the 0% point. They don’t claim that a vanishingly small tax rate can ever support the necessary activity of modern government. More that the current rates are above the revenue maximizing point of the curve, and thus are counter productive.
Now, you can’t just assert that this claim is true. You have to have some evidence. I think this sort of “it’s true ’cause I said it several times” argument is what is making Matt cranky.
April 1st, 2009 at 7:01 pm
Can I just say that I agree that Matt, and perhaps the blog-reading public, would benefit from a daily word-count ceiling. If the pressure to produce leads inexorably to the kind of blazing pace we see today, I for one would appreciate some limit on the number of meaty, high-interest items that to digest fully in one day.
Which is a long way of saying Wow, dude. You’re on fire today.
April 1st, 2009 at 7:08 pm
Come to think of it, during most of the Middle Ages, the tax rate was 0%. Governments were “funded” by barons who had been given land, as well as the church, volunteering to do stuff like take care of the poor and fight off the Vikings.
Maybe this is what movement conservatives have in mind?
April 1st, 2009 at 7:13 pm
It’s like this, Matt: Democrats have a zero sum view of things – or at least Obama does. With the Reagan cuts, tax receipts rose, but everyone got the spending they wanted – both Democrats and Republicans. That meant that spending went up faster than the rate of rise in receipts. Obviously, there are points of negative return on both raising and cutting taxes – which implies that small adjustments probably won’t have much impact (positive or negative) at all.
April 1st, 2009 at 7:21 pm
how stupid could democrats be
if you’re suggesting that there’s some level of obstinate ideological stupidity/detachment from reality beyond which a political part could not plausibly go, the republican party pretty much demolishes your logic.
April 1st, 2009 at 7:25 pm
It does work, provided you cut them from levels above 80% or so. That’s not really possible right now.
April 1st, 2009 at 7:25 pm
We know that lowering marginal tax rates can increase federal revenue
And by the same formula I understand that if we can reduce the marginal tax rate to zero, federal revenue becomes infinite.
April 1st, 2009 at 7:27 pm
With the Reagan cuts, tax receipts rose,
Maybe because Reagan raised taxes in all but one of his years. Only the very wealthiest saw any cut to their taxes.
How does the myth of Reagan the Tax Cutter still survive?
April 1st, 2009 at 7:32 pm
Of course, all the same objections we have about the GOP and Laffer curves applies very closely to DEM multipliers.
For example:
“We know that spending more federal money gives us a multiplier greater than 1″
Both of these theories rest on the same principle. If you lie carefully enough, then your people get a bigger government check.
April 1st, 2009 at 7:34 pm
To — James Robertson @17: That is an April Fools joke right? Reagan and his magical tax cuts did not cause tax receipts to rise, while everyone got the spending they wanted. What happened is marginal rates were raised, revenues were down from what they would have been, defense spending exploded, and we began the cycle of increasing deficits that so constrain us (at least in a long term sense) now. I use to think that Nixon was the original sin of the GOP … I now know it is Reagan. Imagine if we had followed the vision of Jimmy Carter (yeah, a failure politically … can’t begin to think of why – snark …) and actually had tackled the energy and associated environmental problems 30 years ago. We would be a much better nation (and planet) today. Hope you all enjoyed your 30 year vacation from reality under the aegesis of St. Ronnie, because reality is back, and she is a bitch.
April 1st, 2009 at 7:39 pm
If they truly believed that decreasing taxes increases revenues, why not propose a 50 year incremental tax deduction from current rates to 0.1%. Every year taxes go down and revenue goes up. We don’t ever have to make tough choices again. We can have our cake and eat it, too!
April 1st, 2009 at 7:41 pm
To @21 — the myth survives because the right must have a great president … otherwise they got nothing. That is why they had to create the Reagan Legacy project and use their best pr methods (repeat, repeat, repeat) to drum it into our silly heads (and most importantly, those of the benighted media)that he REALLY was a great and popular president. Those of us who lived through those dark days have a different memory. They will try to do the same thing for Bush. Proving Marx (waiting for wingnut heads to explode)right again, when he said that history repeats itself, ” the first time as tragedy, the second as farce.”
April 1st, 2009 at 7:45 pm
Well the laffable feature of the laffer curve was that it never had axis values, not in ANY of the innumerable redrawings of the original doodle. You had tax rates of 0 and 100% and then — something in between. Somewhere there’s a tax rate that maximizes revenue, although why the “shrink government” crowd would want to do that is a mystery never explained. If we’re on the low side of the optimum rate, lowering taxes will reduce revenue rather than increase it. So how do we determine where the optimum is? By the beautifully sophisticated conservative economists’ approach of ASKING people if their tax rate is too high. Duh.
April 1st, 2009 at 7:48 pm
“Just as the 100% tax rate point of the Laffer curve is only interesting as a thought experiment, so is the 0% point.”
The 100% point actually is not just a thought experiment. It was instituted at least once in history. The Khmer Rouge’s economic policy basically amounted to 100% taxation. And interestingly, revenues did not in fact fall to zero. So that point on the Laffer Curve is actually wrong (but pretty close). Granted, the Khmer Rouge experiment demonstrates that 100% taxation is a really bad idea that requires extreme brutality to maintain. But it strange that Laffer never addressed the Khmer Rouge data point.
That said, liberals are being very unfair to Laffer. His theory (actually Ibn Khaldun’s theory from the 14th century) would say that taxes should now be increased to maximize revenues. It also predicts that raising taxes from our current levels would not significantly impact economic growth. The fact is Arthur Laffer was right in the early Reagan years, and he’s right now. And the fact that he’s right now is exactly why conservatives have completely rejected him.
April 1st, 2009 at 7:52 pm
Just a couple of weeks or so ago, we had a chart here that showed that effective Federal tax rates under Reagan stayed flat.
Can you say “Robbing Peter to pay to Paul”?
April 1st, 2009 at 7:52 pm
It’s the same “special” logic that ties decadent, homo-loving liberals to islamic fundamentalists who would abolish the proverbial fun that anyone is having anywhere. I have nothing against arguments that appear to be counter-intuitive at first blush. For instance, most readers of this blog including me would argue that more deficit spending is necessary today to stimulate the economy even though we railed against the Bush deficits and even though the existing public and private debt levels are a substantial factor in triggering this crisis. What appears contradictory and counter-intuitive in the statement above is nothing of the sort when you get into the details of responding to a potential deflationary spiral, the dramatic change in policy to use deficits for infastructure investment, boosting welfare/unemployment benefits and targeting tax cuts at the bottom 95% who are much more likely to spend it back into the economy immediately compared with the super wealthy favored by Bush in his tax cuts.
The problem with the Laffer curve is not that it is counter-intuitive, it’s that it is empirically wrong. Reagan’s dramatic slashing of top marginal rates simply did not result in higher revenues predicted by supply sliders. Instead, revenues dropped on par with the tax cuts. Revenues returned to the previous dollar amounts only years later after Reagan raised taxes (most of it through the regressive payroll tax) and inflation. On the other hand, progressive tax increases by Bush I and Clinton did not prevent the 90s boom (a fact that must be all the more amazing to true-believer conservatives since capitol gains and estate taxes were at confiscatory pre-Bush levels).
Of course, truthiness and anecdotal Canadian wait lines will always trump empirical data. Hence, Roosevelt made the Great Depression worse (and may have even personally triggered it from Albany) while Reagan and Bush II made everyone richer because GDP growth says so in spite of treasonous hippy arguments regarding how broadly shared that growth actually was.
April 1st, 2009 at 8:03 pm
BTW, I just got my first paycheck which reflects that Obama tax cut. Since almost everyone (who draws a wage) will get one, I don’t think the cant about Obama refusing to cut taxes will last much longer.
Please, Republicans, increasing The Stupid can’t go on indefinitely.
April 1st, 2009 at 8:19 pm
Tax cut? There hasn’t been a tax cut. There’s been an adjustment to the witholding rules. Your actual tax rate stayed the same – which means that you might have a surprise at the end of the year. Or not, depending on your exemption situation.
April 1st, 2009 at 8:31 pm
@29 I spend a lot of time in that commie land north of us.
I don’t know about wait lines at health clinics, but I do know that strippers must visit a Gynecologist at least once a month in order to keep their license.
Oh, the Bureaucracy.
April 1st, 2009 at 9:52 pm
The interesting thing about James Robertson is that you read his comments and think, This person obviously is pretending. No human being could possibly be that stupid. But then after a while you realize that no, he really is that stupid.
April 1st, 2009 at 10:03 pm
Mattyoung-
I believe you are confused.
Yes, we believe that the spending multiplier can be greater than one. Similarly, reducing tax rates can increase the size of the economy. It’s just that the increase is not enough to compensate for the lower tax rate, so revenues decrease in spite of GDP increase.
There is no inconsistency between postulating spending multipliers greater than one and asserting that we are well below the revenue-maximizing point on the Laffer curve.
April 1st, 2009 at 10:48 pm
Why on earth does McCarthy think that Obama is stubbornly refusing to cut taxes when doing so would raise revenues?
Because McCarthy thinks Obama is a MuslimoFascistNotborninthiscountryCommie, who hates America.
April 1st, 2009 at 10:52 pm
Smart enough to say anything to get elected.
“Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
He repeatedly vowed “you will not see any of your taxes increase one single dime.”
I admit that I voted for him, but now realize that the hope was a joke.
April 1st, 2009 at 11:11 pm
I also wonder how McCarthy knows that Obama won’t cut taxes for 95% of families after Obama already has cut taxes for 95% of families. Did Mr McCarthy read the stimulus bill ?
April 1st, 2009 at 11:28 pm
My proposal: why don’t we adopt wholesale the Russian tax system?
Flat tax at 13%.
Imagine that. Russia is doing a better job with efficient and productive taxation than America, home of capitalism.
Frankly, every time people denigrate Vladimir Putin it nauseates me. At least he instituted the flat tax.
April 1st, 2009 at 11:31 pm
Well, when Democrats want to raise taxes they pretty much have to claim that you are going to exclusively raise them on the rich, which means a higher top marginal tax rate. Conversely, when Republicans want to cut the top marginal rate they have to cut other rates, too, while Democrats have every incentive to focus on the top rate cuts.
If Democrats want to pay for more government, thus have incentives to raise top marginal tax rates even potentially beyond the point of diminishing revenue returns.
April 1st, 2009 at 11:53 pm
James Robertson — “Tax cut? There hasn’t been a tax cut. There’s been an adjustment to the witholding rules. Your actual tax rate stayed the same – which means that you might have a surprise at the end of the year.”
Uh, no. I don’t know where you’ve been getting your news, but the reduced withholding is connected to an actual tax credit of $400 per individual or $800 for a married couple. This fact has been reported in pretty much every media outlet on earth.
http://www.usatoday.com/news/washington/2009-02-21-obama-saturday_N.htm
April 2nd, 2009 at 12:14 am
That’s “Big Eyeshade,” Matt.
The number-crunchers will get you, Matt. It’s mathematically inevitable…
April 2nd, 2009 at 12:30 am
@LaFollette Progressive
Why did Obama promise $1000 instead of $800 per working couple and $500 instead of $400 for individuals during the campaign? Perhaps he rounded up to get votes and [correctly] assumed that that no one in the media would ask questions.
Maybe you think that 20% isn’t a big number. How about reducing the bailouts by 20%?
April 2nd, 2009 at 12:59 am
“Every time I read this kind of thing I wonder: Why on earth does McCarthy think that Obama is stubbornly refusing to cut taxes when doing so would raise revenues?”
Spite. And “fairness”. Even if it makes economic sense to lower taxes on businesses and high earners, liberals would be against it out of spite and “fairness”.
April 2nd, 2009 at 2:21 am
It’s because Republicans seem to have forgotten that the Laffer Curve is actually a curve, meaning that at some point, you are left of the peak, and cutting taxes only cuts revenue.
Or perhaps not – remember that semi-joke about how the Republicans were creating massive deficits via tax cuts so as to force the Democrats into spending cuts and restraints on spending?
April 2nd, 2009 at 2:48 am
“Why did Obama promise $1000 instead of $800 per working couple and $500 instead of $400 for individuals during the campaign?”
Primarily because due to all the money the RNC has spent to keep Franken from being seated, the stimulus required 3 Republican votes to pass instead of 2 (or 2 instead of 1, if you count Kennedy). Thus, in order to win those votes the overall size of the package had to be made smaller than it otherwise would have been, and said Republicans that held all the power decided one of the things that would be reduced was the tax cut. Go figure.
But of course you’re being completely disingenuous, considering you just claimed a tax on a product nobody on their right mind should purchase, to fund a program he campaigned on supporting and in fact was already passed a year ago before being vetoed, is in some way a mandatory tax and in some way a shameful breaking of campaign promises. How utterly silly you look doing so.
April 2nd, 2009 at 3:14 am
why don’t we adopt wholesale the Russian tax system? Flat tax at 13%.
I wholeheartedly agree, but I think the conservative approach should be to try it out first at a local level.
Let’s start with the parts of America that are already on the way to Russian life expectancy, and see what happens when they adopt Russian taxation.
April 2nd, 2009 at 4:03 am
There’s definitely a difference between having a sale and giving away the store.
They’re throwing this at us just as a new middle-class tax cut is in place and the upper bracket won’t see any change for 2 years. They’re also leaving out any mention of the municipal bond option, which I’m sure many high-net-worth folks are taking already: bondholders pay a low rate when they cash out, and communities benefit in the meantime.
April 2nd, 2009 at 7:50 am
“Frankly, every time people denigrate Vladimir Putin it nauseates me. At least he instituted the flat tax.”
I’m sure that will console me when I’m dying of polonium poisoning. My dying words will surely be: “At least I didn’t have to face the horror of progressive taxation.” No doubt the victims of the Spanish Inquisition were saying the same thing. I think the scariest thing of modern politics is that conservatives truly believe that taxes are a fate far worse than death or torture.
April 2nd, 2009 at 8:35 am
why don’t we adopt wholesale the Russian tax system?
Echoing agum’s point in comment #44, it’s because we’re not a mafia-dominated kleptocracy with a devastated-to-non-existent private sector looking to generate the most basic amounts of revenue in the quickest and most efficient manner possible. We’re a first world country with first world problems who need to build and maintain first-world infrastructure.
We have a progressive, somewhat complicated tax code because (a) we need the money to keep things running and (b) because we are a wealthy enough country with enough tax collection apparatus which allows that to be an effective means of tax collection.
However, when we’re rebuilding the nation after a devastating zombie apocalypse, a low flat tax will probably be an effective means of getting things off the ground.
April 2nd, 2009 at 12:20 pm
Why did Obama promise $1000 instead of $800 per working couple and $500 instead of $400 for individuals during the campaign?
Why? Because Obama is not a fucking dictator, you twit.
Obama’s initial stimulus proposal was for $1000 and $500. This was then reduced during the Congressional negotiations, primarily because a bunch of preening “centrists” in the Senate felt the need to be seen on camera reducing the size of the stimulus.
Again, all of these facts were widely reported at the time by every news service on earth except, apparently, the Pravda wing of the right-wing media.
April 2nd, 2009 at 12:36 pm
he also made the gross mistake of thinking that the Laffer Curve is an economic reality.
The Laffer Curve IS an economic reality — it’s just that you have to be at ridiculously high tax marginal rates for it to work, rates the US hasn’t seen for almost two generations now, even for gazillionaires.
What is really comes down to is that the National Review types (and even more, their gazillionaire patrons on Wall Street) despite and loath the very idea of paying taxes.
Although who’s going to pay for their wars after the IRS is abolished I don’t know.
April 2nd, 2009 at 1:48 pm
Myles- Russia, much like your precious Dubai, has not been doing so hot lately. Read the newspaper or use the Google to find out your self. So, please, for everyone’s sake, don’t propose we emulate various post-bubble crumbling dictatorships.
April 2nd, 2009 at 5:00 pm
Fred sez, “liberals would be against it out of spite and “fairness”.”
Ooh, hawt! Those scary scare quotes look just as sexy there as they did when Bush put them around “equal protection under the law”.