Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

• When tax rates increase, sometimes they engage in tax avoidance, lowering their tax liabilities legally.
• When tax rates change, sometimes they choose to alter their levels of work, saving, and investment.
• And when tax rates go up, sometimes they resort to illegal steps to protect themselves from the tax authority.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes:
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I’ve already bragged that the Cato Institute is America’s best think tank, highlighting the fact that we took the lead in battling against Obama’s faux stimulus at a time when many were dispirited and reluctant to fight big government.

I’m biased, of course, so I’ll understand if you discount what I say. But I hope you’ll agree that my colleagues have put together an excellent video response to the President’s state-of-the-union speech.

As part of my contribution to the video, beginning around 6:35, I debunk the President’s class-warfare tax agenda by citing IRS data from the 1980s to explain that higher tax rates don’t necessarily mean higher tax revenue.

After a night’s sleep, here are a few additional observations on the President’s remarks.

• I was disappointed, but not surprised, that he repeated the economically foolish assertion that Warren Buffett pays a lower tax rate than his secretary.
• I also was not surprised that he didn’t say much about jobs and the economy. These four charts show he doesn’t have much to brag about.
• It was also noteworthy that he didn’t spend much time talking about Obamacare, which suggests that White House pollsters understand that government-run healthcare isn’t very popular.
• It was equally revealing that he didn’t spend much time on the so-called income inequality issue. Redistribution was implicit in what he said, to be sure, but the Occupy-Wall-Street crowd is probably disappointed that he didn’t explicitly embrace their agenda. More evidence that the pollsters played a big role in this speech.
• I’m definitely not surprised that he talked about eliminating Osama bin Laden. Kudos to the Commander-in-Chief.
• I was amazed that he had the gall to say “no bailouts,” particularly given his support for TARP, the Dodd-Frank bailout bill, and the giveaway to GM and the auto unions. And if the GM bailout is supposed to be a success, I’d hate to see his definition of failure.
• And I was stunned that he could talk about the housing meltdown and mortgage crisis without mentioning the Federal Reserve, Fannie Mae, or Freddie Mac. Sort of like analyzing World War II and pretending Germany and Japan didn’t exist.

Since most of the previous observation are critical, I want to stress that I’m not being partisan. I also was disappointed in the Republican response. Was the GOP smart to showcase a governor who was part of the big-spending Bush Administration? Especially one who has said nice things about the value-added tax?

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When it was announced that Indiana Gov. Mitch Daniel’s would give the response to the State of the Union address, hopes were high that he might take it to Obama–that he might meet the rhetoric of class warfare with an exposition of free markets, personal responsibility, smaller government, etc. But instead, what we heard last night from Daniels was more class warfare aimed at the rich.

For example, after saying some good things, even some great things, about the debt President Obama’s reckless spending has put us in—“an unprecedented explosion of spending has added trillions to an already unaffordable national debt”—Daniels went after the wealthy in this county in much the same way we’d expect Nancy Pelosi or Harry Reid to do.

Consider the way he spoke of reviving Medicare and social security:

We must unite to save the safety net. Medicare and social security have served us well [and] we can preserve them unchanged and untouched for those in or near retirement, but we must fashion a new safety net so future Americans are protected too.

Decades ago we could afford to send millionaires pension checks and pay medical bills for even the wealthiest among us, now we can’t. So the dollars we have should be devoted to those who need them most.

Do you see that? According to Daniels, people who are wealthy shouldn’t receive social security “pension” checks or Medicare benefits. And what’s the difference between what Daniels is saying and what Obama says when he tells the wealthy to “pay their fair share”? It’s like Daniels took a page straight out of Class Warfare 101.

And what’s worse, Daniels is completely overlooking the fact that “the wealthy” receive social security checks because they paid into social security: it’s not like they’re receiving checks for something they didn’t earn. So in a real sense, Daniels is saying that the money the wealthy paid into social security should go to others instead. It’s like a whole new entitlement.

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Let me build on Charles Krauthammer’s great Friday column, “The GOP’s Suicide March.” Krauthammer argues that just as President Obama’s class-warfare, soak-the-rich mantra started lagging in the polls, some Republicans on the campaign trail started making the case that Mitt Romney’s Bain Capital was involved in nothing more than vulture capitalism, looting companies, and destroying jobs. Keeping class envy alive.

I’m not going to name names, because everybody knows who these Republicans are. Instead, I want to go positive, and commend Mitt Romney himself. Romney did his best in the second South Carolina debate to fight for free-market capitalism and Adam Smith, and against the spread of Obama-style crony capitalism and class envy.

During the Thursday night debate, Romney launched this:

“You’ve got to stop the spread of crony capitalism. [Obama] gives General Motors to the UAW. He takes $500 million and sticks it into Solyndra. He stacks the labor stooges on the NLRB so they can say no to Boeing and take care of their friends in the labor movement. . . . He has to bow to the most extreme members of the environmental movement. He turns down the Keystone pipeline, which would bring energy and jobs to America.

“My view is capitalism works. Free enterprise works. . . . There’s nothing wrong with profit, by the way. That profit went to pension funds, to charities. It went to a wide array of institutions. . . . And by the way, as enterprises become more profitable, they can hire more people. I’m someone who believes in free enterprise. I think Adam Smith was right. And I’m gonna stand and defend capitalism across this country, throughout this campaign. I know we’re going to get hit hard from President Obama, but we’re gonna stuff it down his throat and point out that it is capitalism and freedom that makes America strong.”

Whoa. Tough stuff. The right stuff.

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I did a debate on income inequality for PBS but haven’t written much about the issue because I think it is a misguided diversion.

One frustrating aspect of this debate is that folks on the left genuinely seem to think the economy is a fixed pie and that rich people get money by impoverishing others.

This is utter nonsense. Just look at this chart comparing North Korea and South Korea, or this chart comparing Chile, Argentina, and Venezuela. With the right policies, countries can get much richer over time, yielding enormous benefits for the average household.

More rational leftists understand this data, so they change the argument by asserting that the rich are getting richer faster than the poor are getting richer and that politicians should “solve” this alleged problem with class-warfare tax policy and more redistribution.

They even cite numbers from the biased bureaucrats at the Congressional Budget Office to supposedly prove their point.

There are all sorts of methodological problems with this kind of research, including the fact that people move up and down the income ladder over time, so it is very sketchy to compare, say, the top 20 percent in 1990 with the top 20 percent in 2010.

But even if you incorrectly assume that all households are locked into their current income levels, the data used by the left is deeply flawed. (more…)

I’ve written before about whether California is the Greece of America, in part because of crazy policies such as overpaid bureaucrats and expensive forms of political correctness,

And we all know that California has one of the nation’s greediest governments, imposing confiscatory tax rates on a shrinking pool of productive citizens.

So it is hardly surprising that the Golden State is falling behind, losing jobs and investment to more sensible states such as Texas.

But not everybody is learning the right lessons from California’s fiscal and economic mess.

There’s a group of crazies who want to increase the top tax rate by five percentage points, an increase of about 50 percent. And they have made Kim Kardashian the poster child for their proposed ballot initiative.

I’m relatively clueless about popular culture, but even I’m aware that there is a group of people know as the Kardashian sisters. I don’t know who they are or what they do, but I gather they are famous in sort of the same way Paris Hilton was briefly famous.

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As unlikely as it is for OWS to gain power, what would it mean for our nation, and our society, if they did? Michael Bane provided a frank answer. Bane has several decades of experience in the coverage and study of riots and social cavitations worldwide as a journalist. He is also the host of “Best Defense Survival” on the Outdoor Channel.

Bane discussed Occupy’s anarchist collaboration: “If anyone succeeds in bringing down the United States government or creating a social dislocation that breaks this fragile, amazing machine the Founders created, what comes after is not pleasant. What comes is what was before the Dream of America… That was simply survival of the most vicious.”

Bane continues, “What the toy anarchists in the Occupy movement don’t understand is that the best organized people in the country are the criminal enterprises. They’re very good at it. MS-13? Biker gangs? Mexican cartels? These guys are good at anarchy… because they are without conscience or any sense of moderation… That is what anarchy looks like. Anarchy looks like someone’s head on a bed.”

The communist and socialist elements within the Occupy movement believe the elimination of our current system, or at least the collapse of it, will bring about a favorable revolution. What the Occupiers fail to understand is the historical, if not psychological, context behind a revolution. These movements are regularly co-opted by more insidious ideologies. Those who instigated the French Revolution ultimately found their way to the guillotines just as many of the antagonists who toppled the Russian Empire found their way into the gulags of Soviet Russia. (more…)

To be blunt, I’m not a big fan of the Organization for Economic Cooperation and Development. But my animosity isn’t because OECD bureaucrats threatened to have me arrested and thrown in a Mexican jail.

Instead, I don’t like the Paris-based bureaucracy because it pushes a statist agenda of bigger government. This Center for Freedom and Prosperity study has all the gory details, revealing that OECD bureaucrats endorsed Obamacare, supported the failed stimulus, and are big advocates of a value-added tax for America.

And I am very upset that the OECD gets a giant $100 million-plus subsidy every year from American taxpayers. For all intents and purposes, we’re paying for a bunch of left-wing bureaucrats so they can recommend that the United States adopt that policies that have caused so much misery in Europe. And to add insult to injury, these socialist pencil pushers receive tax-free salaries.

And now, just when you thought things couldn’t get worse, the OECD has opened a new front in its battle against America. The bureaucrats from Paris have climbed into bed with the hard left at the AFL-CIO and are pushing a class-warfare agenda. Next Wednesday, the two organizations will be at the union’s headquarters for a panel on “Divided We Stand – Tackling Growing Inequality Now.”

Co-sponsoring a panel at the AFL-CIO’s offices, it should be noted, doesn’t necessarily make an organization guilty of left-wing activism and mis-use of American tax dollars. But when you look at other information on the OECD’s website, it quickly becomes apparent that the Paris-based bureaucracy has launched a new project to promote class-warfare.

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Richard Trumka, that fearless leader of the AFL-CIO, is a strange bird indeed. He uses the lexicon of Marx and Lenin, has a mustache that looks like it’s glued on, and emanates a rage previously reserved for Alec Baldwin voicemails. As a union man, he’s accustomed to living off the public dole, and since Obama assumed the presidency, has enjoyed seeing billions of taxpayer dollars used to prop up union causes and industries (like the very Detroit automakers unions previously destroyed).

And although the money Obama threw at Detroit will result in a $23.6 billion loss for the American people, Trumka is unrepentant because it keeps his union operational and other Leninist outposts going strong as well.

Here’s the problem – Trumka is a taker. Take, take, take, take, and after taking, all he can do is demand more. (He’s like a kid whose parents never taught the meaning of “no.”) Thus it comes as no surprise he now stands in “solidarity” with the hippies and freaks that constitute #OccupyWallStreet, which is another group of takers. Rather than work they take over public parks, march in the streets, throw rocks through windows, all while moaning that the rich won’t hand over more of their money to the unwashed masses.

To date, the occupy movements have been marred by death, sexual assaults, kidnappings, drug use, attacks on policemen, masturbation in front of children, destruction of property, defecation in the streets, and a couple of bullets fired at the White House (all harmlessly enough I’m sure).  And through it all, these takers have been backed by unions who are best served by dividing one portion of Americans against another using the tired rhetoric of workers v. the rich or the 99% v. the 1% or the proletariat v. the bourgeoisie.

Of course Trumka isn’t without his supporters. President Obama lets him travel for free on taxpayer funded government jets in September and that freak of nature Michael Moore joins Trumka in outrage over the fact that the police in various cities are finally cracking down on occupiers.

Trumka’s latest stunt is to call for occupiers to fill up bridges in cities around the nation today at 4 pm. As part of “National Occupy Bridge Day,” the plan is to shut down traffic on bridges leading in and out of major U.S. cities in order to get Obama’s jobs bill passed. I wonder how creating a public nuisance certain to outrage people driving home from their jobs is going to raise support for legislation designed to dump more money into the pockets of union thugs and hippies like those in #OccupyWallStreet?

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Alan Blinder has a distinguished resume. He’s a professor at Princeton and he served as Vice Chairman of the Federal Reserve.

So I was interested to see he authored an attack on the flat tax – and I was happy after I read his column. Why? Well, because his arguments are rather weak. So anemic that it makes me think there’s actually a chance to get rid of America’s corrupt internal revenue code.

There are two glaring flaws in his argument. First, he demonstrates a complete lack of familiarity with the flat tax and seemingly assumes that tax reform simply means imposing one rate on the current system.

Here’s some of what he wrote in a Wall Street Journal column.

Many useful steps could be taken to simplify the personal income tax. But, contrary to much misleading rhetoric, flattening the rate structure isn’t one of them. The truth is that 100% of the complexity inheres in the definition of taxable income, which takes up millions of words in the tax laws. None inheres in the progressive rate structure. If you don’t believe that, consider the fact that the corporate income tax is virtually flat once a corporation passes a paltry $75,000 in taxable income. Is it simple? Back to the personal tax. Figuring out your taxable income can be quite an effort. But once that is done, most taxpayers just look up their tax bill on an IRS-provided table. Those with incomes above $100,000 must perform a simple calculation that involves multiplying two numbers together and adding a third. A flat tax with an exemption would require precisely the same sort of calculation. The net reduction in complexity? Zero.

I can understand how an average person might think the flat tax is nothing more than applying a single tax rate to the current system, but any public finance economist must know that the plan devised by Professors Hall and Rabushka completely rips up the current tax system and implements a new system based on one tax rate with no double taxation and no loopholes.

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One of my frustrating missions in life is to educate policy makers on the Laffer Curve.

This means teaching folks on the left that tax policy affects incentives to earn and report taxable income. As such, I try to explain, this means it is wrong to assume a simplistic linear relationship between tax rates and tax revenue. If you double tax rates, for instance, you won’t double tax revenue.

But it also means teaching folks on the right that it is wildly wrong to claim that “all tax cuts pay for themselves” or that “tax increases always mean less revenue.” Those results occur in rare circumstances, but the real lesson of the Laffer Curve is that some types of tax policy changes will result in changes to taxable income, and those shifts in taxable income will partially offset the impact of changes in tax rates.

However, even though both sides may need some education, it seems that the folks on the left are harder to teach – probably because the Laffer Curve is more of a threat to their core beliefs.

If you explain to a conservative politician that a goofy tax cut (such as a new loophole to help housing) won’t boost the economy and that the static revenue estimate from the bureaucrats at the Joint Committee on Taxation is probably right, they usually understand.

But liberal politicians get very agitated if you tell them that higher marginal tax rates on investors, entrepreneurs, and small business owners probably won’t generate much tax revenue because of incentives (and ability) to reduce taxable income.

To be fair, though, some folks on the left are open to real-world evidence. And this IRS data from the 1980s is particularly effective at helping them understand the high cost of class-warfare taxation (click to enlarge).

There’s lots of data here, but pay close attention to the columns on the right and see how much income tax was collected from the rich in 1980, when the top tax rate was 70 percent, and how much was collected from the rich in 1988, when the top tax rate was 28 percent.

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In Ohio, as union bosses have embraced Occupy Wall Street’s (OWS) class war between the “99 percent” and the “1 percent,” it has becomes increasingly difficult not to ask an obvious question:

Aren’t union bosses basically the 1 percent?

Throughout the run-up to Ohio’s Issue 2 election on November 8, in which voters will consider a referendum on the state’s new public sector labor reforms, I’ve met pponents of the bill at Occupy Columbus who say they are fed up with “the rich taking from the middle class.” They direct their class warfare energies at the abstract Wall Street anathema, but the scenario is literally accurate–and not in some obtuse, Marxist form–as a description of the fiscal dynamic between union bosses and rank-and-file members.

I asked one teacher how, being an Occupy demonstrator and opponent of Ohio labor reforms, she justified the $210,000 annual salary of Larry Wicks, executive director of the Ohio Education Association (OEA), of which she is a dues-paying member. She paused for thought–understandably, since that fact would seem to justify class warfare against the “rich” Mr. Wicks. Ultimately, she concurred with my criticism, and even condemned her very own OEA.

Other Ohio teachers are even less hesitant to criticize their union. One teacher (who wished to remain anonymous for her own safety) shared that she had requested a waiver to opt out of paying the union’s political assessments, to which the response was, “We’ll get back to you.” They didn’t. (more…)

“[Teaching] is the only workplace, the only occupation, where by and large you are not paid, promoted, recognized, measured in any way having to do with your performance, only having to do with how long you’ve been breathing,” says journalist and media entrepreneur Steven Brill.

His new book, Class Warfare, chronicles the rise of a reform movement that’s bringing a measure of accountability and choice to public schools. The book grew out of Brill’s widely read 2009 New Yorker piece about the “rubber room,” a holding pen for New York City teachers who couldn’t be fired after they were removed from their classrooms for poor performance.

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Rep. Jan Schakowsky (D, Illinois 9th District), whose husband has been convicted of bank fraud and tax evasion, was recently interviewed by the far-left website “truthout” and served up some rather unsettling thoughts on economics and the role of government.

You’ll remember truthout for its scoop back in 2009; it was the first site to report the big news that Karl Rove had been indicted. Unfortunately for this “news” site, Karl Rove was never indicted. That was a spot of bother, indeed, impugning the site’s veracity just a bit. You may also know that original editor, Marc Ash, was ousted from the site by a coup from within when it was discovered he was making $140,000 a year off the donors and left-wing foundations supporting the site. But he’s all for the downtrodden masses, ya know?

Now that we have established the forum upon which Schakowsky appeared, let’s look at some of the extreme things she said.

The interview began with the most likely of subjects given the national debate: as Joe Biden said, that three letter word–jobs, jobs, jobs. Schakowsky, of course, stuck to that debunked idea that government “creates jobs” and indulged her inner Keynes in every answer.

Saying she just couldn’t understand how people could say government doesn’t create jobs, Schakowsky indulged in the typically Keynesian fantasy that all left-wingers wallow in. She imagines that jobs created by the government are economic boosters because the money such people are paid will be spent in the general economy. This, she absurdly says, means that everyone is a “job creator” because they spend money. (more…)

They might have a notoriously thin grasp on their demand list. They might totally miss the irony of wearing $150 Ray Ban sunglasses while carrying signs denigrating “corporatism” and “consumerism.” Some of their members may, in fact, see the protest as nothing more than a way to exhibit their least attractive qualities, including but not limited to anti-Semitism. Heck, they’re pretty sure even they don’t know what they’re doing (aside from asking America to pretty, pretty PLEASE bail them out of the student loans they racked up in four years studying foreign film at the New School).

But they may have a long-term effect on your pocketbook and the financial stability of the nation if any of the concrete items on their rambling, incoherent list of demands makes it to the level of national governance. Although the protesters themselves might be a loose collection of Communists, socialists, card-carrying ANSWER members, SEIU stooges, English department mainstays and professional grievance-mongers, some of the “big names” pulling the strings behind the scenes and influencing #occupywallstreet with New York Times editorials are suggesting that the “occupiers’” attempt to influence Washington movement on some key issues contained in the jobs bill.

Specifically, the progressive thinkers want their unwashed hippie army pushing D.C. to ram through a provision called “Carried Interest” which they define as “punishing the rich” but which is more closely defined as “destabilizing the American real estate and investment markets.” From the #OccupyWallStreet “Manifesto”:

2. Currently, the 1% takes bailouts from taxpayers with impunity, and continues to give executives exorbitant bonuses…

Close the “carried interest” and “founders’ stock” loopholes, which allow our wealthiest citizens to pay very low tax rates by pretending that their labor compensation is a capital gain.

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“Greedy: Excessively or inordinately desirous of wealth, profit, etc.; avaricious.”
– Dictionary.com

By now, no doubt, you have heard about the “incredible” Occupy Wall Street Movement taking place on and around Wall Street; a movement whose organizers claim is “organic” and spreading across the globe, not unlike the so-called “Arab Spring.” There are a few problems with this claim, however. First, the movement is anything but “organic.” And second, for the most part, the “Arab Spring” has facilitated the rise of radical Islamist factions to the courts of power. Incredible indeed.

The “movement” is incredible for many reasons; incredible in that what we are being asked to believe the impossible or very difficult to believe, via the reporting in the mainstream media and declarations issued from the movement’s organizers. Interviews with a credible sampling of those in attendance prove that many participants don’t even know why they are there but for it being “the place to be” for the terminally and youthfully disgruntled.

But a closer examination of who is in attendance, who is stepping up to the proverbial microphone and what “the movement” is issuing as a set of “demands,” makes the studied eye suspicious that this may, in fact, be the mother of all political “astroturfing” initiatives, just in time to demonize the job creators as “greedy” in the run up to an election where the incumbent – Barack Obama – hasn’t an accomplishment to run on.

Perhaps the biggest “red flag” (no pun intended) came in the form of statements made by left-wing Progressive agitator, self-avowed Communist and former Obama Administration official Van Jones. Jones is currently the lead rabble-rouser of the “American Dream Movement,” a radically left-wing political activist organization run by the Progressive group MoveOn.org Civic Action, in partnership with a number of other Leftist and Liberal groups ranging from the Hip Hop Caucus to Planned Parenthood.

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“It’s not class warfare, it’s simple math!”

That’s how President Obama defended the tax-the-rich foundation of his so-called American Jobs Act.  The President’s rhetoric was, of course, overreaching, as it so often is when he is in campaign mode, and none other than the Associated Press took him to task for his overzealous, inaccurate generalization that the rich are not paying their “fair share.”

Here’s the President setting up a straw man and then knocking him down with the practiced skill of a populist debater. “It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million… Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said. “That’s pretty straightforward. It’s hard to argue against that.”

Well, middle-income households shouldn’t be paying a higher percentage of their income in taxes than high-income households, and, of course, they aren’t.  As the AP pointed out, the rich, are (Mr. Buffett, apparently, notwithstanding), in fact, paying the highest marginal tax rates, as they should. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government according to AP’s Stephen Ohlemacher.  The ten percent of households with the highest incomes pay more than half of all federal taxes. They contribute over 70 percent of federal income tax revenue, says the Congressional Budget Office. (more…)

It’s hard to keep track of all the tax hikes that President Obama is proposing, but it’s very simple to recognize his main target – the evil, nasty, awful people known as the rich.

Or, as Obama identifies them, the “millionaires and billionaires” who happen to have yearly incomes of more than $200,000.

Whether the President is talking about higher income tax rates, higher payroll tax rates, an expanded alternative minimum tax, a renewed death tax, a higher capital gains tax, more double taxation of dividends, or some other way of extracting money, the goal is to have these people foot the bill for a never-ending expansion of the welfare state.

This sounds like a pretty good scam, at least if you’re a vote-buying politician, but there is one little detail that sometimes gets forgotten. Raising the tax burden is not the same as raising revenue.

That may not matter if you’re trying to win an election by stoking resentment with the politics of hate and envy. But it is a problem if you actually want to collect more money to finance a growing welfare state.

Unfortunately (at least from the perspective of the class-warfare crowd), the rich are not some sort of helpless pinata that can be pilfered at will.

The most important thing to understand is that the rich are different from the rest of us (or at least they’re unlike me, but feel free to send me a check if you’re in that category).

Ordinary slobs like me get the overwhelming share of our income from wages and salaries. The means we are somewhat easy victims when the politicians feel like raping and plundering. If my tax rate goes up, I don’t really have much opportunity to protect myself by altering my income.

Sure, I can choose not to give a speech in the middle of nowhere for $500 because the after-tax benefit shrinks. Or I can decide not to write an article for some magazine because the $300 payment shrinks to less than $200 after tax. But my “supply-side” responses don’t have much of an effect.

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