Real World Evidence for the Laffer Curve, even from the Government of Washington, DC

President Obama is proposing a series of major tax increases. His budget envisions higher tax rates on personal income, increased double taxation of dividends and capital gains, and a big increase in the death tax. His health care plan includes significant tax hikes, including the imposition of the Medicare payroll tax on capital income – thus exacerbating the tax code’s bias against saving and investment. It is unclear why the White House is pursuing these punitive policies. The President said during the 2008 campaign that he favored soak-the-rich taxes even if they did not raise revenue, but his budget predicts the proposals will raise lots of additional money.

Because of Laffer Curve reasons, it is highly unlikely that all of this additional revenue will materialize if the President’s budget is approved. The core insight of the Laffer Curve is not that all tax increases lose money and that all tax cuts raise revenues. That only happens in rare circumstances. Instead, the Laffer Curve simply reveals that higher tax rates will lead to less taxable income (or that lower tax rates will lead to more taxable income) and that it is an empirical matter to figure out the degree to which the change in tax revenue resulting from the shift in the tax rate is offset by the change in tax revenue caused by the shift in the other direction for taxable income. This should be an uncontroversial proposition, and was explained in the video from this post. But since many comments and emails expressed disbelief, this video looks at the real world evidence.

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Tags: Art Laffer, Evidence, Income tax, IRS, Laffer
Posted Mar 5th 2010 at 4:21 pm in Congress, Economics, Obama, Tax Reform, Uncategorized | 85146115 Commentshttp://biggovernment.com/dmitchell/2010/03/05/real-world-evidence-for-the-laffer-curve-even-from-the-government-of-washington-dc/Real+World+Evidence+for+the+Laffer+Curve%2C+even+from+the+Government+of+Washington%2C+DC2010-03-06+00%3A21%3A35Dan+Mitchell

The Fox Butterfield Effect and the Laffer Curve

A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.

We now have a version of the Butterfield Effect in tax policy. Recent IRS data show that rich people earned a record amount of income in 2007 and also faced their lowest effective tax rate in almost two decades. Proponents of soak-the-rich tax policy complain about these developments, but they seem oblivious to the Laffer Curve insight that rich people earned more income in part because tax rates were lower. This video explains how the Laffer Curve works.

Liberals don’t understand that if they penalize the rich with higher tax rates, as President Obama is proposing, they will be disappointed to discover that they collect considerably less revenue than predicted for the simple reason that wealthy taxpayers will respond by earning less taxable income. This Bloomberg excerpt is a good example. The leftist quoted in the article assumes that income is a fixed variable and successful taxpayers will passively endure higher taxes.

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Tags: Art Laffer, Capital Gains, Corporate Income tax, Dividends, Income tax
Posted Mar 1st 2010 at 10:59 am in Congress, Economics, News, Obama, Politics, Tax Reform, Uncategorized | 8242265 Commentshttp://biggovernment.com/dmitchell/2010/03/01/the-fox-butterfield-effect-and-the-laffer-curve/The+Fox+Butterfield+Effect+and+the+Laffer+Curve2010-03-01+18%3A59%3A17Dan+Mitchell

Will Obama Do to America What Corzine Did to New Jersey?

Barack Obama wants higher tax rates on the so-called rich, including steeper levies on income, capital gains, dividends, and even death! Along with other greedy politicians in Washington, he acts as if successful taxpayers are like sheep meekly awaiting slaughter. In reality, class-warfare tax policies generally backfire because of the five reasons outlined in this video:

A new study from Boston College provides additional evidence about the consequences of hate-and-envy tax policy. The research reveals that high tax rates in New Jersey have helped cause wealthy people to leave the state, leading to a net wealth reduction of $70 billion between 2004 and 2008. Wealth and income are different, of course, so it is worth pointing out that another study from 2007 estimated that the state lost $8 billion of gross income in 2005. That’s a huge amount of income that is now beyond the reach of the state’s greedy politicians. Here’s a report from the New Jersey Business News:

(more…)

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Tags: Big Government, Boston College, Class warfare, Corzine, Death Tax
Posted Feb 17th 2010 at 8:01 am in Economics, News, Obama, Uncategorized | 7643475 Commentshttp://biggovernment.com/dmitchell/2010/02/17/will-obama-do-to-america-what-corzine-did-to-new-jersey/Will+Obama+Do+to+America+What+Corzine+Did+to+New+Jersey%3F2010-02-17+16%3A01%3A08Dan+Mitchell

Political Alchemy, Part I: Turning Spending Increases into Tax Cuts

Politicians in Washington have come up with something far more impressive than turning lead into gold or water into wine. Using self-serving budget rules, they can increase the burden of government spending and say they are cutting taxes instead.

This bit of legerdemain is made possible, thanks to the convolutions of the personal income tax, by adopting or expanding refundable tax credits. But in this case, “refundable” does not mean the government is returning money to taxpayers. Instead, it means that money is being redistributed to people who do not earn enough to be subject to the income tax.

This is hardly a trivial issue. According to the Congressional Budget Office, the amount of income redistribution being laundered through the tax code is now so large that the bottom 40 percent of the population has a negative “effective” income tax rate. In simple terms (though perhaps with profound political implications), the income tax is a revenue generator for a big share of the population.

(more…)

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Tags: 1040, Big Government, EITC, federal spending, Flat Tax
Posted Feb 8th 2010 at 12:57 pm in Congress, Economics, Flat Tax, News, Obama, Politics, Tax Reform, Uncategorized, federal spending | 7025055 Commentshttp://biggovernment.com/dmitchell/2010/02/08/political-alchemy-part-i-turning-spending-increases-into-tax-cuts/Political+Alchemy%2C+Part+I%3A+Turning+Spending+Increases+into+Tax+Cuts2010-02-08+20%3A57%3A34Dan+Mitchell

A Victory for Fiscal Sovereignty and a Long-Overdue Defeat for the IRS

A Swiss court just threw a wrench in the gears of an IRS effort to impose bad US tax law on an extraterritorial basis, ruling that UBS does not have to hand over data to the American tax authorities.

This ruling nullifies an agreement that the Swiss government was coerced into making with the US government last year. In typical arrogant fashion, the IRS already has indicated that it still expects acquiescence, notwithstanding Switzerland’s strong human rights policy on personal privacy. The Bloomberg story excerpted below has the details, but it’s worth noting that this entire fight exists solely because the internal revenue code imposes double taxation on income that is saved and invested and imposes that bad policy on economic activity outside America’s border. But just as other governments should not have the right to impose their laws on things that happen in America, the United States should not have the right to trample the sovereignty of other nations:

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Tags: Financial privacy, Human rights, IRS, Switzerland, Tax Competition
Posted Jan 23rd 2010 at 10:19 am in Economics, Justice/Legal, News, Politics, Tax Reform, federal spending | 6417088 Commentshttp://biggovernment.com/dmitchell/2010/01/23/a-victory-for-fiscal-sovereignty-and-a-long-overdue-defeat-for-the-irs/A+Victory+for+Fiscal+Sovereignty+and+a+Long-Overdue+Defeat+for+the+IRS2010-01-23+18%3A19%3A32Dan+Mitchell

H and R Block and the IRS: An Unholy Alliance to Ransack Taxpayers

The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on “regulatory capture,” which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets.

A perfect (and distasteful) example of this can be found in today’s Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market.

The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice repeatedly has shown such rules are designed to benefit insiders rather than consumers.

Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals – such as CPAs, tax lawyers, and enrolled agents – were unable to figure out how to correctly fill out a hypothetical family’s tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?

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Tags: Big Business, Big Government, corruption, Flat Tax, IRS
Posted Jan 5th 2010 at 1:17 pm in Economics, Flat Tax, News, Tax Reform | 55546109 Commentshttp://biggovernment.com/dmitchell/2010/01/05/h-and-r-block-and-the-irs-an-unholy-alliance-to-ransack-taxpayers/H+and+R+Block+and+the+IRS%3A+An+Unholy+Alliance+to+Ransack+Taxpayers2010-01-05+21%3A17%3A39Dan+Mitchell

Merry Christmas from the IRS: Another Year of Government Dysfunction

Here are a few stories to bring holiday cheer for taxpayers. First, we have an Associated Press report that several hundred thousand federal bureaucrats have serious tax delinquencies. The Department of Housing and Urban Development always ranks high on the list of government entities that should be abolished, so it’s interesting to see that HUD bureaucrats are most likely to be dodging their taxes:

More than 276,000 federal employees and retirees owed back income taxes as of Sept. 30, 2008, according to data from the Internal Revenue Service. The $3.04 billion owed was up from $2.7 billion owed by federal employees and retirees in 2007. Among cabinet agencies, the Department of Housing and Urban Development had the highest delinquency rate, at just over 4 percent.

This rampant nonpayment is especially outrageous since federal bureaucrats “earn” twice as much compensation, on average, as those of us laboring in the productive sector of the economy. One might think they would go out of their way to comply since their bloated salaries come from tax collections. Speaking of outrage, the internal watchdogs at the Treasury have just published a report showing that it is almost impossible to verify eligibility for the special interest tax breaks in the so-called stimulus. As Investor’s Business Daily opines, this is an invitation to fraud:

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Tags: Flat Tax, Housing and Urban Development, HUD, inspector general, Internal Revenue Service
Posted Dec 25th 2009 at 9:03 am in Economics, News, Tax Reform | 5188644 Commentshttp://biggovernment.com/dmitchell/2009/12/25/merry-christmas-from-the-irs-another-year-of-big-government-disfunction/Merry+Christmas+from+the+IRS%3A+Another+Year+of+Government+Dysfunction2009-12-25+17%3A03%3A25Dan+Mitchell

ACORN Still Owes $2.3 Million in Overdue Taxes

ACORN and its affiliates are content to impose crippling big-government laws, regulations, and taxes on Americans, but when called upon to obey those same rules, ACORN’s network of scofflaws and deadbeats simply refuses to comply.

ACORN and its affiliates currently owe more than $2.3 million in long overdue back taxes to all levels of government.

It's deathly quiet at the former funeral home at 1024 Elysian Fields Avenue, New Orleans. (photo: Kevin Kane)

As of Nov. 11 the exact figure was $2,328,596.95.

ACORN owes money to the IRS, Arkansas, California, Delaware, District of Columbia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi, New Mexico, New York, New Jersey, Ohio, Oklahoma, Pennsylvania, South Carolina, Texas, Washington, Wisconsin, and to the cities of New York and Philadelphia.

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Tags: ACORN, Arkansas, Barack Obama, Buddy Caldwell, California
Posted Nov 16th 2009 at 1:03 pm in ACORN, Obama | 3160655 Commentshttp://biggovernment.com/mvadum/2009/11/16/acorn-still-owes-2-3-million-in-overdue-taxes/ACORN+Still+Owes+%242.3+Million+in+Overdue+Taxes2009-11-16+20%3A03%3A59Matthew+Vadum

ACORN – 50 More Days Without Federal Funds

On Thursday, the United States House of Representatives passed a continuing resolution funding the Federal Government through December 18^th.  The continuing resolution was passed as part of the behemoth Interior-Environment Appropriations conference report.

A continuing resolution is a stop-gap provision which allows the government to continue its operations until Congress can determine the next year’s appropriations.  The actions taken today merely extended the expiration date of the resolution which went into effect on October 1^st.

By extending the existing continuing resolution Congress has continued to deprive ACORN and its affiliates of federal funds until December 18^th.

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Tags: ACORN, ACORN federal funding, continuing resolution, Darrell Issa, Defund ACORN
Posted Oct 30th 2009 at 6:17 am in ACORN, Congress, Politics | 2271427 Commentshttp://biggovernment.com/cberg/2009/10/30/acorn-50-more-days-without-federal-funds/ACORN+-+50+More+Days+Without+Federal+Funds2009-10-30+13%3A17%3A45Chris+++Berg

Rep. Issa Responds to ACORN’s Bertha Lewis

Issa Responds to Bertha Lewis Charge that ACORN the Victim of Republican McCarthyism

WASHINGTON. D.C. – House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-CA) issued the following statement today in response to comments made by ACORN CEO Bertha Lewis at the National Press Club where she accused Republicans of ACORN McCarthyism:

“Was it Republicans who embezzled millions from within their own organization and have yet to report the embezzlement to the IRS or Labor Department?  Was it Republicans who conducted the internal review that highlighted the lack of firewalls between their charitable and political activities?  Was it Republicans who hired a man convicted of multiple counts of conspiracy and money laundering to raise funds and register voters in Oklahoma?  The fact that ACORN’s leadership refuses to even acknowledge and accept responsibility for the state of their organization is disturbing and brings into question the sincerity of ACORN’s pledge to reform their organization.”

While ACORN CEO Bertha Lewis addressed the National Press Club, the House Committee on Oversight and Government Reform Republican Staff were reviewing new internal ACORN documents that shed further light on ACORN’s intent to capitalize on the opaque nature of their funding structure in order to fund its partisan political activities.  (more…)

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Tags: ACORN, ACORN embezzlement, acorn scandal, ACORN videos, Bertha Lewis
Posted Oct 6th 2009 at 4:30 pm in ACORN, Congress | 1349446 Commentshttp://biggovernment.com/publius/2009/10/06/rep-issa-responds-to-acorns-bertha-lewis/Rep.+Issa+Responds+to+ACORN%27s+Bertha+Lewis2009-10-06+23%3A30%3A43Publius

Lousiana Attorney General Serves ACORN With 2nd Subpoena: Full Text

From Steve Beatty, investigative reporter for the Pelican Institute:

The brother of ACORN’s founder embezzled $5 million from the organization, nearly five times more than the figure previously acknowledged by the New Orleans activist group’s officials, according to a subpoena served Monday by the Louisiana Attorney General’s Office.

“The exact amount of the embezzlement was unknown until it was recently acknowledged in a board of directors meeting on October 17, 2008 by (ACORN Chief Executive Officer) Bertha Lewis and (ACORN board member) Liz Wolf that an internal review had determined that the amount embezzled was $5,000,000,” reads the court document. “It is still unclear if some of the monies embezzled are from state, federal of private funds.”

ACORN 2nd Subpoena –

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Tags: ACORN, ACORN embezzlement, ACORN subpoena, ACORN tax liens, Attorney General Buddy Caldwell
Posted Oct 6th 2009 at 1:00 pm in ACORN, News, Politics, State Politics | 1355024 Commentshttp://biggovernment.com/kkane/2009/10/06/lousiana-attorney-general-serves-acorn-with-2nd-subpoena-full-text/Lousiana+Attorney+General+Serves+ACORN+With+2nd+Subpoena%3A+Full+Text+2009-10-06+20%3A00%3A45Kevin+Kane

Breaking: Treasury Inspector General to ‘Review’ ACORN

Press Release

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
http://republicans.oversight.house.gov

News Release

Treasury IG Agrees to Request by Issa and Collins to Conduct a Review of ACORN

September 24, 2009

WASHINGTON D.C. –Treasury Department Inspector General, J. Russell George agreed to comply with a request submitted by House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-Calif.) and Senate Committee on Homeland Security and Government Affairs Ranking Member Susan Collins (R-Maine) to conduct a review of the Association of Community Organizations for Reform Now (ACORN) and of the IRS’s oversight of nonprofit organizations.

Read the whole release here.

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Tags: ACORN, IRS, Rep. Darrell Issa, Sen. Susan Collins, Treasury
Posted Sep 24th 2009 at 9:58 am in ACORN, Congress, News | 790263 Commentshttp://biggovernment.com/publius/2009/09/24/breaking-treasury-inspector-general-to-review-acorn/Breaking%3A+Treasury+Inspector+General+to+%27Review%27+ACORN2009-09-24+16%3A58%3A43Publius

IRS Severs Ties with ACORN Over Scandal

From the Associated Press:

WASHINGTON (AP) – The IRS says it is severing ties with ACORN, the community activist group involved in a scandal after employees were caught on video giving advice to a couple posing as a prostitute and pimp.

The Internal Revenue Service said Wednesday it would no longer include ACORN in its volunteer tax assistance program. The program offered free tax advice to about 3 million low- and moderate-income tax filers this spring.

The IRS said ACORN, which is short for the Association of Community Organizations for Reform Now, provided help on about 25,000 returns.

Read the full article here.

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Tags: ACORN, acorn scandal, IRS, taxes
Posted Sep 23rd 2009 at 12:44 pm in ACORN, Exclusives | 735897 Commentshttp://biggovernment.com/publius/2009/09/23/exclusive-irs-terminating-relationship-with-acorn/IRS+Severs+Ties+with+ACORN+Over+Scandal2009-09-23+19%3A44%3A08Publius

NEA ‘Health Care Resource’ Links to 501(c)(3) Organization Demanding ‘affordable guarantee-issue insurance’

Scott Johnson at Powerline was alerted to this this morning. We’ll tell the story in pictures.

NEA homepage:

Closer look:

Select “Health Insurance” and you’re sent directly here: (more…)

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Tags: "Artists Unite", 501(c)(3), health insurance, IRS, nea
Posted Sep 22nd 2009 at 10:59 am in Culture, Politics | 6658No Commentshttp://biggovernment.com/jjmnolte/2009/09/22/nea-health-care-resource-links-to-501c3-organization-demanding-affordable-guarantee-issue-insurance/NEA+%E2%80%98Health+Care+Resource%E2%80%99+Links+to+501%28c%29%283%29+Organization+Demanding+%E2%80%98affordable+guarantee-issue+insurance%E2%80%992009-09-22+17%3A59%3A29John+Nolte

Reps. Boehner, Cantor, Camp to IRS: Sever ACORN Ties Now

IRS ACORN doc –

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Tags: ACORN, Census Bureau, Dave Camp, Douglas Shulman, Eric Cantor
Posted Sep 15th 2009 at 11:15 am in ACORN, Congress, News, Politics | 2762139 Commentshttp://biggovernment.com/publius/2009/09/15/reps-boehner-cantor-camp-to-irs-sever-acorn-ties-now/Reps.+Boehner%2C+Cantor%2C+Camp+to+IRS%3A+Sever+ACORN+Ties+Now2009-09-15+18%3A15%3A04Publius

Bachmann Demands Investigation and Suspension of Taxpayer Funding to ACORN

Washington, D.C., Sep 11 -

U.S. Representative Michele Bachmann (MN-06) today requested the U.S. Census Bureau to refrain from partnering with ACORN in light of the numerous additional criminal activities uncovered this week:

“The past three days have brought to light further evidence that ACORN is untrustworthy and not worthy of being a partner for the 2010 census,” said Bachmann.  “These additional findings are disturbing and merely solidify my original and long-standing position that an organization with a continuous cloud of suspicion should be banned from receiving taxpayer dollars.  So long as this cloud of suspicion hangs over ACORN, I am afraid that its partnership with the Bureau could jeopardize the integrity of the census process and diminish the public’s trust in the Census.”

Bachmann has also requested Speaker Nancy Pelosi and Chairman Barney Frank conduct a congressional investigation into ACORN, its use of tax dollars, and whether it should repay tax dollars already received.

In order to immediately stop taxpayer dollars from funding ACORN, Bachmann is requesting the IRS revoke ACORN’s tax exempt status; the Secretary of Housing and Urban Development (HUD) halt any current funding; and the HUD Suspension and Debarment Committee suspend any future access to funding until ACORN cleans up its operation.

Click here to learn about the 11 ACORN workers arrested for voter registration or click here to view video of the Baltimore prostitution investigation. (more…)

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Tags: 2010 Census, ACORN, Baltimore ACORN, Catherine Cortez Masto, Housing and Urban Development
Posted Sep 11th 2009 at 6:08 pm in ACORN, Congress, News, Politics, Tax Reform | 1266120 Commentshttp://biggovernment.com/publius/2009/09/11/bachmann-demands-investigation-and-suspension-of-taxpayer-funding-to-acorn/++Bachmann+Demands+Investigation+and+Suspension+of+Taxpayer+Funding+to+ACORN++2009-09-12+01%3A08%3A06Publius