Nathan Sass

Democrats Unwittingly Prove ‘Reaganomics’ Works

In Economics, Politics, Tax Policy, Taxes on August 31, 2010 at 5:00 AM

From the LA Times on 8/31/10:

“Home prices rose in June, according to a closely watched national index released Tuesday, but many experts predict a drop in values this year with the expiration of popular federal tax credits for buyers.”

This could be restated as:

“Home prices rose in June, according to a closely watched national index released Tuesday, but many experts predict a drop in values this year with the increase in taxes for buyers.” 

An expiring credit is no different than a tax increase. If you no longer get the credit, it necessarily means your taxes are rising.

But there are more examples.

From the University of Wisconsin Medical School – Center for Tobacco Research and Intervention, related to a Democrat proposed and supported increase in the tax on tobacco in WI:

“Research shows raising the price of cigarettes increases the rate at which smokers try to quit, and history repeated itself in Wisconsin after the federal tobacco tax increased 62 cents April 1. In the first 13 days of April, 66 percent of callers to the Wisconsin Tobacco Quit Line (345 out of 524 tobacco users) said the tax increase factored into their motivation to call. Total calls to the Wisconsin Tobacco Quit Line were up 65 percent the week of the tax (March 30-April 5).”

Clearly, the increase in the taxes on tobacco are credited, solely, for a massive decrease in the purchase (and therefore use) of tobacco.

Or, put another way, increasing taxes reduced economic activity wherever those taxes were applied, in this case tobacco.

‘Reaganomics’, in part, is the economic school of thought that states that taxation has adverse impact to economic activity, regardless of the item being taxed. Therefore taxes should be kept to the lowest level possible in all cases, maximizing the economic activity of the items being taxed, and thus maximizing tax receipts without adverse economic impacts overall.

It further states that increases in taxation will always reduce or redirect economic activity to avoid such tax increase.

Still, progressives carry on about the need to increase taxes on income, especially on those earning more than [insert arbitrary amount here].

Applying what we have learned, either progressives

1)       know the truth that their policies will result in an overall decrease in economic activity (impacting all in that economy) and advocate them anyway, or

2)       are unable to make the simple connection between tax cuts they advocate and their natural results, and tax cuts in general and their associated effects.

I believe the truth is more likely to be #1 above. Their advocating of tax increases, no matter how they are presented, is always centered on the ‘redistribution of wealth’ via the Federal government, so as to empower them as the overseers of such a transfer.

Further, it allows these progressives in power to direct economic and social activities according to what they feel is appropriate, even over the objections of individuals.

Their own policies betray them. When an activity is something they approve of, such as home purchases during recession or the purchase of ‘green’ items, they reduce taxes on them to encourage that activity.

When an activity is something they disapprove of, such as tobacco use, accumulation of personal wealth or the purchase of large vehicles, they increase taxes to discourage it.

Make no mistake; progressives advocate large taxes on the ‘rich’ because they seek to discourage people from becoming rich. It is the only rational explanation for their policies. They actually are using the tax code to limit access to the dreams of millions of people to achieve wealth in their life times.

Oh, and if you do get rich anyway, progressives will still get the last laugh when you die. They advocate a high inheritance tax that will prevent you from leaving wealth to your kids. Sneaky buggers.

  1. “Further, it allows these progressives in power to direct economic and social activities according to what they feel is appropriate, even over the objections of individuals.”-as quoted from above; isn’t this what conservative policy makers do as well. Its disingenuous to state that somehow only ‘progressive’ policy-makers try to force their ideology over the ‘objections of individuals.’ What you’re really saying is that you’re view is the only correct one and such objections are immaterial do to this not-so-apparent “fact.” Also, Reagan never got a grip on budget deficits and the exploding (then as it is now) national debt. Due to this reality, every President since Carter has simply passed increasing economic burden onto future generations. Subsequently, that burden has now come home to roost. De-regulation policies produced the current recession, not progressive tax policy. You, like many, are over-estimating the true impact of fiscal policy on the business-cycle and year-in/year-out economic trends.

    • My point was not to call out social engineering, per se, but to illustrate that the left admits via its actions and policies that tax cuts have very real economic impacts, and that tax cuts in particular are economically beneficial. Thus, when they attempt to claim that lower taxes spur growth and thereby increase revenues to the treasury they are either a) lying or b) economically illiterate.

      The deficit has been growing for more than just the last 30 years. We as a nation have been in debt for far longer than we have not. This was not a discussion of deficits, however.

  2. I digress though, because any conversation concerning fiscal policy has real world implications on the national debt and per-annum budget deficits.

    Furthermore, tax-policy has always been sticky due to the reality that the rich pay a disproportionate lower share in income tax than the average middle class American. Since middle class America is the true engine of the national economy, it makes sense to protect the tax-base for those earning in and around the per capita GDP. Without the middle class, there would be no rich, no professional work-force, no productivity that is rated the highest in the world.

    As for economic literacy, yes some progressives and some conservatives support policies that are entirely out in left-field, but there is merit to all sides and some basic levels. Where you see a ‘re-distribution of wealth,’ liberals like myself see a positive adjustment in the purchasing power parity. Those in highest tax-bracket still retain the highest purchasing power in spite of the taxes they pay. While those on the lowest end suffer from the weakest purchasing power due to the mere fact that the CPI doesn’t change for individual circumstances, it is the same for each of us more or less. For those at the top its about protecting some sort of economic freedom, but for those at the bottom its about survival.

    With one last note about the inheritance tax, if becoming rich is about hard-work and merit, how do you justify passing enormous wealth from the generation that has earned it to one that has not? I am a huge fan personal responsibility, hard-work, and truly earning what you have, but the inheritance-tax ideas coming from the Right don’t match that ideology. With respect to small-businesses and family farms, there is obviously a need to adjust the inheritance tax to protect the business and not produce burdemsome debt, but when one thinks about the super-rich having another ‘tax-shelter’ from generation to generation, it gets a bit disgusting.

    • I understand the reasoning behind “positive adjustment of purchasing power parity”, but I cannot in good conscience condone a policy that treats the property of an individual as anything but their own.

      It is not your place, or mine, to require that anyone have their property confiscated no matter how righteous the cause.

      Beyond that, the statistics show that there is tremendous movement between income strata, in both upward and downward directions.

      Finally, the IRS’s own statistics show that the bottom 50% pay no income taxes, and the bottom 25% pay negative taxes (aka welfare). Not only is this immoral, it is unsustainable. The top 10% pay over 70% of all income taxes today, and yet progressives continue to claim they are not “paying their fair share”. I would like to know then what is “their fair share”? 90%? 100%?

      As for the death tax, the simple fact is that the money being left to heirs has been taxed at least once already as income, and perhaps more if it resulted from dividends. The money a person has, no matter how much, is personal property and the state has no legitimate claim on it on a arbitrary basis. The 14th Amendment guarantees equal protection under the law, and yet our tax system treats one man’s property completely differently than another’s, on an entirely arbitrary and political basis.

      It is in essence no different than confiscating land based on religious belief, based on the political belief that one religion controlled too much land. That was exactly what happened in 1930’s Germany. It is no less immoral and disgusting in the US today.

      The only tax compatible with the 14th Amendment is a flat tax on all income with no deductions. All property and all property owners are treated equally under the law in this case.

      If you seek redistribution, the Constitution as written prohibits the government from doing so. The proper recourse under the Constitution is to accomplish this through private and voluntary means. those who wish to redistribute are free to do so, but cannot compel others to do so against their will.

      While Progressive’s motives may be well intentioned, their methods are wholly immoral and rely on the oppressive power of the state to force submission to their stated goals. Acting immorality is not justified by righteous intent. Or, more simply put, the ends do not justify the means.

  3. Well I’m actually well versed on the 14th Amendment, but I’m afraid the 16th Amendment trumps it concerning income taxes from 1913 on.

    Secondly the inheritance tax is not double taxation due to the fact that the inheritance itself represents a new source of income for the next generation. If you wish for it to be fair, than any source of income, whether it be from one’s job, capital gains, lottery winnings, or from daddy warbucks, should be equally taxed. If someone dies, than their wealth is no longer their income, but becomes new income for whomever may inherit it.

    Thirdly, a flat sales tax would be truly regressive for those on the lower income scale would be required to pay a higher proportion of their income in taxes for the same volume of goods, whether it be groceries or a new car. If we’re going to dance around with numbers, let’s recognize that yes, our current tax system is already quite progressive, but the changes your suggesting would reverse that in the completely opposite direction to the detriment of the nation, and that my friend would be disgusting as well.

    • Progressive taxation is not sacred, and based on the structure first put in place by the founders, it is far from the vision they had concerning taxation.

      The 16th Amendment does not provide explicitly for the use of progressive tax rates, only that Congress can levy a tax on income. There is no Constitutional provision requiring such a structure, which makes the 14th Amendment applicable to the actions of Congress in implementing the 16th Amendment.

      My argument is not against the 16th Amendment, but the method Congress has chosen to enact it. It is not any different than Congress acting on the 15th Amendment by enacting a progressive vote system where income is used to determine the weight of a vote. There is no language preventing such a system in the 15th, as no one is barred from voting, but it would be a clear violation of the 14th as it does not treat every voter equally under the law.

      Progressive taxation of income is a clear violation of the 14th, as it is based on purely political and subjective criteria, and treats each taxpayer differently under the law. Under the 14th, two people should expect identical treatment, and no favoritism or punishment based on individual subjective circumstances (i.e. marital status, income level, parent/non-parent).

      The logic used to support progressive taxation could be applied to race or gender just as easily, making the argument that women or minorities should pay less (or more) taxes, for arbitrary political reasons.

      You are free to support progressive taxation for political reasons, believe that those who make more should pay more, but you cannot support that argument using the 16th Amendment, as it is not prescribed. This requires you then to defend such a belief in the light of the 14th Amendment, which clearly states that the law must be equally applied to all regardless of personal condition or wealth.

      I don’t see any logical argument that can be made that such a system qualifies under this circumstance, and the burden of proof should rest with the supporters of progressive rates, not those who rely in the 14th Amendment.

  4. 14th Amendment of the U.S. Constitution:
    “Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

    Your argument using the 14th Amendment is superfluous at best. The 14th Amendment guarantees due process and equal protection under the law, but it doesn’t state what that law should say and how it should be come by; only Article 1 describing the legislative power of the U.S. Congress lays out the rules for creating legislation.

    The U.S. Supreme Court has never applied either 14th Amendment protection to the tax-code on a concern of ‘constitutionality’ and has chosen to leave such questions predominantly to the political branches of government. “That the law must be equally applied” as you state it presupposes that the “law” in question via legislation is already in existence which brings to point an executive, not legislative, function. The equal protection clause is a stipulation that comes into play once the law has been created; that it cannot be enforced unequally. The functions of creating the law and enforcing that law are separated under our form of government. Furthermore If the Constitution is to prohibit the manner in which tax-laws are to be created and the criterion by which a tax-code is to be established, then it stands to reason such an explicit clause would exist. Conversely the case-law for what your suggesting is almost non-existent. The 14th Amendment was created and has been applied mostly in questions of civil rights, just as the 13th and 15th Amendment have been. The protections the 14th Amendment has given have been only applied as the “Bill of Rights” is concerned for it is already established in the founding document. As a legal basis the Reconstruction Amendments have predominantly been used to protect the rights of the so-called “suspect classes” under the later doctrine of “Incorporation” proceeding from 20th century jurispudence.

  5. I agree that the case law on this type of challenge does not exist, and to the best of my knowledge it has never been explored in an actual case.

    You are also correct that the existing uses of the equal protection clause has been limited to civil rights issues, but you neglect to acknowledge that property rights are a civil rights issue, and therefore well within the accepted case history on the 14th.

    Income is by any definition property of the earner. The recognition of property rights being fundamental and inviolate are well established, and are the basis for legal principles such as the prohibition of unreasonable seizure and compensation under eminent domain.

    It therefore is reasonable to challenge a statute that within the code itself does not treat all property, and those that hold it, in an equal manner. Taxes are levied on people in an arbitrary manner inconsistent with the existing interpretation of the 14th.

    To make an analogy, if the Congress established within the criminal code sentencing requirements that treated criminals guilty of identical crimes in very different manners based on arbitrary and purely political reasoning, such legislation would be struck down as a clear violation of the 14th.

    In the case of taxation, the “crime” of gainful employment is “punished” with a sentence that is wholly dependent on the financial status of the “defendant”. The underlying activity, gainful employment, is entirely equal but the ramifications and punitive actions under the law are unequal, and disproportionate.

    Even the argument that the “crimes” of gainful employment are different by orders of magnitude does not justify a disproportionate response by the controlling legislation. In a criminal code context, this would be equivalent to a multiple murder suspect being subjected to exponentially more life terms than that of a single murder suspect.

    When the magnitude of the earnings differs, the 14th requires that the property be subjected using the identical criteria, in this case marginal tax rate. You cannot create a “separate but equal” argument regarding the civil rights of property based only on a political belief that those with more are less worthy of protection of their rights.

    That same logical construct was used by too many courts in cases regarding racial civil rights issues, and even though the existing case law and precedent was well established, it did not justify such a capricious disregard of the 14th.

    Property rights are no less vital and essential than the right to speech and the right to vote. Protection of this right under the 14th is more than justifiable, and using existing case law as a guide, provisions that create artificial distinctions and classes under the law itself cannot be justified.

    In principle, there is no substantial difference for elevated tax rates on the wealthy or on a specific racial or ethnic group. Both are capricious and based on political considerations. The underlying reasoning is applicable in either circumstance, and both applications are blatant violations of the 14th.

    The encoding of such inequality by Congress, or the execution of it by the Executive, does not preclude the Judicial from review of it.

    Finally, your position that the Constitution makes no specific provision on the specifics of taxation is as correct as it is irrelevant. The silence of the Constitution on the subject does not imply that all other provisions of the Constitution are nullified by extension.

    In fact, the opposite is explicitly stated in the 9th, which clearly states that the enumeration of one right, in this case the power of Congress to tax income, cannot deny the rights of property and equal protection of property rights under the 14th.

    This is not an argument against the right of the Congress to levy taxes on income. It is a civil rights argument regarding the METHODS Congress has adopted to do so, which can never be outside the arena of judicial review.

  6. Well, let me just say that comparing civil rights under the tax-code to criminal procedure is the most irrelevant thing I’ve read in recent memory. The criminal code, the civil code, and the tax-code are separated for a reason.

    If its a question of civil rights for then I would add this; we have created an economic system that by its very nature contains inequality. I would never suggest changing that system to such a degree as to create perfect equality. With that said, our government has chosen the income tax as the primary method of mitigating the inequalities inherent in our capitalist model. Since the capitalist model is set-up to create perpetual wealth once wealth is attained, some sort of mechanism is necessary to prevent extreme economic stratification and poverty. While I would happily argue this case on a moral level, I will stick with an economic one. Mitigating the inequality that is built into the capitalist model is actually good for business. Just as increasing ethnic diversity is also good for business.

    With respect to Constitutional Law, the “power of Congress” to levy is not a “right.” Rights can only be retained by the people themselves. No protection of any “right” found in the Constitution is absolute. Case-law has often limited certain rights to mitigate their “neighborhood effects” on the rights of those around them. An example would that “freedom of speech” doesn’t allow you to falsely yell “fire” in a crowded theatre. The right “peacably assemble” doesn’t allow you to riot, no matter how just your cause may be. Civil rights, as with all things, have limitations.

    Although I question whether proportional income taxes would be viewed as “civil rights” issue by the high court, considering its current composition, you may very well be correct. It is not improper to ask those profiting from our chosen economic system to pay more to support via the power of government. Furthermore, if our leaders had done more to guarantee equal opportunity for all citizens, the inequality we see would not be as great.

    The fact is the more wealthy you are, the more you gain from the system and how the rules are set-up. From taxes, to jobs, to economic outcomes, the system is ultimately a zero-sum game (though Wallstreet has long attempted to change that). The rules and the system as you state it don’t represent a system based upon merit, but of unrestrained competition where morals and merit don’t always apply. If you wish to have a system on social and economic Darwinism, please just state it and quit revolving around some quasi-civil rights argument.

    • I will end this by pointing out that you expose yourself as a false intellectual with the statement “the system is ultimately a zero sum game”.

      The US economy is not now, nor has it ever been a zero sum game. No capitalist economy is, actually.

      The fact you fail to understand such a basic premise shows you to be very articulate and at the same time totally ignorant on the subject.

  7. Well personal attacks like that show how much you really care! I will end my comments by suggesting that you’re view of some sort of unfettered, laissez faire style system, the so-called free market ideal has never truly existed. The zero-sum gme I was referring to has everything to do with the two things capitalism cannot control-labor and natural resources. There is a limit to both.

    Our system can only sustain so many people and our planet can only produce so much in resources to keep capitalism afloat. When we’ve exhausted these limitations, the economic system will retreat. Soon an overwhelming part of our labor force will either retire or simply be physically unable to work. Within a few hundred or less, oil reserves will run out as an example. Finite resources create a zero-sum game when it comes to de-regulated capitalism.
    With that, I bid you a good one, take care.

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