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"Less taxation = more revenues" mantra is wrong

No clue why this need saying but this statement from House Representative Paul Ryan "if you tax some thing more you get less of it, if you tax something less you get more of it" is wrong.

Not opinion. It's wrong factually.

What actually happens is that there is a sweet spot. A place where more taxation equals less revenue. If you're above the sweet spot on your taxation then, yes, lowering taxes will bring in more revenue. Otherwise less taxation brings in less revenue. Simple enough, right?

The sweet spot is where taxation is so high it's discouraging whatever it is your taxing. Take cigarette smoking. Let's say you wanted to maximize revenue. Where do you want cigarette taxes? Low to medium so that more people will smoke more cigarettes and you'll have a bigger tax base. Of course that's not what we do with cigarettes, there we tax them heavily to discourage use. Ok now let's say taxes were a dollar a pack. Would reducing the tax to fifty-cents a pack double consumption? No even close. But that's what you would need for revenues to stay the same, forget about "getting more of it."

Now if taxes are $4 dollar a pack and you drop them to $2 you will probably get a bump in use that over time may be double what it was at $4, but not with fifty cents. Why? Because nobody worries about fifty cents when buying a pack of cigarettes, but they do worry about $2 or more. It doesn't take a genius to figure this out. Why doesn't Mr. Ryan get this?

Because this has nothing to do with revenue or taxes.

This budget crisis has nothing to do with revenue or taxes. It has to do with the size of government, and the shape of the democracy in the USA. Republicans want a smaller government and they are following the old tactic of starve the government of money to make it smaller. That's like going on a binge diet of nothing but assumptions and hot air. If you don't eat you probably won't loose weigh you'll probably just get malnourished and get sick not thinner. Republicans also want a less democratic and more oligarchical America. Sure they clothe themselves in the flag, but watch their policies carefully, it's not equality, equanimity or freedom that drive them, it's pay-per-government. Don't believe me? Any serious budget hawk would have repealed the Bush Tax Cuts already or imposed a heavy estate tax. Yet they push for more tax-cuts to the rich. Because we hear of all those rich people without jobs on the street....

Comments

  1. Now there you go injecting logic and legitimate economic theory into the debate!

    Representative Ryan would much rather keep this on the platitude level.

    ReplyDelete

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