This is utter nonsense. The only thing that matters is the federal revenue as a percentage of GDP. Deficits are determined far more by spending priorities than by tax rates alone.
Since 1950, federal tax revenues have remained close to 19.5% of GDP, no matter what the tax rates.
Since 1950, federal tax revenues have remained close to 19.5% of GDP, no matter what the tax rates.
This is the thing no one in the media will bother to mention. Since 1950, U.S. top marginal tax rate has fluctuated between 28% and 91%. Yet the annual federal tax revenue has rarely deviated much from 19.5% of GDP. 1/
This is not entirely surprising. Higher tax rates don't increase tax revenue. They just force people to change their economic behavior in unproductive ways so as to optimize on their taxes. People just allocate their time and money in tax efficient but market distorting ways. 2/
Within a very wide range of marginal tax rates (28% to 91% as evidenced by analysis over the years 1950 - 2007), the tax revenues as a percentage of GDP don't change much. So might as well have the lowest possible tax rates which still produce the same revenue as higher rates. 3/
Lower tax rates not only generate the same level of tax revenues as higher rates, they also cause the least amount of distortion in economic activities. People go about working hard to produces products and services that best meet people's needs rather than dodging taxes. 4/x
That said, burgeoning deficits and debt are a very valid concern and must be focused on in serious ways. Being serious about it is entirely a discussion about spending priorities and economic growth. 1/
The only sustainable way to increase tax revenues is through GDP growth. And the only sustainable way to contain deficits, and thereby the debt, is through spending discipline. A balanced-budget regime is well worth trying in that regard. 2/
I have studied "money" and "wealth" in great depth (how it is created, increased, decreased, destroyed) both at a technical level and social level. 3/
It is a very intricate topic, but if I were to distill all I have learned into a pithy formulation, I would say this: 4/
Beyond a minimal threshold necessary to take care of essentials, it is immaterial in any meaningful way how much money an individual or a nation makes or spends. The only thing that matters is what we do with the money we spend. Not how much, but what? 5/
All budgetary discussions are fundamentally head fakes. Most participants aren't even aware of this. The discussions always use the logic of "how much" and box to an overall number (a technical necessity), but the only thing that really matters for the nation, is "on what?" 6/
Key concepts are "consumption" and "investment." What matters more than the size of the pie, is the ratio of investment to consumption. Govt spending money to create and refurbish national infrastructure which has a clear line of sight impact on future economic growth is good. 7/
Govt spending money on safety-nets that are strictly managed as social insurance programs to tide people over transitory misfortunes not of their own making is good. Safety-nets for the truly needy and/or infirm are also good. 8/
OTOH, govt spending on hammocks that encourage, wittingly or unwittingly, profligate lifestyles, or reward decadent work ethic, is bad. All policy issues need to be discussed first and foremost through the lens of what they would accomplish, taking into account human nature. 9/x
