Lies, Damned Lies, and Revenue Enhancements

Lies, Damned Lies, and Revenue Enhancements

No time to let up on the pressure by Republicans for spending cuts with no tax increases.

But there are multiple ways to increase federal revenue, some of them more predictable than others, and some of them more “fair” than others.

First, one can succumb to the traditional Democrat demand — that we increase tax rates on “the rich,” where that term seems to be quite elastic, and subject to inflation in the future if the rates aren’t indexed. But ignoring whether or not this is “fair,” the results are unpredictable. As I wrote two-and-a-half years ago:

When a politician says that he’s going to either cut or increase your taxes, he is engaging, wittingly or not, in a conceit and a deceit. He says it as though he has the power to do any such thing, when in fact he does not. He has no power except to reduce or increase the rate at which you pay taxes, whether on property, income, or whatever.

Think of it as the difference between a joystick and a mouse. With a computer mouse, you can point directly to the place that you want to be on a screen. With a joystick, you can only control the rate at which you move toward it, and in so doing, the target may move, and it may move faster or in a different direction than you can keep up with using your rate control. Politicians talk about tax cuts as though they have a computer mouse that allows them to pass a law and a specified amount of revenue will roll in, but the reality is that they have a slow joystick, with a nebulous relationship to the eventual goal.

(I like this analogy)

They calculate the effects of this rate change using “static scoring,” that is, they assume that there will be no change in behavior among the taxed, which means that they are guaranteed to be wrong. Beyond that, as Richard Epstein points out, by putting more and more of the taxation burden on “the rich” (who tend to create most of the jobs in the country) and unloading it from “the poor,” we reach a tipping point (and we’re not far from it) in which most of those voting for and receiving federal largesse don’t have any skin in the game. As de Tocqueville noted, this is the inevitable end of democracies.

Another way that revenues can be “enhanced” is to reduce or eliminate “tax expenditures” (a euphemism for allowing people to keep more of their own money). Otherwise known as “tax breaks” or often simply deductions or credits, many of these could in fact be eliminated with not only no harm, but to the betterment of the republic (ethanol being a shining example). But many of them (including the dreaded “corporate jets” that the man with the biggest corporate jet in the world lectures us about tirelessly) are legitimate business expenses.

For instance, consider an example that many use to demonstrate the absurdity of deductions: a pole dancer who is allowed to deduct the cost of mammary enhancement before paying taxes on her tips. But in fact, it may very well be that absent such an inducement to revenue enhancement on her own part, she wouldn’t be able to make a living, given all of the unenhanced competition continually coming into the market. In general, if one redefines “profit” to the point that one is not allowed to deduct from it the things that allow one to generate the income, then a business will not survive for long, and raising “revenue” by taxing a company out of business is counterproductive.

The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.

Alexis de Tocqueville

[somdwatch]

That no one is talking of cutting retirement benefits for federal employees. To be able to make 80% of your pay when retired is ridiculous. If you had a job that long, I'm reasonably certain you wouldn't need 80% of your pay to a mortgage that doesn't exist.

Originally Posted by somdwatch

If you had a job that long, I'm reasonably certain you wouldn't need 80% of your pay to a mortgage that doesn't exist.

people move all the time, refi, take out equity loans

[Mongo53]

Originally Posted by EmptyTimCup

people move all the time, refi, take out equity loans

And you should manage to handle your finances so that you pay off your mortgage before you retire. Even if you move, refi, take out an equity loan.

I don't see how its an argument for a federal employee to have a bigger retirement, anymore than anyone else?

Military, if anyone has that argument, because of their lifestyle, and they get at best a 50% base pay retirement. But at the same time, the counter argument is, Military gets to retire so early, they work at a 2nd career before actually retiring. That is what most do and manage to pay off their mortgage before retirement.

Originally Posted by Mongo53

I don't see how its an argument for a federal employee to have a bigger retirement, anymore than anyone else?

Hey I work in the private sector .......... people are not responsible but yeah 80% retirement ......

[Mongo53]

Originally Posted by EmptyTimCup

Hey I work in the private sector .......... people are not responsible but yeah 80% retirement ......

Yea, I agree it does happen in the private sector, and those people should suffer the consequences, they also get social security, well at least for now.

On a related point:

I've got a neighbor, barely graduated high-school, but he's got a swimming pool, new cars, his & her's motorcycles, you name it. Come time for us to retire, some leftist politician will come along and tell me I have NO right to retire more comfortably than my neighbor that didn't bother to save or plan for his retirement, its only fair the government take away the Social Security I payed for, and give it to my neighbor so he can retire as well as I do.

At that point, how does it NOT become a desincentive to save and plan for retirement. Do you think my kids are going to be a chump like dear old dad, that sacrificed all those things his neighbor bought, when it got him absolutely nothing in return?