OP/ED | 4/25/2012 @ 7:17PM |104 views
President Obama and his merry band of Progressives are beating the drums for big tax increases on “The 1%” for the sake of “fairness”. This is about the only campaign strategy left to him, because he has proved over the past three years that he doesn’t have a clue as to how to produce jobs and economic growth. However, if you look at the numbers, “The 99%” needs faster economic growth a lot more than it needs Obama’s version of “tax fairness”.
If you construct a simple spreadsheet model, here is what you find out. (The model assumptions are given at the end, in the interest of avoiding having many readers’ eyes glaze over.)
If we were to raise taxes and somehow get “The 1%” to hand over 10% more of their income (23.11% instead of 21.10%), and we used this money for tax cuts for “The 99%”, but our real GDP growth rate went down by just 0.018 percentage points, “The 99%” would be worse off (on a present value basis) than if we had done nothing.
Now, the BEA only reports our economic growth rate to the nearest 0.1 percentage point, so 0.018 percentage points is less than a fifth of the smallest change they would even bother to report.
Given that Obama is talking about concentrating his tax increases on “the rich”, who save and invest all of their incremental income, it is likely that the impact of his tax increases upon economic growth would be much, much greater than 0.018 percentage points of GDP.
If “the rich” were to respond to the tax increases by reducing their investment in non-residential assets by 1.0 percentage point of GDP, this would cut GDP growth by 0.5 percentage points. In this case, after only two years, “The 99%” would be worse off than they would have been without Obama’s “fairness”. Over a 75-year period, Obama’s fairness would reduce their total income by 20% (15% on a present value basis).
If Progressives were as familiar with Microsoft Excel as they are with Das Capital, they would know that the rate of economic growth is the only thing that really matters. The best tax system for everyone is simply the one that produces the fastest real GDP growth.