Increase the DEBT by increasing TAX RATES

PREFACE:  
Obama just met with reports to discuss the issue of the national debt.  During the speech Obama specifically said that in the talks he would NOT allow "dynamic scoring" of whatever budget is produced.  What is "dynamic scoring" ??  It is where the Congressional Budget Office (CBO) takes into account that raising tax rates effects taxpayers behavior and can cause a decrease in revenue (and therefore an increase in the national debt).   This blog was written BEFORE the President made his remarks and proves that the President fully knows that the Laffer-Curve is real which is why he wants to use "static scoring" in which tax rates do not effect our behavior (under this method we would gladly pay 100% of our income to the government).

PLEASE READ THE REST OF THIS BLOG FOR MORE EXPLANATION



Does the title of this blog seem odd?

  It will for most people.

  Human reason seems to make you think that RAISING TAXES should INCREASE REVENUES and therefore DECREASE THE DEBT.

  But that is not reality (something Washington DC is lacking in).  It has been a long proven fact an effect called "The Laffer Curve" is an economic reality.

  The Laffer-Curve was developed by the famous economist Art Laffer who showed that people do not hand over their income to the government without considering ways to reduce their tax levels.  To prove this effect, let us first consider a graph showing the relationship between tax rates of 0% to 100% and how much revenue the government collects.  At the low end when the government has a tax rate of 0% the government collects $0 in revenue ( 0 time anything is 0).  When the government sets the tax rate to 1% they will collect $R of revenue.  When they raise the tax level to 2% they can pretty much be sure they will collect  2 x $R in revenue since the tax level is still relatively low.  At 3% they will collect  3 x $R.

   Now let's consider the extreme level of 100%.  How many people are going go to work if they have to turn over 100% of their income to the government.  That is slavery!   Since there is no incentive to work, there will be $0 collected by the government.  Even at 99% there is still little desire to work.  At some level (maybe 70%) we might feel some accomplishment in going to work and begin to get off our couches and earn some income, although most of us would find some way to under-report our income either by working for cash or barter so that we can keep more of our income.

 

    So we have 2 areas of positive revenue growth on both the left (low side) of the scale and at the right (high side) of the scale.  Therefore there must be a place in the middle where they meet in which the slope of the line is 0 (or horizontal).   This point on the graph is pointed to above with arrow from X% .  This place is where the MAXIMUM level of tax revenue is gathered by the government.  Going OVER this level and the government will start to see a REDUCTION in revenues gathered.

     The question remained for some time , "What is the value of X?".  For some time, many thought the level was at about 70%,but after the Reagan tax reduction from 75% to 38% we saw the government revenues grow and not shrink therefore we knew X had to be much lower.  Finally a study done by 2 professors of economics at UC Berkley called the Romer-and-Romer study (they are married) determined that X was at about 33%. which is where our highest level of taxation is today.

   Are these two economists just some right-wing-tea-party-loving extremists?  NO!  In fact, these 2 professors were put on the Obama administrations counsel on economic reform so we can be sure that President Obama is fully aware that moving the tax levels above where they are today will cause the government to see a reduction in tax revenues if they pursue their "plan of increasing the taxes on the top 2% of earners".

    I believe this is the Presidents overall strategy for by doing so he can bankrupt the country at a faster rate AND make it seem like it was not his fault since, after all, he forced the wealthy to pay more of their "fair share".   You might say he will be able "have his cake AND eat it too".  Today he just wants a 3% increase on the highest tax rate, but what will happen is we will see fewer $$ in revenue and an increase in the national debt.  The democrats will call for even HIGHER tax rates on the wealthy which will result in even LESS revenue   The debt will grow faster and the democrats will call for even HIGHER taxes....

   Do you get the picture now?

   Each increase in taxes will result in fewer revenues and more debt thereby making us drive toward the "fiscal cliff" at higher and higher speeds.