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The Problem with Liberal Economists

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Today’s Wall Street Op-ed from noted MIT and Nobel laureate Peter Diamond and UC Berkeley economics professor Emmanuel Saez, sums up nicely what is wrong with liberal economics. OK, it’s a long-ish article on marginal tax rates so it doesn’t nicely sum up anything. Instead it smacks you over the head with mind-numbing numbers and dates. Still it offers valuable insight into the thinking of tax and spend liberals.

The crux of the article is that there is little evidence to support the conservative position that higher marginal tax rates slows economic growth. Diamond and Saez also rather quickly suggest the increased federal revenue will see comparatively large returns from federal spending on education, infrastructure and research.

Here’s a snippet of the article:

“According to our analysis of current tax rates and their elasticity, the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50%-70% (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s.”

They’re arguing of course with economist Arthur Laffer’s famous “Laffer Curve.” The Laffer Curve basically says there’s a point where high marginal tax rates incentivizes enough tax avoidance strategies on the part of the taxpayer that realized revenue is less than what it would be if rates were lower.

There are two huge problems with this piece. The first the authors themselves recognize and that’s raising rates on the 1% or even the 10% isn’t going to fix the budget deficit. The other problem is on what moral grounds does any government have to take so much? They seem perfectly comfortable with the idea of a tax rate of 70%. I’m not sure why they even stop there, except out of some professional courtesy to the legitimacy of Laffer’s argument.

If there is one gift Obama has given us it’s that the veil is off of liberals. They spent the ’80s, 90′s and early 00′s laying low and couching their arguments in conservative clothes. Not anymore. As we enter the heart of this year’s campaign it is worth keeping in mind why we work. Arthur Laffer said it best himself:

“People do not work, consume, or invest to pay taxes. They work and invest to earn after-tax income…”

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