Physics man (not what he calls himself, but what I call him) had an interesting post about bad graphs and tax plans today. Really, it's about bad graphs, but the example is a graph about the proposed tax plans of McCain and Obama. So, I've got a political question for the better informed people out there.
As I understand it, Obama wants to raise taxes for the very wealthy and cut taxes for the non-very wealthy. I don't know if this would yield a net increase or decrease in revenue for the government, but clearly they would at least partially cancel each other out. Obama would also increase spending in some areas (health care) while decreasing it in others (military).
McCain, on the other hand, wants to cut taxes for everyone. This will clearly produce less income for the government. What is his plan for decreasing spending to match this decrease in revenue?
In general, I wish candidates would take at least a short break from promising us everything but the kitchen sink and spend a minute or two explaining what programs they plan to give the ax to. I realize it's unpopular, and unfortunately the presidency is all about being a popularity contest, not about making good (and sometimes tough or unpopular) decisions. So, for either candidate, what fat are they going to cut out of the budget?
(I can already hear certain people out there salivating over the chance to say "NOTHING! They both want the government to just grow and grow and spend and spend.) (Hey, I'm not saying you're not right.)
6 comments:
I think your last paragraph was directed at me. I would probably have to say I agree. In the first presidential debate Jim Lehrer asked both candidates what they would possibly do differently given the state of our economy and the fact that they may not be able to implement all the things they say they want to. Neither candidate said one concrete thing. They just gave vague answers that didn't answer it at all. In fact, Mr. Lehrer called them on the fact that they weren't answering the question and they continued to sidestep until it was decided to move on. I take that as a sign that they really don't have a plan for removing things. This is unpopular, as you stated in your post. If they cut something, it will tick off those that were affected, so they can't risk that. They need votes! There probably will be things cut, but they aren't going to admit publicly what those things will be until after the election, at least I have yet to hear anything about that. All they talk about is pork barrel spending (which while needing to be eliminated, is very small percentage of overall spending) and balancing the budget, a very vague answer which needs specifics, as you have here just requested.
Your logic appears valid, so if all your premises were right, you'd certainly be right. Unfortunately you have a very misleading premise.
You wrote: "This will clearly produce less income for the government." Fortunately revenue extraction isn't that simple. There's a lot of argument about how exactly it works and where exactly our current model is but research the Laffer Curve if you're curious.
As for things likely to be cut, McCain has mentioned cutting off ethanol subsidies which is an interesting one. Sabrina rightly notes that many of the things that McCain offers to cut are a much smaller segment of the budget. He argues that in his experience most of the corruption in Washington stems from this segment of the budget. It's not clear to me if this might be correct.
Obama has claimed he will cut taxes yet this would be a sharp departure from his record. While such a thing is not inconceivable, it is markedly unlikely.
The Presidency is not necessarily a popularity contest. The Presidential race is a popularity contest. Of course, once one knows this gaming the system shouldn't be too hard to figure out.
But then given that the most liberal voting record in the US Senate has maneuvered itself into a centrist position which is a slight favorite to win the race might show that someone already has.
The only thing the Laffer curve tells us is that the optimal tax rate for maximizing government revenue is somewhere below 100%.
Thank you, Mr. Laffer. We couldn't have done it without you.
Seriously though, Laffer might have been relevant back when the top marginal tax rate was in the 90s, or possibly even during the Reagan years when it was 50%. But the proposed top rates today are 39% vs. 35%, and I doubt you'll hear any serious economists invoking Laffer to argue that revenue is actually increased by the lower tax rate.
Adam,
You definitely will hear serious economists saying below 40% is where optimal revenue comes from.
For example, here's a link from the WSJ with stats from 2007. It's dealing with the corporate rate but the principle is the same.
http://online.wsj.com/
article/SB118428874152665452.
html?mod=opinion&ojcontent=otep
Ben.
Then I think we agree. I was saying that you won't hear people invoke Laffer to argue that 35% is better than 39%, which are the top tiers proposed by McCain and Obama, respectively.
http://www.time.com/time/magazine/article/0,9171,1692027,00.html
Adam,
I don't think you quite captured what I said. I'm saying that at 39% we're on a portion of the curve where moving back would result in an increase. The WSJ agrees. In fact, I'll say that at 25% marginal rates we're still on the wrong side.
Also, any article talking about the fiscal discipline of Bill Clinton will unfortunately have to be rejected out of hand as satire by me. I'm from Idaho and if I didn't take this step the state police would stop me at the border if I tried to go back home.
--Ben.
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