Obama’s Tax Increases Will Find the Middle Class – Bloomberg 12-05-12

Salient to Investors:

Caroline Baum says:

  • the effect of raising tax rates on labor supply is small since most don’t have the option to work less.
  • the cut in marginal rates is minimal compared with earlier cuts from 70 percent to 50 percent to 28 percent in 2001 and 2003, which were followed by a decade of mediocre economic and employment growth – the best argument for letting the tax cuts expire.
  • raising top tax rates will produce $800 billion of revenue over the next 10 years, versus a $3.7 trillion revenue loss from all the Bush tax cuts.
  • the dirty little secret is that middle-class taxes will eventually have to go up as there aren’t enough rich folks to finance the promises the U.S. has made to the elderly.
  • a tax increase on the rich is really a tax increase on the poor and the middle class, the wannabe rich.

Veronique de Rugy at George Mason University said the effects of higher tax rates may not be apparent short-term, but manifest themselves in the next job choice, in deciding when to retire.

Arthur Laffer said:

  • the rich can respond quickly and decisively to changes in top tax rates – where they earn their income , the timing of that income, the volume of work they do and its composition.
  • the tax impact of a tax-rate change is not exclusively on the person being taxed – how much more the rich pay in taxes is minor, but it’s the secondary and tertiary effects that matter.
  • the rich don’t create jobs because it’s good social policy but to make money.
  • higher marginal tax rates prevent poor people from becoming rich because their only way is from earned income which is taxable – once rich, there are ways around it.

Tax Analysts say the Diamond and Saez research that says the revenue-maximizing top marginal tax rate is 73 percent, focuses on the short-run effect and ignores the long-run behavioral response.

The Telegraph reports that 2/3 of U.K.’s millionaires either left the country or sheltered their income after the imposition of a 50 percent top-tax rate in 2010.

Edward Prescott said that marginal tax rates, not cultural differences or unemployment rates, explained virtually all of the reason why Americans worked 50 percent more than Europeans.

Michael Darda at MKM Partners said that 3/4 of the revenue loss from the Bush tax cuts came from everything below the top two brackets.

Read the full article at http://www.bloomberg.com/news/2012-12-05/obama-s-tax-increases-will-find-the-middle-class.html