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Sunday, May 13, 2012

Look to Sweden! Obama’s High-Tax Gurus


Peter Diamond and Emmanuel Saez (Wall Street Journal High Tax Rates Won't Slow Growth) offer a beguiling Leftist narrative: The 1% will cough up incremental tax revenue up to a 70 percent rate without cutting the things they do to generate economic growth. We can then use their money to fund “higher-return public investments” (such as Solyndra and the public-education black hole?) without cutting back the entitlement state.

Although Diamond’s Nobel Prize and Saez’s J. B Clark Award make them eminently credentialed, Alan Reynolds (Of Course 70% Tax Rates Are Counterproductive) exposes the convoluted contortions behind their counter-intuitive finding that a tax that leaves you 30 cents on every extra dollar does not affect your decisions to start a new business, assume extra risks, or take on new clients. That’s a hard sell for anyone who thinks about it.

Note that tax guru, Saez, sings a less confident tune when he writes for fellow economists that: “There are no convincing estimates of long-run elasticities of taxable income and marginal tax rates.”  My translation: “We really do not know how taxable income responds to high marginal rates, but we are guessing we can go up to 70 percent.” It pays to read the fine print before making the purchase.

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