Scott Grannis writes in his blog Calafia Beach Pundit, Effective Tax rates are Highly Progressive, 1/19/12.

John Taylor and John Cogan write in the Wall Street Journal   Stimulus has Been a Washington Job Killer 10/3/11

Excerpts:

Temporary, targeted tax reductions and increases in government spending are not good economics. They have repeatedly failed to increase economic growth on a sustainable basis. What may come as a surprise is that such policies are not good politics either. Their inability to deliver promised economic benefits has invariably led disappointed voters to turn against those politicians, Democratic and Republican, who have supported them.

Mr. Obama’s $800 billion temporary, targeted stimulus plan took the same approach as Mr. Carter’s more than three decades earlier. The February 2009 bill included temporary tax rebates, additional spending on federal programs, and one-time grants to state and local governments.

It had the same negligible economic impact as Mr. Carter’s and, thus far, eerily similar political consequences. The plan’s failure preceded a historic Republican electoral sweep in the 2010 House elections and significant Republican gains in the Senate. The continuing economic discontent has placed Mr. Obama’s re-election in serious jeopardy.

That temporary tax reductions and increases in government spending can jump-start the economy and sustainably boost employment and personal income may seem like a politician’s dream policy. But the repeated failure of these short-term interventionist policies to deliver the promised economic benefits should make politicians think twice. Reliance on them has already cost dozens of members of Congress their jobs and two postwar presidents a second term.

HKO Comments:

Businesses (at least successful and survivable businesses) do not make long term plans based on short term stimulus.  Even more important than lower taxes, we need stable taxes that do not threaten to change every time the president is at the podium and the Congress is in session.  It is atrocious how much time and money we waste  trying to estimate the tax implication of our decisions.  There are significant changes almost every year, most of which rarely enter the public discourse.

From The Atlantic by Derek Thomson, The Most Important Graphs from 2011, 12/21/11

This graph shows how the richest 1% have take a larger share of the economy in the last 35 years:

… or does it?

This graph does consider the effect after taxes and transfer payments, but…

1. Why does it begin in 1979? The Reagan tax reform caused the income discrepancy to widen for two reasons. First the control of inflation caused a transfer of assets from tangible to investment.  During the 1970’s many investors moved assets into tangible assets like real estate and gold to benefit from inflation. Tangible assets were often not reported. When they moved their assets to security investments that were recorded it appeared to be a growth in investment income when in fact it was really a transfer from one asset to another. Secondly Reagan changed the tax code in 1987 reducing tax rates and encouraging subchapter C corporations to convert to sub -S corporations.  Unlike a C-corp which filed taxes as a a corporate entity, a sub -S reported its income on PERSONAL tax returns.  This shift in assets from corporate to personal returns also inflated the growth in the wealth of the upper income.  The effects of these two changes was short lived. It could be that most of the growth in the wealth of the upper income all occurred in the 1980’s as a result of these two non recurring events.
2. Why does it end in 2007?  Is it a coincidence that this picture ended just before the economic collapse that had a much larger impact of the wealthy?  There was a dramatic drop in the wealth of the upper quintile in the last few years.    How different would this graph have looked if it began in 1990 and ended in 2010?  It can be easy to achieve the outcome you desire by selecting the beginning and ending periods to accentuate the picture you wish to paint.
3. This chart shows income as a percent of the total. But this does not mean that the actual dollars in income of the lower quintiles did not also grow.  It is possible that the upper quintile achieved a larger share of a larger pie, and that all groups showed an increase in income.
4. Measurements such as this do not include improvements in living standards at all income levels.
5. Measurements such as this do not consider what drives these results. A better measurement may be the difference in income per hour worked.  Other wise we will be comparing the income of one who works with one who does not. Or we may be comparing the income of one who works 70 hours a week with one who works 30 hours a week.

The point is to be very skeptical of the statistics used to push political agendas.  A part of the truth can be more misleading than all of a lie, especially in this debate. For more information on how the statistics can be intentionally misleading read Income and Wealth by Alan Reynolds.  You can search several postings from this book at the search function in the upper right hand portion of this blog.

Steve Landsberg, author of The Armchair Economist (a worthy read) writes in The Wall Street Journal How the Death Tax Hurts the Poor - It encourages the rich to pick extra fruit, leaving the trees a little barer for the rest of us. 10/29/11

Excerpt:

The death tax sends a powerful message to rich people: “You can’t leave everything to your heirs, so spend now, before it’s too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts.”

Then all those resources—the fuel and timber, the steel and fiberglass—become unavailable to build factories, so the rest of us get worse jobs at lower wages. Those resources are unavailable to build farm equipment, so we all pay higher food prices. They’re unavailable to build roads and schools and hospitals.

I don’t begrudge anyone the fruits of his labor. But the death tax encourages people to pick extra fruit, leaving the trees a little barer for the rest of us.

Every tax discourages work, and every tax discourages risk-taking. That’s sad but true, and it’s a reason to hesitate before you raise any tax. But the death tax is a double whammy, compounding the damage by encouraging overconsumption. (The same is true, incidentally, of taxes on interest and dividends.) So my message is this: If you must tax the rich, please do it in a way that minimizes the collateral damage to the poor.

HKO comments:

Please read the whole article. It is a gem.  (You may find it requires a paid subscription- which I also encourage.)

Stewards of family wealth do not look at it as if it is only theirs.  But even if they did, if they had the choice to enjoy it now or give it to the government later, you can easily guess the choice.  Even the super wealthy prefer to leave it to private foundations because a) it avoids estate taxes and b) because it will be spent more wisely.

Inflation also encourages a shift of assets from taxable financial resources to appreciating  assets such as  jewelry, land and collectibles.  One of the engines that drove the stock market boom of the 1980’s was the shift from non taxable tangible assets to taxable financial assets. This shift also distorted the perceived divergence in income growth.  What was perceived as unbalanced growth in the wealth of the upper class was actually partially a shift of income form nonreportable to reportable income.

A consumption tax may be more consistent since spending habits, especially among the rich, vary less than income.  Creating incentives to invest will do much more to create the jobs we so desperately need than this failed effort to create only short term stimulus to demand.    Long term investment will not respond to short term stimulus.

… the elite have responsibility to use their largess wisely and not turn into the Kardashians. But that a fifth of one percent of the taxpayers are finding ways not to pay at the income tax rate on their large incomes does not hurt the republic as much as 50% of the population paying no income tax at all. The latter noble sorts do not bother us as much, but their noncompliance bothers the foundations of our society far more than that of the stingy, but minuscule, number of grasping rich.

From

Victor Davis Hanson’s article,   Why Does the Good Life End, published in Pajamas Media 9/25/11.

HKO Comments:

The focus on class warfare and exploiting extremes in tax behavior will never generate the wealth needed to run endless programs demanded by those who pay nothing.   It is much easier to stop the wealthy from producing than it is to stop the leeches from consuming what other produce.

As wrong as they may have been, the Wall Street self ordained masters of the universe did not do near the damage as those who felt they deserved a home they could not afford.  And neither did as much destruction as the political alchemists who encouraged all of them to believe they were wealthier and smarter and more deserving than they were.