From: Robert J. Bradbury (bradbury@aeiveos.com)
Date: Mon Sep 15 2003 - 16:22:43 MDT
On Mon, 15 Sep 2003, Jeff Davis offered some comments.
I actually found the piece Reason pointed out quite interesting.
I even agreed with many of the points that it made.
> If you tax an (over)achiever, and thus reduce his
> income--take him down a notch from that to which he
> has become accustomed--shall he not then, in
> conformity with his nature, resolve to redouble his
> efforts, work harder, recover that which he has lost,
> and strive as before for ever greater glory, and still
> ever greater glory after that? Camels and capitalists
> aren't quitters. Rather they persevere right up to
> the moment when their back snaps. No?
No. Speaking from a personal basis if the top rates were
at 70% I'd either (a) be devoting a huge amount of energy
to learning how to play golf (a sport I'm rather not fond of) --
because that would be far more interesting than earning only
30% of for each additional increment of time I could devote
to my profession; or (b) spending my free time reading through
the tax code trying to figure out how to avoid those taxes;
or (c) devoting my extra time to political parties attempting
to get the tax rates reduced.
Just as an FYI -- the first company I worked for at the tender
young age of 19 had the largest minicomputer in the city of NY
(larger even than tha largest minicomputer at Bell Labs at that
time). What was it devoted to? Clever analysis of the tax laws and
financial analysis so as to shelter the income of its parent
company using "leveraged leases". The tax reforms of the mid-80's
eliminated those loopholes but the Enron affair shows that there
are still a fair number of people devoting a huge amount of energy
to avoid taxes rather than more productive activies that might
boost economic growth. The combination of (b) and (c) above,
and the Law of unintended consequences are one of the reasons
that the U.S. tax code is so complex. And for those readers
who have never seen the tax manuals -- it makes an encyclopedia
look like a set of books for children.
I'm sure Anders could offer a long list of people who have
exited Sweden due to its high tax rates.
So at some point high tax rates shift behavior -- people either
leave the country or devote an increasing fraction of their
productive capacity to the task of avoiding taxes.
Of course, deficit spending eventually requires that one bite
the bullet. Interest rates eventually go up, currency valuation
goes down, people can less afford to purchase goods from other
countries, other countries have a reduction in foreign currencies
to purchase bonds that support the deficit -- in turn further driving
up interest rates (see my comments a few days ago about China
purchasing large quantities of U.S. Bonds). Now as the interest
rates go up so do my house and car and business loan costs so
I focus on cheaper housing, how to make my car run another year,
how to cut my business costs by eliminating employees. One recipe
for a recession.
I've got no problem with cutting taxes -- but you have to do it with
a balanced or nearly balanced budget. I see no evidence that the
current U.S. administration (executive or legislative) are managing
that responsibly. The only exemption that I might see for this would
be the onset of the singularity -- and no current econometric models
incorporate that idea that I'm aware of.
Robert
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