President Obama has said that he will repeal or sunset many of the Bush tax-rate cuts for upper-income families and small businesses, yet, in the end, the new administration is really looking forward to higher, not lower, marginal tax rates.
The new tax law is just another form of deficit spending in disguise. But this does not mean that tax policy is wholly unable to stimulate the economy. Obama would simply have to adopt a very different approach that is tragically unpalatable to most politicians: He would have to reduce tax rates and simplify the tax system:
- Budget deficits resulting from handouts are an economic painkiller, but without real stimulus they can never pay for themselves.
- In contrast, under clearly defined conditions, reductions in tax rates can.
- The basis for this is not merely supply-side ideology; it resides in a simple empirical relationship called Hauser's Law which says that no matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5 percent of gross domestic product (GDP)*.
Over the same period there has been a steady increase in the standard rate of payroll tax, from 3 percent to 15.3 percent**, if you combine the employer's and the employee's contributions.
[*I.e., raise the marginal rates above 20% and GDP activity retards until again equalized at that level.
**A five fold increase in payroll taxes, and folks don't know why pay raises are slow in coming?
An Answer: Tax everyone at 20% - including businesses: 10% at time of sale/income, and 10% national sales tax on all purchases. Receipts would soar, savings would soar. the economy would soar - the only thing 'lost' would be government control by losing the ability to sell tax-code games to special interests.
What's not to like?]
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