06 August 2011

Please Explain

This is my request for Tyler Cowen, who wrote this turd of a paragraph:

The Republican Party made a big, big mistake passing up a chance for a “grand bargain” with Obama.  It’s time to be a realist about revenue increases, rather than signaling ideological purity.  And let’s get a better rather than a worse version of revenue increases, combined of course with significant spending cuts and a good, credible long-term fiscal plan, enforced by tough triggers.  A lot of Republican or conservative intellectuals know better on revenue increases, and have said as such, but corruption, intellectual and otherwise, prevented their voices from being heeded in the larger political context.

There has never been a point in the history of the United States where the federal government’s revenue has exceeded 21% of GDP.  Never.  The methods of taxation have varied, as have the rates, but federal revenue has never exceeded 21% of GDP.

If Cowen wants the deficit to be cut in half annually (i.e. go from roughly 40% of GDP to 20% of GDP) then federal revenue will need to be equal to approximately 23.5% of GDP, at least as things stand now.  If Cowen expects the GDP to be eliminated in its entirety, then federal revenue will need to be nearly 29% of GDP.  And there has never been a tax policy that came close to touching the former, never mind the latter.  So what sort of policy does Cowen think will achieve the desired result?

Furthermore, given the general veracity of the Laffer curve, why does Cowen take the Republicans to task for defending low tax rates when it is already well-established that tax rate hikes do not necessarily lead to corresponding revenue increases (and certainly not linearly), and have the potential for actually decreasing revenue?  People dislike paying taxes (duh), and make a point of avoiding paying taxes when possible.  The incentive to avoid taxes increases in direct correlation with tax rate increases because the benefits of tax avoidance increase as well.  This is not rocket science, yet Cowen acts as if human behavior will not change in response to systemic tweaks.  It is a glaring oversight, and worthy of ridicule.

In all, the claim that the Republicans aren’t serious about revenue increases is specious and predicated on a shockingly shortsighted fallacious assumption.  Furthermore, Cowen’s analysis is devoid of historical perspective, and completely ignores human nature.  It is not worthy of being discussed further.

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