Non Sequitur: We Need to Go Back to the Clinton Tax Rates

By Gene Quinn
April 12, 2011

By now many have undoubtedly heard something about the ongoing budget battles on Capitol Hill. As a government shutdown was averted at the 11th hour on Friday evening, just as I predicted, attention has already started to turn to the much larger economic battles that loom, namely the vote to raise the debt ceiling and the fiscal year 2012 budget. In fact, Congressman Paul Ryan (R-WI) released the House Republican’s budget proposal for fiscal year 2012 early last week. The plan dubbed The Path to Prosperity already has a multitude of supporters and a multitude of critics. As this has started to unfold we will undoubtedly hear some ridiculous, half-baked comments from those who think they know better. The one that probably bothers me the most is one we hear so frequently: All we need to do is go back to the Clinton tax rates. It is amazing to me that there are those who can say this with a straight face.

First, allow me to set the table.  On April 5, 2011, E.D. Kain wrote An Alternative to the Ryan Budget on a Forbes blog.  In this article Kain made the following three statements:

  • “Basically, cutting back the military to pre-Bush levels, and reverting back to the Clinton-era tax rates is all you need to do to fix the deficit.”
  • “[S]imply returning rates to the Clinton-era level and seriously tackling defense is really all that’s needed.”
  • “You may recall that during the Clinton years we had fine levels of growth even with those tax rates everyone is so worried about.”

Kain is hardly the only one to be suggesting that we need to raise taxes back to the tax rates of the Clinton years.  In fact, this argument comes up every time taxes are an issue, so get used to hearing it.  Now if you wish to be armed with information sufficient to expose those who make such a ridiculous and naive argument keep reading, otherwise stop reading right now!

There were a series of fortunate events that took place during the Clinton years that President Clinton had little or nothing to do with that can be directly attributed to the enormous economic growth of the Clinton decade.  Chief among them was the coming of age of the World Wide Web.  The World Wide Web revolutionized our economy, revolutionized businesses and caused stock values to climb in what Alan Greenspan once referred to irrational exuberance in a speech he gave in December 5, 1996.   See Remarks by Alan Greenspan December 5, 1996.

Yale economics professor Robert Shiller explained to the New York Times:

What happened in the 1990s is that people really believed that we were going into a new era and were willing to take risks rational people would not take. They were willing to start new businesses despite the fact that 80 percent of new businesses fail. People did not feel they had to save. They spent heavily because they thought the future was riskless.

Essentially, during the Clinton Presidency there were a lot of people willing to take a lot of risks, which propped up the economy for a very nice and sustained period of years.  Heavy spending, risky investing and speculation drove the economy wild.  For crying out loud, you could put “dot com” after any name and raise millions of dollars in capital whether or not your business plan made any sense at all.  For example, did anyone really think there would be a profit margin in delivering 50 pound bags of dog food via UPS or Fed Ex?  It was a surreal time.

The fact is that one of the most revolutionary of all technologies came into its adolescent being and was starting to be widely adopted by average people during the Clinton years.  Innovation triggered the risky behavior; the irrational exuberance if you will.  Without paradigm shifting innovation there would have been no run up of the stock market, no massive spending, no rush to create businesses to cash in on the moment and no speculative investing, or at least not to the unbelievable levels that actually occurred.  Innovation was the trigger for the tremendous economy during the Clinton years.

Undeniable Fact 1 — If you tax people more at a time when they are making more money, as was the case during the Clinton years, then the government gets more revenue and the citizens and business still have more money left over compared with previously lower tax years.  For example, during the Clinton years real median family income has increased by $6,338, from $42,612 in 1993 to $48,950 in 1999.  See The Clinton Years.  So if you raise taxes that family with median income would still have more income compared with previous years.

Undeniable Fact 2 — If you tax people more at a time when they are making less money, as is the case presently compared with previous years, then citizens and business have even less money than they did previously.  This causes real hardship and history demonstrates this is the wrong thing to do at a time like this.

So if you take more when people have more than they did previously they are still better off than they were, thus the increase tax does not put them in a compromised position in terms of financial planning.  However, human nature being what it is most adapt their lifestyle to their income, hopefully with some kind of a cushion for difficult times.  These difficult times have lasted for over 3 years, at least if you are talking about the housing collapse, so whatever cushion might have been accounted for is long since gone.  People and businesses are already making less compared to what they were and are already stretched thin.  The imposition of higher taxes will stretch individuals and businesses even more, perhaps to the point where they simply cannot pay for what they have or need.  This leads to individuals pulling back, spending less and even more people losing their homes and businesses going under (or laying off) because they cannot afford payments.

Simply stated, taxing more at a time when individuals and businesses are doing less well is not the same as taxing more when individuals and businesses are doing better year after year.  In one scenario the tide is rising and will remain high, although slightly less so with increased payments to the government.  In the second scenario the tide is already lower and becomes even lower still with additional financial burdens owed to the government.  It doesn’t take a rocket scientist to realize there is a fundamental difference between taxing a rising economy and taxing a falling, stagnant or sluggish economy.

Going back to the Clinton tax rates is just about the most irresponsible thing anyone could propose at this point in time.  You don’t raise taxes in the teeth of a recession, particularly not one of this magnitude.  Raising taxes during a recession is what led, at least in part, to the Great Depression (see How to Turn a Recession into a Depression).  Nevertheless, some seem so eager to make the same mistakes of the past.  Why?  Who knows, but history shows us that just because taxes increase doesn’t mean the government will bring in more money and, in fact, history demonstrates that lower tax rates maximizes revenue.  See The Historical Lessons of Lower Tax Rates.  Thus, the belief that higher tax rates will bring in more revenue makes sense but is shown not to be the case, demonstrating that raising taxes is far from a panacea.  Raising taxes on a fragile economy that is overwhelmingly dependent on consumer spending is not just reckless, it is darn near treasonous.

The fact of the matter is that we did not have any great paradigm shifting innovations during the Bush Administration, and so far during the Obama Administration there has been no such disruptive innovation that leads to massive job growth and opportunity.  This is likely in part due to the way the Patent Office seemed to get in the way of innovation during much of the Bush Administration, but be that what it may the reality that we are experiencing a lack of paradigm shifting innovation is not arguable.  We have not had the revolutionary innovations that can lead to tremendous new job growth, higher wages and prosperity for all.  Unfortunately, until we do have that kind of innovation that leads to the creation of entire new sectors and high tech, domestic job growth we are likely going to be doing little more than chipping away at the unemployment rate and having an excruciatingly slow economic recovery.

For goodness sake, innovation is the key to a better economy, not raising taxes!  Wake up, study history and arm yourself with the knowledge not to make the same mistakes of the past.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and President & CEO ofIPWatchdog, Inc.. Gene founded IPWatchdog.com in 1999. Gene is also a principal lecturer in the PLI Patent Bar Review Course and Of Counsel to the law firm of Berenato & White, LLC. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 24 Comments comments.

  1. Mike April 12, 2011 10:31 am

    Another undeniable fact that happens when you raise taxes: businesses and business owners tend to reinvest (or keep) money in their businesses RATHER than take it out as personal income. Stockholders and other investors are also less likely to seek exits that will increase their potential tax liability. This has nothing to do with the gov’t actually ending up with more.

  2. American Cowboy April 12, 2011 11:16 am

    Don’t forget that it was during the Clinton presidency the Federal Circuit had about finished destroying the anti-patent doctrines of the other regional circuits. Patents were very hard to find invalid, easy to infringe and expensive to infringe. That encouraged innovation.

    Since then, the moneyed interests (i.e established businesses and their bailed out Wall Street backers) who have had to pay some of those damages and never had a novel, patentable idea in their lives have set about trying to undo the Federal Circuit’s good work, including by coercing the Fed.Circuit’s cooperation by obtaining adverse Supreme Court decisions.

  3. Gene Quinn April 12, 2011 1:15 pm

    Mike-

    Excellent point. It is undeniable that when taxes are higher those with money find a way to avoid taxable events, which typically causes a slowing of the economy and less revenue for the government.

    AC-

    I tend to agree. The Clinton years were probably a patent and innovation golden age. It isn’t that long ago but it sure feels that way.

    -Gene

  4. BIll Hollimon April 13, 2011 8:51 am

    At what point does lowering the tax rate cease to maximize revenue?

  5. West Coast Guy April 13, 2011 9:33 am

    Sorry, Gene, but when speak in absolutes, the weakness of your argument stands out.

    “If you tax people more at a time when they are making less money, as is the case presently compared with previous years, then citizens and business have even less money than they did previously. This causes real hardship and history demonstrates this is the wrong thing to do at a time like this.”

    This is deniable and it is an erroneous theory — not fact.

    While most Americans might feel a “real hardship” if taxes go up when they are making less money, I have to chuckle when I think of the small percentage of Americans of high earners (such as, say, those singles making $250k or married couples making $500k) feeling a “real hardship” or any hardship for that matter.

    Gene, the problem with your invoking the Clinton time of prosperity is that we didn’t have a war to contend with (and I don’t consider the military actions that we were involved in at the time as wars). Much of our problem lies with the fact that Bush followed the asinine path of lowering taxes while prosecuting not only one war but two wars. We have a revenue problem traceable to the Bush tax cuts which trumps any spending problem (which I agree we have to a lesser extent, e.g., defense spending).

    If history is any teacher, personal prosperity should not be expected (except for war profiteers) during a time of two wars. It seems to me that prosperity was shared of most Americans post-WWII sans war.

    I don’t have the solution, but I can certainly note the problem, and the path you suggest is troubling at this time.

  6. Gene Quinn April 13, 2011 10:33 am

    West Coast Guy-

    You make me smile. You say that my statement about higher taxes bringing in less revenue, which is undeniable fact, is probably false. Yet, you provide no such proof. We know why, because I am correct and you are incorrect. Nevertheless, self righteous denials of truth like yours make me smile. By the way, did you notice the citations for everything I said?

    Enjoy living in denial if you like, but everything I said was 100% accurate despite your baseless denials.

    -Gene

    Via iPhone

  7. West Coast Guy April 13, 2011 11:23 am

    Gene,

    I discussed stating propositions in absolutes and provided an opinion about your assumed “real hardship” when applied to high-earners, and you attempt to turn it into something else.

    Nice straw man, Gene. 🙂

    http://www.merriam-webster.com/dictionary/straw%20man

  8. New Here April 13, 2011 12:14 pm

    As for taxes, let me start with this, that 250k nor 500k are large sums of money if you happen to be a business, or even not. The current White House seeing those sums above as a range for a starting point for increased taxing. They don’t think about all those business failures every year in the U.S., mostly are new(er) start-ups / small business and more often the reason for failure in those cases, is the lack of funds. Along with the result for non-business people in the 250k – 500k range, higher taxes means they don’t start new businesses, along with jobs that go with new business.

    The White House needs to understand that it isn’t the sad sob story about the little guy paying taxes, it is about those with the means and know-how to start and grow business that create jobs. The punch line here is, to start and grow business that create jobs can’t be done without money, and less of starting and growing business that create jobs, will be done, with less money.

    Thanks.

  9. Concerned Inventor April 13, 2011 2:38 pm

    Until I see conclusive evidence that past tax cuts on the wealthiest of Americans grew the economy and increased tax revenues (or that the proposed tax hikes on the same will shrink the economy and decrease tax revenue), I favor an “all of the above” approach to aggressively paying down the deficit. I have never understood the position (dogma?) that any tax hike is always profane.

  10. Alton Hare April 13, 2011 5:35 pm

    West Coast Guy,

    While many individuals consider 250k/year a lot of money, and it certainly is if we reasonably define an income over median as “a lot” or, also reasonably, define an income in the top 10% as “a lot”.

    The problem, though, is that those 250k earners are living like 250k earners. They have multiple homes and other tangibles that they typically make payments on. A recession hits, and they’re having more trouble making those payments. The value of those tangible assets also drops, so they are facing a loss if they cash out their assets too. These individuals have to cut their losses somewhere, and often it comes at the expensive of hiring new employees and expanding business. If you increase the tax rate this individual is at risk of becoming financially insolvent.

    This individual does not have extra income to stimulate economic activity. They aren’t hiring assistants. They aren’t spending liberally on “nice things” which require workers to make and sell. They’re barely getting by. They may need to significantly contract their business, decreasing transactions, lowering employment, and dragging down the economy.

    It makes sense to tax a bit heavier in boom times. Extra productivity can go toward projects the fed is equipped to handle. Basic science research (with big applications long in the future, projects with too little short-term payoff for the private sector to take on), foriegn interests (often militarily), infrastructure, and etc.

    You want to strive toward equilibrium. Taxing heavier in boom times can reign in an economy that is burgeoning a bit too wildly and provide an opportunity for aforementioned infrastructure, basic research, ec. Lowering taxes can stimulate movement in lean times. Tax rates act as a counterbalance to cushion the “boom bust” economic pattern that characterizes free market capitalism. If you tax harder during the bust, you cause a harder bust. If you tax harder during the recovery, you cause a slower recovery.

  11. Gene Quinn April 13, 2011 6:07 pm

    Concerned Inventor-

    Perhaps you should look at the job creation numbers before the Bush tax cuts were extended and then look at the job creation numbers after the Bush tax cuts were extended. Even with the spike in oil prices the numbers tell the story very well.

    You say you have never understood the dogma that any tax hike is always profane, as if that was what this article was about. Unfortunately, it seems you believe that raising tax rates brings in more revenue despite the overwhelming evidence that is not the case. You can choose to keep your head in the sand if you like, but for those interested in facts and reality the answer is clear.

  12. Gene Quinn April 13, 2011 6:09 pm

    West Coast Guy-

    Straw man? Actually what you did was ignore the truth, tell a lie (that lie that being that my position was factually incorrect) and you provided no proof. You STILL haven’t provided any proof. I know why, because you are WRONG!

    You are the one setting up the straw man argument, but why? Why must you choose to ignore facts and believe in a lie? Why must you try and pretend that what I wrote wasn’t true? Do you prefer to live in denial?

    -Gene

  13. Wheel April 13, 2011 6:38 pm

    During the presidency of G. W. Bush, we lost more jobs than during any President since Herbert Hoover. Whatever few jobs were created belonged mostly to the housing, construction, home decoration, etc. In fact there is now no need to create hi-tech jobs in USA there being numerous low wage locations incl China, India, Vietnam and so on.

    It was George Bush (W’s father) who called this absurd theory that tax cuts bring in more revenue as “voodoo economics” which devoted cranks still revere as supply side economics. In fact, recently, Reagan’s own budget director David Stockman called it so – there is no evidence that tax cuts cause revenue growth.

    Bush tax cuts should be reversed to narrow the deficit. They alone will not fix the mess of the Bush years but its a start. Many more measures need to be taken such as reining in health care costs, defense budget and others, eliminating loopholes, gas tax and so on. Unfortunately, almost everything is hard to do politically.

    Inventors have been inventing since the beginning of time regardless of taxes. They do it for the sake of intellectual and scientific curiosity combined with potential for monetizing. Only US Republicans seem to obsess over taxes. Millions of other people are more worried whether they can have a job even at a lower pay, outsourcing, housing prices, and so on. The bigger headache for USA are brain drain, low wage competition from abroad and declining educational standards.

  14. Alton Hare April 13, 2011 8:32 pm

    Concerned Inventor,

    Mr. Quin does not make the argument that “any tax hike is always profane”. His argument is that the historic pattern indicates that tax hikes during economic slumps prolong the slump while tax cuts during slumps speed recovery. If we look at historic trends and data, focusing on tax revenue *over the long term*, this thesis is certainly supported. Of course tax hikes will increase revenue over the very short term. Businesses don’t immediately shut down and industries don’t dismantle their factories and move overseas instantly. In the few years immediately after the hike revenues are higher, but those gains quickly dissipate as the members of the economy respond to the increased costs of doing business.

    Many individuals agree that there are beneficial activities and services to be provided that don’t lend themselves well to independent, private investment. Highly risky ventures, long-term projects, basic infrastructure, etc. As such, very few persons are actually of the mindset that “any tax hike is profane”. Instead there are arguments over when and for what purpose(s). We have to be able afford a tax hike. A sluggish, slumping economy cannot afford a tax hike, so the answer to the timing question is at least answerable.

    This is oversimplifying the issue, though. What we need are reforms that promote stability and restore faith in the system. This requires changing specific aspects of the tax code rather than just a binary, superficial, dumbed down “raise or lower taxes” approach. For instance, we could increase capital gains tax, especially those over the very short term.

  15. New Here April 13, 2011 9:57 pm

    The question if wealthiest of Americans grew the economy, is without proof a fact. The money of these wealthiest Americans in the economy moving through it, is the engine of the economy. Sometimes what is forgotten is that many wealthiest Americans today didn’t start out that way. You don’t become a wealthiest American being lazy, stupid, whether or not you made, or just came into the money earlier in your start.

    Knowing what to do with money is more important then just knowing how to make it. This gets back to the money moving through the economy, being the engine that others build using such money, with a return that continues the cycle when all involved are being smart about what they are doing. The cycle is building business or investment in it just to mention a few, that the success of the cycle is what builds an economy.

  16. Jon Shields April 13, 2011 11:24 pm

    You know what is an undeniable fact? That you are completely and utterly wrong about tax cuts increasing revenue. If you simply made that claim, you would still be just as wrong, but to call your false claim an “undeniable fact” is ludicrous. The fact that you cite a partisan think tank’s “report” as “evidence” is simply icing on the cake.

    I’m not going to call it a “LIE” (as you are happy to call the contrary position in post 12), since you apparently believe what you are saying. But it is certainly an undeniably false statement, regardless of your beliefs to the contrary.

    Even President Ronald Reagan’s own budget director (supply side extraordinaire back in the day) not only thinks letting all Bush’s tax cuts expire would bring in tremendous revenue — he thinks that the refusal to let them expire would bankrupt the country.

    http://www.npr.org/templates/story/story.php?storyId=129052425

    Why can he see what is obvious? Because he is open to facts contradicting his previously held positions, and he can recognize differences in economic environments. He correctly denotes your theory as nothing more than unsubstantiated religion. And I am not quoting some raging liberal here — I am quoting Reagan’s budget director, who actually believed in supply side economics and worked for passage of supply side tax cuts in the 80s.

    Though if you actually think partisan economic think tank reports are “evidence” (as opposed to Reagan’s own budget director), here is one that shows that supply side tax cuts not only don’t spur enough growth to offset the reduction in rates — they often don’t spur growth PERIOD.

    http://www.americanprogress.org/issues/2008/09/supply_side.html

  17. Gene Quinn April 14, 2011 12:41 am

    Jon-

    Just curious, you think NPR is not a biased organization? You think the beliefs of one person who may have been involved in the Reagan administration are better evidence than historical fact? Have you looked at the revenue data into the federal government and compared it with tax rates?

    What seems true is you are believer of what you believe and you choose your facts. It is humorous to see you select the beliefs of a single individual and exalt them over truth.

    You are entitled to your erroneous beliefs, but please save me the moral indignation. You ought to be correct factually before you play that card.

    By the way, have you ever heard of Arthur Laffer? Perhaps you should do some reading.

    I won’t say you are lying because you seem to believe the utterly incorrect nonsense you spew, but I will say that you are incorrect PERIOD.

    -Gene

  18. Gene Quinn April 14, 2011 12:46 am

    Alton-

    I agree with you that we need to restore faith and need to have a thorough rethinking of the tax code. I disagree that the answer is to increase the capital gains tax. In fact, I think that is exactly the wrong thing to do. If we do anything we need to decrease the capital gains tax rate to make it more attractive for wealthy individuals to invest in speculative enterprises. Innovation is speculative and a higher capital gains tax rate will only make it more difficult to obtain funding for those that create the most jobs. With a higher capital gains tax rate investments will be safe. Why risk everything only to pay a high rate on the profits if you succeed when there is a real risk you lose everything? We need to make it more attractive for the wealthy to invest in speculative start-up enterprises, not more costly.

    -Gene

  19. Jon Shields April 14, 2011 1:27 am

    “You think the beliefs of one person who may have been involved in the Reagan administration are better evidence than historical fact?”

    Not at all. The Reagan budget office head wasn’t contradicting historical fact — he was acknowledging historical fact. The problem is what you claim is historical fact is exactly the opposite of historical fact. Your “study” talks about revenue increases after tax cuts, but conveniently omits revenue increases after periods of NO tax cuts, or tax increases. So not only is there no causation — there isn’t even correlation.

    And now you quote Laffer, as if you having a position similar to his somehow supports your theory (rather than laughs it out of the room)? Do you realize how discredited his theories are (beyond the few that subscribe to the supply side religion)?

    It isn’t just Reagan’s budget director. Mainstream economics does not take your theory (that tax cuts increase revenue, in general) seriously at all. Heck, even within the religion, few supply side economists would agree with you that tax cuts increase revenue in general. The supply siders who proposed and passed the original tax cuts actually didn’t claim that tax cuts would increase revenue — they simply claimed that the incentive effects would reduce the revenue loss to below what it would be without the incentive effects. As Jack Kemp’s economist said,

    “As the staff economist for Representative Jack Kemp, a Republican of New York, I helped devise the tax plan he co-sponsored with Senator William Roth, a Delaware Republican. Kemp-Roth was intended to bring down the top statutory federal income tax rate to 50 percent from 70 percent and the bottom rate to 10 percent from 14 percent. We modeled this proposal on the Kennedy-Johnson tax cut of 1964, which lowered the top rate to 70 percent from 91 percent and the bottom rate to 14 percent from 20 percent.

    We believed that our tax plan would stimulate the economy to such a degree that the federal government would not lose $1 of revenue for every $1 of tax cut. Studies of the 1964 tax cut showed that about a third of it was recouped, and we expected similar results. ***Thus, contrary to common belief, neither Jack Kemp nor William Roth nor Ronald Reagan ever said that there would be no revenue loss associated with an across-the-board cut in tax rates. We just thought it wouldn’t lose as much revenue as predicted by the standard revenue forecasting models, which were based on Keynesian principles.***

    Furthermore, our belief that we might get back a third of the revenue loss was always a long-run proposition. Even the most rabid supply-sider knew we would lose $1 of revenue for $1 of tax cut in the short term, because it took time for incentives to work and for people to change their behavior. When President Reagan proposed a version of Kemp-Roth in 1981, every revenue estimate produced by the Treasury showed large revenue losses from its enactment, based on standard models. The independent Congressional Budget Office produced figures that were almost identical.”

    In other words, the supply siders themselves thought that in the short run, they would lose $1 for every $1 decrease in taxes, but in the long run, they would only lose $0.67 for every $1 for every decrease in taxes.

    Yet hear you are, actually claiming (not just contrary to mainstream economics, but to the supply side religion itself) that you GAIN some positive dollar amount for every $1 decrease in taxes.

    http://www.nytimes.com/2007/04/06/opinion/06bartlett.html

  20. American Cowboy April 14, 2011 2:12 pm

    I do think the fact that we are becoming a nation of haves and have nots, with a shrinking middle class is cause for concern.

    Before we go saying let’s raise taxes on the “wealthy” to fix this, though, I think we need to understand why this phenomenon is happening. My own view is that the middle class did well from manufacturing jobs that were pretty insulated from low wage competition. That insulation has been torn away, with the effect that either the jobs disappear or the wage levels associated with those jobs diminish. I don’t see raising taxes on the “wealthy” fixing that. And, unfortunately, I don’t see anything else fixing that, except perhaps protectionism, which leads to its own gross set of adverse side effects.

  21. EFWQ22 April 19, 2011 12:22 pm

    As far as fact number 2 goes, the raise in taxes would only be for high income taxpayers. So the current work hoeses for the US, more commonly reffered to as the middle class, would ultimately have its load lessoned. and the upperclass ans super rich can start footing more of the bill.

  22. Gene Quinn April 19, 2011 1:48 pm

    EFWQ22-

    I would encourage you to actually look at the real numbers. Even if you confiscated 100% of every dollar made by those making $200,000 ore more a year you couldn’t fund the government and would only just barely fund the deficit and never tap into the debt. The reality is if you are going to do this by raising taxes the money to be obtained is in the middle class, not the rich. There are simply not enough rich and no one would ever propose 100% tax on the rich, so we need to be honest.

    As for the rich not footing more of the bill, as you say, that is simply false when you look at the numbers. Take a look at:

    http://washingtonexaminer.com/blogs/beltway-confidential/2011/04/if-rich-arent-paying-their-fair-share-then-whats-fair

    The top 10% pay 70% of the taxes, with the top 1% paying over 38% of taxes. Everyone outside the top 10% paid less in tax in 2008 than in 2000, so the rich have been paying more and more. So if we were to go back to the Clinton tax policies the poor would see at least a 1% increase in their tax burden while the rich would pay less tax. Whether you like those numbers or not they are the numbers. When taxes are higher on the rich they simply avoid them by not engaging in taxable activities.

    The recipe that has proven time and time again to be correct is this: if you reduce taxes you maximize revenue. It really is that simple. When Reagan lowered taxes revenue increased. When Bush lowered taxes revenue increased. It happens every time. The trouble isn’t with Reagan or Bush lowering taxes, it is with increased revenue the government continues to spend out of control, both during Republican and Democrat administrations.

    During the campaign President Obama even acknowledged that he wanted a more fair tax system with the rich paying a higher rate even if that meant that tax revenues would not be maximized. He knows tax revenues won’t be maximized with higher rates, as you suggest, as does everyone who has looked at the numbers. Yet he and the Democrats want to engage in class warfare at the expense of maximizing revenues. At a time when our debt and deficits are out of control not maximizing revenue and cutting spending is not only reckless it is practically treasonous if you ask me.

    -Gene

  23. David Boundy April 19, 2011 7:05 pm

    Undeniable fact: a dollar of budget deficit hurts more than a dollar of tax, EXCEPT (a) during a hot shooting war, and (b) during a recession. During other times, it’s crucial to maintain a small budget deficit averaged over time (surplus in good years, deficit in bad years). We’ve seen that over and over again over the last 30 years —

    — 1981 Reagan tax cut. Deficits went through the roof, we entered a double dip recesssion. Anittaxers point out that tax revenues went up — but neglect to mention that we were in the middle of 13-20% inflation rates. Tax revenues, on a constant dollar basis went down,

    — 1983 The biggest tax increase of the post war period (percentage wise). Budgets got almost back in balance. We had the “not too fast, not too slow” growth of the late 1980’s. (Incidentialy, when you average growth over the 8 Reagan years and the 4 Carter years, Carter was better.)

    — 1993 Clinton tax increase. All the antitaxers were saying “oooh this will kill the economy” — but it didn’t, did it?

    — 2001 Bush tax cut — Bush left office as the worst job growth president since Hoover. LOUSY growth for eight years, even though highly stimulative private saving policy. Why? Deficits matter.

    Now I tend to agree with the narrow point Gene takes here, that this is not yet a good time to raise taxes. But that applies just as surely to spending cuts — on a macroeconomic level, they’re almost the same thing. Timing is everything! A deficit was an essential for the last two years, now it’s important to wind out of the deficit, but not too fast. Tax increase or spending cuts? I don’t care all that much from a macroeconomic perspective.

    The antitaxers repeat two fallacies ad nauseum.

    1. Antitaxers forget history. From 1981-83 we had the second dip of a very sharp recession. The “Reagan Recovery” didn’t start til August 1983, after taxes were raised in June/July, and the financial markets were calmed that the deficits weren’t going to keep running at 6-7-8% of GDP for years.

    2. Failing to recognize the import of the 1999 Nobel Prize: Bretton Woods ended in 1969. Before 1969, when we had fixed international exchange rates, the balance between fiscal and monetary policy was very different. (Those of you of my age will remember that lots of pocket calendars and the like had a table of fixed exchange rates that prevailed from the end of WWII to 1969 — I remember the Canadian dollar was 91.5 or 92.5 U.S. cents, a fact you could take to the bank — or print in a diary.) The 1999 Nobel Prize in Economics went to Robert Mundell (Columbia) for figuring out how fixed exchange rates and floating exchange rates change the relative effects of monetary policy and budget deficits. The Kennedy tax cuts worked in a pre-1969 era, they wouldn’t have had anything like the same effect after 1969.

    (The Mitchell paper that you cite, Gene, falls into both of these fallacies — and conveniently omits two data points that don’t fit his hypothesis, 1993 and 2001.)

  24. Rayes April 29, 2011 9:20 pm

    Im doing a paper on how the 90s tax rates could help americas economy out for a speech. i have all these facts that seem true but still dont know the main problems today. can anyone help me out here and guide me in the right path?