Tax Revenue Rising

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My thoughts: The problem remains spending.

Taxing the Rich

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.

—President John F. Kennedy,
Economic Report of the President,

January 1963

If only more of today's leaders thought like JFK. Sadly, in the debate over whether to extend the 2001 and 2003 tax cuts, and if so whether the cuts should be extended to those people who are in the highest tax bracket, there is a false presumption that higher tax rates on the top 1% of income earners will raise tax revenues.

Anyone who is familiar with the historical data available from the IRS knows full well that raising income tax rates on the top 1% of income earners will most likely reduce the direct tax receipts from the now higher taxed income—even without considering the secondary tax revenue effects, all of which will be negative. And who on Earth wants higher tax rates on anyone if it means larger deficits?

Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We've also cut just about every other income tax rate as well.

During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.

read the WSJ article

To Serve, Protect, and Generate Revenue

A new study to be published in next month's Journal of Law and Economics finds statistical evidence that local governments use traffic citations to make up for revenue shortfalls. So as the economy tanks, motorists may be more likely to see red and blue in the rearview.

Study authors Thomas Garrett, assistant vice president at the Federal Reserve Bank of St. Louis, and Gary Wagner from the University of Arkansas Little Rock, examined 14 years of revenue and traffic citation data from counties in North Carolina. They found that the number of traffic citations issued goes up the year following a revenue drop.

"Specifically, a one percentage point decrease in last year's local government revenue results in roughly a 0.32 percentage point increase in the number of traffic tickets in the following year," Garrett and Wagner write.

That number may sound small, but it's a statistically significant correlation, the authors say.

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Tax Revenues Drop Significantly

The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

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The Wealthy are Paying More

"Under the 2001 and 2003 tax cuts, the data show that the tax shares of the top 1% increased between 2000 and 2005 to historically high levels," ranking member Jim Saxton of the Joint Economic Committee said today. "Despite the contention that the tax cuts would unfairly reduce the tax burden of the rich, their share of taxes has in fact gone up," Saxton concluded.

from Carpe Diem

Cost of Government

from The Big Picture

Capital Gains Taxes

Taxing capital gains at a lower rate than ordinary income is a long-established policy to encourage risk taking and investment. Since we already tax corporate earnings at 35% through the corporate income tax, taxing those profits again when the stock is sold imposes a double tax on risk capital. That's why 12 industrialized nations, including Hong Kong and Korea, impose a zero capital gains rate.

read the entire article

Republicans: decrease rates to increase revenue
Democrats: increase rates to increase revenue

Me: Why not let people keep their money and have a 0% capital gains tax rate?

Why did Prohibition End? Tax Revenue Needed

An interesting argument.

Read the article.