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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (48941)	1/10/2012 5:58:08 PM
From: TimF	2 Recommendations Read Replies (1) \| Respond to of 71588

Study Calculates Economic Cost of Higher Tax Rates, Health Care Surtax Total Burden of Higher Top Income Tax Rates, Health Care Surtax is Nearly Twice the Additional Revenue Raised Washington, DC, August 14, 2009 - The actual economic costs of the proposed health care surtax and the expiration of the 2001 and 2003 tax cuts will be twice the amount of revenue the government intends to collect. According to a new analysis from the Tax Foundation, the higher tax rates are estimated to raise $88 billion in 2011, but the economy will incur an additional burden of $76 billion—or "deadweight loss"—as a result, which raises the total cost of the tax increases to $164 billion, roughly double what lawmakers intend to raise. Tax Foundation Special Report No. 170, "The Excess Burden of Taxes and the Economic Cost of High Tax Rates," attempts to put a price tag on the cost of pending rollbacks of the Bush tax cuts (which would raise the top tax rate to 39.6%) as well as the proposed health care surtax (ranging from 1% to 5.4%). This loss in economic efficiency is also known as the "excess burden" or "deadweight loss" of taxes—the income that would need to be given to people to compensate them for the resources that are lost due to the distorting effect of taxes. The Special Report is available online at taxfoundation.org. "The notion that the total burden is nearly twice the revenue collected should give lawmakers some pause when considering these higher tax rates," said Tax Foundation Senior Fellow Robert Carroll, Ph.D., who authored the paper. "Lawmakers need to understand that the current income tax system already costs the economy between $110 billion and $150 billion above and beyond the $1 trillion the government actually collects in taxes," Carroll said. "This means the actual economic cost of our income tax system is at least $1.10 for every dollar the government collects. The proposed higher tax rates could boost those deadweight costs to more than $1.20 for every dollar of tax revenues collects." "The burden is particularly high for the higher income tax rates being considered by the Congress," says Carroll. "With every dollar in additional revenue, these tax increases impose an extra burden of 86 cents." For example, in 2011 a couple earning $500,000 will pay $112,437 in income taxes. But the excess burden to them of that tax payment is $16,664, about 15% of their tax burden. The increase in the top two tax rates plus the health care surtax would boost their income tax payment an additional $7,719 to $120,156. However, that tax hike would also increase their excess burden by $8,748, larger than the tax increase itself. "When totaled over all taxpayers, this means," says Carroll, "that the total economic cost of the higher tax rates will be close to twice the amount lawmakers hope to collect." "Lawmakers should be wary of policies that are purported to make higher-income taxpayers 'pay their fair share' but that impose very substantial burdens on all taxpayers—nearly twice the revenue that is raised—and waste substantial economic resources," Carroll concluded. The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937. taxfoundation.org

To: TimF who wrote (48941)	1/11/2012 2:42:34 PM
From: DuckTapeSunroof	Read Replies (1) \| Respond to of 71588

Re: "Dynamic analysis is likely to be an improvement," I agree that factoring for feedback effects of changes in tax policy is a logical and useful addition to econometric modeling. Re: "but its rather hard," (LOL. I would say that ALL econometrics modeling is properly described as "difficult". :-) Re: "and also depends on the assumptions you use." Yep! Same with all modeling. That is why I believe assumptions must be clearly stated up front, and justifiable by hard data, so folks can make their own decisions about the comprehensiveness and the appropriateness of models that seek to provide predictive capabilities. But to me one of the more fascinating tests of 'static' vs. 'dynamical' was the studies the Bush W.H. had performed, back when they were gearing up to push for their proposed tax policy changes. CBO, GAO (both static models, but with some different assumptions)... and the dynamical model the W.H. contracted for with a private econometrics firm that was instructed to specifically include 'Laffer Curve' effects from Bush's lowering of tax rates. All three models predicted effects on GNP for each of ten years, (each modeled the next decade). And --- this is what was so fascinating to me --- all THREE produced nearly identical results out the back-end. And --- perhaps EVEN MORE fascinating (considering this is the very 'squishy' world of economics <GGG>) --- was that ALL THREE later proved to have been REMARKABLY ACCURATE in their GNP projections! (All three showed a boost to national growth rates in the first four or five years after taxes were lowered, because of the stimulative effect... but ALL THREE MODELS, even using some different baseline assumptions, also predicted that UNLESS SPENDING WAS ALSO CUT to at least roughly match the net reductions in government revenues... that the rising level of national debt by MID DECADE would REVERSE ENTIRELY the earlier experience of boosted GNP rates... and the second half of the decade would then experience a LOWERED RATE OF GNP then would have otherwise occurred if no changes at ever been made at all. Exactly what actually happened in the real world.) In other words, (as commonsense should have told us all along, no need for highfalutin computerized models <g>): 1) Lower taxes = 'Good for growth rates' but, 2) Rising debt levels = 'Bad for growth rates'. And don't expect simply lowering tax levels to eliminate debt... in the real world ongoing spending levels are a most significant bad of that calculation. :-)