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A Rational Advocate
"The most formidable weapon against errors of any kind is reason"
 

Shared sacrifice doesn't create jobs
By Ben Cerruti

Warren Buffet recently stated that the 'mega' rich should pay higher taxes. He suggests raising progressive tax rates for those earning annual incomes of over $1 Million and $10 Million respectively. That this would show the shared sacrifice of the mega rich. Evidently Buffet doesn't recognize the fact that such additional tax revinue has never been applied to decrease the budget deficit. It simply allows the government to spend more. Hence, why should we believe that the extra tax revinue collected would be applied to the deficit rather than to maintain the ever increasing level of spending we have experienced in the past?

In addition, presently the top 1% of taxpayers pay 38% and the top 5% pay 58% of federal income taxes. Reasonable people could determine that there is already shared sacrifice and how has that helped our economy?Taking revinue from the private sector simply removes capital that can be utilized to create jobs through both investment and consumption.

Jack Kemp provided the following from an article he wrote in 2002 prior to his death.

"Three times in our own history, significant pro-growth tax reform has been enacted, and each time the reforms worked to improve the economy dramatically. In the 1920s, under President Calvin Coolidge, tax rates were lowered to 25 percent from the confiscatory rate of 73 percent they had reached during World War I. In 1963, Congress enacted the series of tax-rate reductions proposed by President John F. Kennedy, which brought the top tax rate down by more than 20 percent. In both instances the tax-rate reductions preceded a new era of economic growth, with the economy growing on average more than 5 percent.

The next significant period of tax reform and economic growth acceleration began in 1978, when Congress passed the Steiger Amendment, cutting the tax rate on capital gains from 49 percent to 28 percent. In 1981, President Ronald Reagan convinced

Congress to cut the top rate from 70 percent to 50 percent and then to 28 percent in 1986. After growing at an average annual rate of only 1.6 percent between 1973 and 1982, the economy grew at more than 3.5 percent a year between 1983, when the

tax cuts became fully effective, and 1990, when tax rates were raised again.

History also demonstrates that tax reform and lower tax rates do not benefit upper-income individuals at the expense of the poor and the middle class. During the 1920s, the share of the tax burden paid by the so-called "rich" (incomes over $50,000)

rose dramatically, climbing from 44.2 percent in 1921 to 78.4 percent in 1928. The share of the income tax burden borne by the "rich" also increased in the 1960s, with the portion of the income tax burden on taxpayers with incomes in excess of $50,000 increasing from 11.6 percent to 15.1 percent. After the 1981 rate reductions, the share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48 percent to 57.2 percent in 1988. The share of the income tax bill paid by the top 1 percent rose even more dramatically, from 17.6 percent in 1981 to 27.5 percent in 1988."

Further, those who promote Keynesian economics may be shocked by what Keynes once said "Nor shall the argument seem strange, that taxation would be so high as to defeat its object and that given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. To take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price. And when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, he decides that prudence requires him to raise the price still more. And who, when at last, his account is balanced with naught on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss."

Common sense prevailing, it should be obvious that increasing tax revinue is not the same as increasing tax rates. Since taxes are imposed on income the objective should be to increase the income and set the tax rate so that revinue is optimized. Thus, increasing the tax rate is likely to remove income from the private sector that would be used to grow the economy producing a higher income and accordant higher tax revinue. The result would be counter to the creation of jobs. Why oh why canít government recognize this simple fact?

As far as Warren Buffet is concerned, he surely is cognizant of this fact so he must have a parochial motive, probably relating to the treatment of his financial holdings under the evolving "State Capitalism" ensuing from the policies of the Obama administration.

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