BIZARRO ECONOMICS:
Taxes (As A Percentage Of Economy) Drop To Lowest Level In 60 Years

From the AP via the Huffington Post news wire:

Actually, as a share of the nation's economy, Uncle Sam's take this year will be the lowest since 1950, when the Korean War was just getting under way.

And for the third straight year, American families and businesses will pay less in federal taxes than they did under former President George W. Bush, thanks to a weak economy and a growing number of tax breaks for the wealthy and poor alike.

Income tax payments this year will be nearly 13 percent lower than they were in 2008, the last full year of the Bush presidency. Corporate taxes will be lower by a third, according to projections by the nonpartisan Congressional Budget Office.

The poor economy is largely to blame, with corporate profits down and unemployment up. But so is a tax code that grows each year with new deductions, credits and exemptions. The result is that families making as much as $50,000 can avoid paying federal income taxes, if they have at least two dependent children. Low-income families can actually make a profit from the income tax, and the wealthy can significantly cut their payments.

More here.

So, while I am bit disturbed that the Republicans have pretty much gotten away with branding Obama as a tax-crazy liberal, even though the evidence shows that the exact opposite is true, what concerns me more is that this news destroys a key piece of contemporary conservative philosophy, but nobody involved in the political discourse is going to point that out, certainly not the Republicans, who never met a tax cut they didn't like, certainly not the Democrats, who don't like to explain things, and certainly not the corporate news media, for reasons unknown.

Of course, that key piece of philosophy is that lower taxes stimulate the economy. Indeed, the Republicans have for years even gone on to assert that tax cuts stimulate the economy so much that, in the end, more tax revenue is gained, even though the tax rates have been lowered. By this standard, we should now be experiencing a federal budget surplus, instead of a deficit, and the economy should be booming, with increasing levels of employment, and higher levels of individual wealth overall.

Needless to say, this is not the case. We continue to run massive budget deficits. The economy, while technically now in a period of growth, is sluggish, and unemployment stubbornly hovers around the ten percent mark with no relief on the horizon. This is real world evidence, not some kind of vague philosophical argument, that tax cuts don't do much, if anything, to help the economy. But like I said, this will not in any way affect the conventional wisdom on tax cuts. Pundits and politicians alike will continue with their fantasy narrative about tax cuts as though reality doesn't matter. Business as usual.

Really, I find myself warming these days to an argument that's been floating around the left side of the blogosphere for a few years now: high taxes, not low taxes, help cause economic growth. The long and short of the argument, which deals more with taxing businesses and the rich than the general population, is that, because taxes are on profits, rather than revenue, in a high tax environment, people will find creative ways to avoid claiming revenue as profit. Generally, this means funnelling such income back into your business, or into investments, which translates into expanded economic activity, with more job creation, better wages and benefits, higher production, and better product quality. Without higher taxes, however, revenue drains out of business in the form of profits, and is then spent on luxury items, which has a negligible effect on economic growth, or simply dropped into savings, where it does nothing.

That is, the conventional wisdom on taxes comes from Bizarro World: me want good economy, so me cut taxes to make economy stagnate! Where's the real man of steel when you need him?



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