Monday, February 13, 2012

Ideology vs. Reality

The President’s budget plan calls for more than $1.5 trillion in new taxes on corporations and wealthy.  This is supposed to help the economy.  The President said in a speech today that this is not ‘class warfare.’

It matter little what you call it.  This kind of policy has demonstrable effects.  As a recent study shows:

corporate income taxes have a highly significant and negative effect on long-term growth.
The estimates suggest that cutting the corporate rate by 10 percentage points is associated with an increase in total real gross domestic product (GDP) growth of 11.1 percentage points over the period.
This would move the United States from below average to above average in terms of economic growth among OECD countries.

Personal income taxes on high incomes also have a significant negative effect on growth, such that cutting the rate by 10 percentage points is associated with an increase in total real GDP growth of 7.5 percentage points over the period.  This would bring the United States to roughly an average level of growth relative to OECD peers.

If lawmakers want to have the biggest impact on boosting long-term economic growth in the United States, they should turn their attention to cutting tax rates on corporate and individual income.

Studies showing this relationship are neither new nor rare.  This means the President is well aware of this relationship.  So when he says that his policy is an attempt to help the economy, he cannot possibly be speaking from ignorance.  He is speaking from ideology, which in this case means he is lying.

For some reason we find it is easy to envy those with high incomes and incorporated businesses.  But it is easy to figure out why taking more money from those with large incomes and from businesses will hurt the economy.  These are two important sources of capital:  goods used to produce the things we want to consume.

You cannot both remove the source of production and hope to have more to consume.  The President knows this very well.  He is simply not an honest man whenever his ideology conflicts with the facts.

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