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03 January 2011 @ 02:12 pm
The Politics of Diversion  
One often comes across statements, or even well-written editorials in major national newspapers, which may be factually accurate but which are entirely irrelevant to the issue they purport to address.  Take this article for example, which, in summary, attempts to argue against raising the highest marginal tax rates and/or capital gains tax by contending that 1) the US already has a highly progressive tax code and 2) the top 1% of wage earners really aren't that rich if you look at these data.

The actual point, however, could hardly have been missed more thoroughly if the article had exclusively discussed pandas.  The US has a large large annual deficit and (consequently) significant public debt.  A continuation of contemporary budget trends in this direction is untenable in the long term, and a solution is necessary.  While "fiscal conservatives" famously contend that cutting spending is what is good, they are equally famously vague on specifics.  While cutting "waste" and "pork" is certainly a good idea, the nature of the federal budget is that, if one wishes to make a significant difference with respect to the deficit, one must cut either Medicare or Defense, the two programs that account for the preponderance of Federal spending.
While neither of these two programs are likely to face significant cuts, a separate topic entirely, the alternative is to raise the tax rate.  Contrary to the doctrine promulgated by a particular class of US politicians, high marginal tax rates on high-income brackets do not discourage economic growth.  Indeed, as this fascinating graph makes clear, top bracket marginal tax rates were highest immediately before and during some of the highest growth eras in the us (the early 1920s, the late 1940s and 1950s, etc) and the lowest immediately before and during some of the worst economic downturns (late 1920s and early 1930s, early 1990s, mid-2000's, etc).  While the issue of a possible causal relationship between economic growth and high tax rates (or the inverse) would require more rigorous examination, it is sufficient for this post to note that there is no correlation between high marginal tax rates and recession, or between low marginal tax rates and growth.

Thus the argument presented in the aforementioned article is nothing but a red herring irrelevant to the discussion at hand; whether or not the points it makes are true has no proscriptive value for those wishing to generate economic grown (or avoid recession) by altering the tax rate.  This sort of logical nonsense is a key barrier to meaningful policy improvements with respect to the US economy.
Beckybeckyzoole on January 4th, 2011 05:19 am (UTC)
Excellent point, and clearly stated!
Tiff, Tiffany, Eowyth, Blaze: Leoblaze_love_fire on January 5th, 2011 05:41 pm (UTC)
Well stated! Thanks :D