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Saturday, October 15, 2011

Occupy the faculty lounge for the cultural revolution

The school year is back in full swing, and my colleagues continue to educate me on the finer points of liberal economics. Last week, a conversation with  Professor XYZ about the economic stresses in the Eurozone evolved into a discussion of U.S. tax policy.  XYZ asked why couldn't we dramatically raise tax rates on the rich in order to reduce our deficit. I made the usual observations that raising tax rates did not necessarily result in the expected increase in revenues and that, in fact, tax revenue as a percent of GDP was fairly stable in the 15-20% range over the past half century, despite tremendous variation in tax rates. He responded that, yes, he had heard about 'some curve' which said that raising tax rates eventually led to a decrease in tax receipts. I asked him if he meant the Laffer curve; he guessed that might be what he was referring to. He believed, however, that the Laffer curve was mathematically better defined than I had ever heard. He told me that he had heard that the Laffer curve had more than one optimum: if the top tax brackets were sufficiently high, the government could eventually recapture the revenue that it collected at much lower rates. Independent of the truth of such an assertion, I was staggered by his notion that if we could generate the same tax revenues by choosing either a moderate tax rate or a punitive tax rate, we should choose the punitive one. Progressive tax rates as a tool of persecution of a minority (the rich) rather than as a tool for generating revenue never seems far beneath the surface of leftist economics.

 This week I passed some junior colleagues in the hall while they were discussing economics. One observed that he didn't see why the government didn't simply cap incomes. (I have no idea what generated this comment). I quipped that I would be happy to take his excess income off his hands if he didn't want it. He said, no thanks, he would prefer to have mine. I said yes, that was always the case with such schemes. I then asked him how he would define income for such a system to be fair. I observed that mathematics was so much fun that that you could argue that we were paid, in part, with the pure pleasure of doing research mathematics. Most of us would reject dramatically more remunerative jobs, because we would not be paid in the coin we most valued. If someone else was paid triple our income to perform some task we found odious (proctologist?), should we somehow put a monetary value on the sheer joy of mathematics before we compared total compensation and plotted redistribution schemes? Hearing about idle Wall Street protesters brings the same thought to mind. They clearly have much more leisure time on their hands than the average corporate mogul. Perhaps their redistributionist schemes should include redistribution of their leisure time. I suppose that is an old communist idea, last seen on a large scale with Mao's Cultural Revolution, during which China's intelligentsia was sent to work camps. 

I am becoming more enamored of a flat tax with every week these incoherent protests continue.

1 comment:

  1. All this discussion recently from both left and right about tax policy seems to me to be missing the point. Since all government spending must remove resources first from the private economy, direct taxes being just one form thereof, it's high spending rates that matter. Until people get serious about reducing spending, discussions of tax policy seem to be putting the cart before the horse.