Tags: Romer | Taxes | Rich | Wishful

Former Obama Adviser Romer: Cutting Taxes on Rich Wishful Thinking

Monday, 19 March 2012 11:55 AM

Supply-side tax arguments popular with conservatives — the idea that cutting taxes on the wealthy leads to a boom and thus higher tax collection — have no basis in economic fact, argues former Obama adviser Christina Romer.

“At least since Calvin Coolidge, politicians have trumpeted the supply-side benefits of cutting marginal income tax rates,” Romer writes in The New York Times.

“Lower rates will unleash economic growth and the cuts will largely pay for themselves — or so it's often said. Yet careful studies find little evidence of such effects.”

Editor's Note:  How to Pay Zero Taxes . . . Legally

Supply-siders take the view that cutting marginal tax rates raises income over a value of 1, that is, that incomes rise enough to offset the lost taxes. Romer says that various studies show the resulting effect is less than 0.5 and has a midpoint of 0.25.

In dollar terms, then, cutting the tax rate on the richest Americans to 28 percent from 35 percent would increase incomes by just 2.5 percent, she contends.

Meanwhile, spending is obviously out of control, writes Romer, an economics professor at the University of California, Berkeley.

“Reining in the long-run deficit will have to involve slowing the growth rate of spending. But unless we choose to gut Medicare and Medicaid, additional tax revenue will be needed,” she writes. “This essential truth is the No. 1 factor that should be driving tax policy. And anyone who tells you that the way to raise revenue is to cut marginal tax rates is arguing from ideology, not solid evidence.”

Meanwhile, state-level tax collections are falling, reports CNNMoney, thanks to anti-tax movements and Republican-led legislatures.

State taxes fell by $2 billion in the last year, down for the first time in a decade despite a collective shortfall of $100 billion. The numbers come from the National Conference of State Legislatures.

Sales taxes fell by $5.2 billion, corporate taxes by $805 million, and miscellaneous levies are down $950 million.

Personal income taxes are up by $3 billion, buts mostly in three states, Connecticut, Illinois, and Michigan.

Editor's Note:  How to Pay Zero Taxes . . . Legally

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Monday, 19 March 2012 11:55 AM
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