Sigh. Yet Another Trojan Horse.

He’s done it again.

When asked to analyze Herman Cain’s “9-9-9” tax proposal, Prof. Mishra spent half his op-ed talking about Rick Perry’s flat tax proposal instead.

Okay, I’ll take the bait.

According to Perry:

The plan starts with giving Americans a choice between a new, flat tax rate of 20% or their current income tax rate. The new flat tax preserves mortgage interest, charitable and state and local tax exemptions for families earning less than $500,000 annually, and it increases the standard deduction to $12,500 for individuals and dependents.

The strange thing is, Prof. Mishra never analyzes this proposal. He doesn’t tell you how it would affect you. He doesn’t tell you whether he agrees with Perry’s claims. He just says that tax cuts are good and, well, this is a tax cut.

Except it isn’t. At least, not for the 60 percent of Americans who would pay more under Perry’s plan than under Obama’s:   Continue reading “Sigh. Yet Another Trojan Horse.”

The Tax Cut That Never Was

Finally! Prof. Mishra has offered some evidence to support his argument. Granted, it’s not accurate evidence, but at least he’s trying.

Here’s the example that Prof. Mishra thinks is evidence of tax cuts increasing tax revenue:

Indeed, in 1986, when President Reagan lowered the top tax bracket from 50 percent to 28 percent, it led to an enormous rise in federal tax revenues as well as a great expansion in small business and entrepreneurial activities, leading to more job creation and economic growth.

Well, that’s one way to rewrite history.

As I’ve said over and over, the business cycle that Reagan presided over experienced the exact same economic growth — 3 percent per year — as the one overseen by Nixon, Ford, and Carter. And since tax cuts supposedly increase tax revenues by increasing economic growth, the entire argument falls apart because they didn’t increase economic growth.

But what makes Prof. Mishra’s example really embarrassing is that the Tax Reform Act of 1986 was a tax increase, not a tax cut! Continue reading “The Tax Cut That Never Was”

The Art of Distraction

Prof. Mishra has a knack for changing the subject.

When asked about income taxes, he talked about corporate taxes. When asked about the Federal Reserve, he brought the conversation around to Glass-Steagall. When asked about the Community Reinvestment Act (CRA), his focus turned to the “government-sponsored enterprises” (GSEs): Fannie Mae and Freddie Mac.

Here’s how he did it:   Continue reading “The Art of Distraction”

Reader Request: Do Lower Tax Rates Lead to Higher Tax Revenue?

A reader asks: If low tax rates lower income to the Treasury and cause deficits and lower economic growth, how do you explain how we ran deficits with a 70 percent top marginal tax rate in the 1970s and we ran surpluses for 1998-2001 with a 39 percent top marginal tax rate with almost identical average GDP growth for the periods? Doesn’t this fact give significant credence to the supply-side argument that lower tax rates increase tax revenue and cause surpluses?

Professor Chandra Mishra made roughly the same argument in our debate over the Bush tax cuts. I didn’t address it in my op-ed because I didn’t expect a tenured professor to advocate such a widely discredited position.

First, a clarification: I never said that “low tax rates…cause…lower economic growth.” On the contrary, the economic evidence indicates that tax cuts have a slightly positive effect in the short run.

In order for tax cuts to increase tax revenue, however, they would have to have such a large effect on economic growth that it outweighs the effect of the lower rates. Taking a smaller percent of a bigger number can yield more than taking a bigger percent of a smaller number, given the right numbers. At a certain point, if you keep raising taxes, people will stop working because it isn’t worth the effort. If enough people stop working, economic output decreases, and tax revenue shrinks despite higher rates. If you like graphs, you can visualize that “tipping point” as the top of the “Laffer curve,” named after economist Arthur Laffer who helped popularize the concept in the 1970s:   Continue reading “Reader Request: Do Lower Tax Rates Lead to Higher Tax Revenue?”

Social Security Isn’t Lying to You. But Rick Perry Is.

In 1935, when Congress created Social Security, over half of American senior citizens lived in poverty. Today, less than 10 percent of the elderly live in poverty. According to economists Gary Engelhardt and Jonathan Gruber, a $1,000 increase in Social Security benefits reduces elderly poverty by 2 to 3 percentage points.

Americans need those checks now more than ever. Since the end of World War II, it’s never been harder to save for retirement. Jobs are disappearing. Wages are barely keeping up with inflation. Education and health care costs are soaring. Pension plans are becoming a thing of the past.

So it’s not hard to understand why 34 percent of Americans have nothing saved for retirement. Nor is it surprising that 54 percent of retirees say Social Security is a major source of their income — especially because 401(k) accounts only average $98,000, which amounts to $600 per month in retirement, well below the poverty line.

But Social Security is hardly a windfall.

The average retiree will earn $14,124 from the government this year. The poverty line is $10,830. Of the 30 industrialized nations, 24 are more generous to their retirees than the U.S.

And your leaders want to reduce Social Security benefits.   Continue reading “Social Security Isn’t Lying to You. But Rick Perry Is.”