Obama: I'll raise your taxes even if it lowers revenues

Speaking of taxes and incentives
, what's the opposite of a supply-sider? That is, what do you call someone who wants to raise taxes in order to lower revenue?

Well, the good Senator Obama, who I have incredibly heard described as a left-libertarian, came right out and said he's for tax hikes even if they lower government revenue. Here's a transcript of an exchange on the capital gains tax during Wednesday's much-maligned debate:

MR. GIBSON: And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness. We saw an article today which showed that the top 50 hedge fund managers made $29 billion last year -- $29 billion for 50 individuals. And part of what has happened is that those who are able to work the stock market and amass huge fortunes on capital gains are paying a lower tax rate than their secretaries. That's not fair. [. . . .]

MR. GIBSON: But history shows that when you drop the capital gains tax, the revenues go up.

SENATOR OBAMA: Well, that might happen or it might not. It depends on what's happening on Wall Street and how business is going.

That's Senator Obama, who doesn't know, or apparently even care, whether or not his tax proposals actually raise money. Because they're fair, don't you see.

I'm not actually sure that that supply-side effect is real with the capital gains tax, by the way: Some or all of the measured effect could very well be just timing for tax avoidance. But it's just crazy to suggest that you don't even care about the revenue implications of tax policy.

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Also Note...

...how he snuck in the "Warren Buffett pays a lower tax rate than his secretary" lie. KipEsquire, A Stitch in Haste

Tax-free municipal bonds

Out of curiosity, why do you invest in tax-free municipal bonds, as you mention in the linked post? I always figured that the tax exemption was priced into the interest rate, making it essentially a wash. Am I missing something?

Yes you are. When the tax is

Yes you are. When the tax is dropped, both the bond seller and the bond buyer profit, the split is determined according to the relative elasticity of both sides. The fact that many investors are roughly neutral to the tax benefit (some foreign investors, some people buying with leverage) contributes to the elasticity of the demand. It's not a bad deal, but lending money to a government entity is wrong(tm).

I have my reasons...

suffice it to say that they are rational and private.  =)

 KipEsquire, A Stitch in Haste

Buffett's Secretary

Aside from the accounting trickery you point out, wouldn't Buffett's secretary be someone with an advanced degree in finance or a related field, and therefore paid much better than the average secretary?

Tax revenues

The hedge fund manager in the above story is taxed on profit which could run negetive some years.

Fairness would be to pay him in the event of a loss in order to claim from him a share in his profit. But Obama is not talking about that fairness is he?

If you keep taxing the manager, at some point he will have to let go of the secretary and then at some point farther down the timeline he will wrap up his business because the risk is not worth the return.

In the end, like always the well-meaning government terminated a business and some employment opportunities.

On the other hand, if Obama thinks that the secretary is overtaxed (true: labour is the most taxed commodity in the United States), there is another way to make this fair to everyone involved:
reduce the tax on the secretary.

Devil's advocate

In fairness to Obama, if being a supply-sider is defined as lowering taxes in order to increase revenues (that is, the primary justification for lowering a tax is that doing so will increase revenue collected), then the opposite of being a supply-sider is, as you initially wrote, defined as raising taxes in order to lower revenues (that is, the primary justification for raising a tax is to decrease revenue received).

So, to the extent that Obama wants to raise the capital gains tax primarily in order to increase fairness by equalizing the effective tax rates paid by the Warren Buffetts of the world and their secretaries, and not in order to merely decrease revenues received, Obama is not the true opposite of a supply sider.

I do agree that such a policy, even if it doesn't rise to the level of a true opposite to supply-side economics, is still economically irrational, as one could better increase fairness in a real sense rather than a nominal one by maximizing government revenue and then redistributing that additional revenue from the rich to the poor Kaldor-Hicks style. Focusing on reducing tax-rate inequality as a primary objective is even more insane than focusing on reducing actual wealth inequality; tax rates don't put food on the table - money does.

Devil's Advocate's Imp

Besides, supply siders are evil precisely because they are trying to maximize tax revenue.


Yes.  To be fair, anyone who thinks tax rates should be governed by something besides revenue maximization (as I do) will be similar to Obama.

In what respect?

I think "tax rates should be governed by something besides revenue maximization" but most certainly am not "similar to Obama". Should I be? I happen to think that if you can minimize deadweight loss and achieve the same revenue, you should do it.


In retrospect, my previous

In retrospect, my previous comment was wrong.



I agree with Obama on most of the issues but this is the reason I will not vote for him. He sounds like he's bitter at people who have achieved the "American dream" and just wants to grind an axe into them for no other reason than because it makes him (and perhaps other Americans who are poor) feel better. Sorry but I don't elect people like that. I am a liberal.