Will raising tax rates raise taxes? The Laffer Curve (white board lesson)

Dang! Just missed Senator Harry Reid's comments on today's budget talks. The follow-up commentary suggested he's frustrated with the other side's unwillingness to bend on tax increases--that they're not paying attention to the polls. Implying that the few hundred, or few thousand, people who responded to a set of questions posed over the phone say they want no cuts to entitlement programs and no tax increases for the "middle class". In other words, the people have spoken; tax the "rich", the "rich" have options--they can take on a higher tax burden. The non-rich have no options, they can't take on a higher tax burden--or cuts in social programs--especially in this economy. And of course that's true, well, mostly.

Let me straighten out that statement (by changing one word) and make it entirely true: The rich have options, they can take pass on a higher tax burden. The non-rich have no options, they can't take pass on a higher tax burden--or cuts in social programs--especially in this economy.

So, consumer spending is supposedly 2/3rds of the economy. The rich have employees, take vacations, go out to dinner, have housekeepers, etc. That (what the haves have) may seem unfair to some--it just feels right that the rich will have to cut back--but make no mistake, the rich cutting back means resources are taken, not only from them, but--arguably more so--from hard-working folks; the rich's employees, hotel employees, waiters and waitresses, busboys, cooks, parking attendants, caddies, scuba instructors, maids, etc. (that 2/3rds of GDP) and redistributed where politicians see fit. That is if the increase in tax rates actually results in more revenue for politicians to spend.

Here's an illustration on taxation that will help you understand the potential revenue implications of adjusting the rates--in either direction. This is an entirely commonsense view, and therefore will not appeal to the most partisan in either camp. Here's the link to a blogpost I reference in the video...