The problem with looking at taxes to raise revenues is that there will always be unintended consequences. Did you know that at one point in American history, the top marginal tax rates were over 80%? As shocking as these tax rates may be, it is interesting to note that the government actually didn’t collect as much taxes as it had hoped. The rich are rich for a reason. They know how to move their money around and they have access to the best accountants and tax attorneys. Sadly, it is everyone else who suffer when the government tries to soak the rich. Perverse incentives are created and economic activity often suffers as investments slow down. It’s important to keep this background in mind when assessing President Obama’s recent initiatives at making the top income brackets in the US ‘pay their fair share.’
No less than Reagan-era Office of Management and Budget head David Stockman seems to agree with Obama. This unholy alliance might leave a lot of political observers scratching their heads considering the extreme ideological divide between Stockman and Obama. The former is the supposed brains behind supply-side economics-the much derided ‘trickle down’ economic theory supposedly espoused by the Reagan administration. Stockman is actually being ideologically consistent. He supports a specific type of tax disincentive. He’s not supporting efforts to milk the rich for ‘fairness’ purposes. That’s the Democrats’ schtick. Instead, he is in favor of using the tax code to act as a brake against the wealth inequalities created by the bubble-fed equities market. Thanks to government stimulus, there’s tons of liquidity in the market currently which ends up distorting its shape. A fiscal brake can lead to proper behavior modification that might help the global economy avoid a worldwide bust. Agree?