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Monday, July 29, 2013

What Does Tax Reform Mean to You?

     We've looked at tax reform in a some recent posts and I've admitted that to me it's more a way to argue for a tax code that you would want anyway. Tax reform means different things to different people. It was once something that liberals talked a lot about-in the 60s till the late 70s-which was meant to cut loopholes for wealthy taxpayers who were able to pay zero or little tax.

     http://diaryofarepublicanhater.blogspot.com/2013/07/wanniski-bartlett-starve-beast-and-tax.html

     http://diaryofarepublicanhater.blogspot.com/2013/07/speaking-of-tax-reform-harry-reid-just.html

     In the 70s though the conservatives successfully co-opted tax reform. For them tax reform was more about cutting taxes, period. Recently, I've written a little about Jude Wanniski who's an important figure for modern Supply Side theory-he advised Jack Kemp and Reagan during his 1980 campaign-and was also the editor of the Wall Street Journal in the 70s when WSJ was successfully advocating SS theory to a new generation of conservatives.

    Patrick Fitzgerald argued that Wanniski-or even Laffer-were not important to Reagan-he was 'just a journalist' and that Reagan kept a copy of Milton Friedman's Capitalism and Freedom in his pocket. I'm sure that's true. However, it doesn't mean that Reagan didn't go out for SS.

    http://diaryofarepublicanhater.blogspot.com/2013/07/clinton-admits-he-was-wrong-on.html?showComment=1374869879958#c4572056816835161128

    Larry Lindsey who wrote a kind of SS Bible in 1990 went on to head George W. Bush' economic team.

     http://www.amazon.com/Growth-Experiment-Policy-Transforming-Economy/dp/0465027512/ref=sr_1_2?s=books&ie=UTF8&qid=1375141268&sr=1-2&keywords=larry+lindsey

    There's just no question that SS has been the GOP ideology over the last 30 years-at least since Obama has been President, they've been sounding quite anti-Monetarist.

     In any case. Fridman himself said this of SS theory:

     "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."

       http://www.amazon.com/Supply-Side-Follies-ebook/dp/B00BZE493O/ref=sr_1_1?s=books&ie=UTF8&qid=1375140537&sr=1-1&keywords=supply+side+follies

      Then again, Sumner himself is not just a Market Monetarist but also a SS-which shows being Monetarist doesn't necessarily being SS; again, the GOP itself has largely forgotten Friedman. In the 2012 campaign, Romney's VP candidate, Paul Ryan, had the position that we should not just return to the gold standard but the gold coin standard-Wanniski preached a return to the gold standard.

       I like Uncle Miltie's quote about tax cuts because I think it gets at the real goal of tax reform-the GOP wants to cut taxes, but especially on the rich-they opposed renewing the payroll tax cut. Dems want a progressive tax code and want to raise taxes on the rich.

        One curious point about tax reform is that-according to Bartlett-the premise behind it is that if you raise someone's average tax rate they will respond with greater work effort to return their income to the number they want it at. However, if you raise their top marginal rate, they will actually work less, and instead opt for more leisure.

       This is not really a logical response if it's true-your average rate-which is closer at least to the effective rate-is more important than your top marginal rate.

        Indeed, you often hear the illogical argument-the commentator Greg says he heard people at work making this argument-that if you raise someone's top marginal rate there's not point working any harder as they'll actually take home less money-wrongly assuming that their entire income is taxed at this higher rate.

        So does the premise of tax reform rest on the assumption that people illogically prefer a raise in their average tax rate to their marginal rate? What about the rational expectations theory?

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