The benefit of a low, stable tax base
Bookworm on Jul 13 2008 at 2:44 pm | Filed under: Barack Obama
Democrats have one attitude towards taxes: raise ‘em. The higher they are, they think, the more money that government will have to redistribute to those the Democrats deem worth. They never seem to grasp that low, stable taxes are infinitely more beneficial to the economy, in both boom times and bust.
Obama, of course, is foremost amongst those who have a rather signal inability to grasp cause and effect. Despite his Harvard degrees (or perhaps because of them, given the state of modern education), Obama blissfully assumes that governments generate money — which is true, so long as government first sucks the money out of its citizens.
As it is, those of us who have some grounding in reality know that people make money, not governments. Over the long haul, lowering taxes so as to allow people to make money actually increases the money supply and (wow!) increases the government’s tax take. Thus, 50% of $100 is always going to be less than 10% of $1,000. (Maybe Obama’s problem is that he never learned the difference between percentages and absolute values. Nah! I think he’s just an ideological fool, but that’s me.)
Anyway, why am I going off on this point? Because it turns out that low, stable taxes are as beneficial in bad times as they are in good. I know this because of a nice, clearly written editorial in today’s IBDeditorials section celebrating the 30th Anniversary of Prop. 13, the homeowner’s revolt in California. (Incidentally,) I’ve always had a love-hate relationship with Prop. 13. My Dad, who was a public school teacher, was royally screwed by the passage of Prop. 13, which forced his school to close. My personal emotions don’t like it, even as my intellect and sense for the public welfare support it.)
In any event, it turns out that, because of Prop. 13′s stabilizing effects, even in an economic downturn, with the real estate market quite sour, local communities that rely on property tax revenues are not only not losing money, but gaining money:
The key to this puzzle is, as the Los Angeles Times notes, the role of Proposition 13 “as an economic stabilizer.” Passed by voters in 1978, when an earlier real-estate boom juiced assessments so fast people were in danger of being taxed out of their homes, Prop. 13 now is shielding cities and counties from the latest downdraft.
It does this by assessing homes at their sale prices and limiting annual increases to 2% after that. A house bought for $500,000 in 1995, for instance, would be assessed at no more than $647,000 in 2008, even if its market value was well over $1 million.
Prop. 13 also caps property tax rates (other than voter-approved bond issues or special levies) at 1% of assessed value. These limits produce a smooth, gradually rising, revenue stream. Without them, local governments would be lurching from boom to bust.
Like any force for fiscal discipline, this stabilizing effect is appreciated much more in the busts than the booms. Prop. 13 has been seen ever since its passage as a drag on the growth of government. Its assessment formula also has been widely criticized as unfair.
Warren Buffett thought it odd, for instance, that a home he had bought in the early ’70s in the seaside suburb of Laguna Beach had a 2003 tax bill of $2,264 despite a market value of about $4 million. (Someone buying that house now, assuming its price holds, would pay at least $40,000 a year).
The point that Buffett and so many others missed is that Prop. 13 is designed to protect homeowners of modest incomes from the caprices of real-estate bubbles. It keeps crazy price action from turning into confiscatory taxation.
I get that. I wonder if Obama can?
Related posts:
- Why have the tax cuts been so bad?
- Fiscally responsible Democrats
- Can anyone explain the stock market to me?
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24 Responses to “The benefit of a low, stable tax base”
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Is Obama going to “get it”? I’d say no. He might pretend to get it if it is expedient to pretend but based on his debate performance thus far, no, it is metaphysically impossible for Obama to grasp that taxes are not about “achieving economic justice” by taxing people who are perceived to make “too much money” such as oil companies or hedge fund managers. Liberals are fine with taxing the hell out of people who “deserve” to be taxed the hell out of but ask a lib what he or she would do if they won a fortune in the lottery and I’ll bet you the first response will involve minimizing the tax bite.
Wish we had prop 13. Our county seems to have an uncanny knack for doing the reassesments at the market peaks; they tax at 100% of assesed value. So, being typical of all governments they then budget for the windfall they receive. When the market turns sour and home values go down, taxes stay high, but they continue to whine for more money.
“They never seem to grasp that low, stable taxes are infinitely more beneficial to the economy, in both boom times and bust.”
But the economy and the raising of money are only part of the issue for leftists…..the overriding purpose of taxation for them is to punish the evil rich folks.
If you try to tell me that what they’re doing is trying to get the maximum amount for the poor folks, then you’ll have to explain why they don’t learn from our history that punitive tax rates produce less money than the “low, stable taxes” that benefit the economy and the citizenry.
Non, non se puede!
So true, Earl. However, taxing is also about power and forced dependency.
RE: “people make money, not governments”
I don’t think people make money; I think companies make money and dole out tiny portions to their employees (the folks who actually do the work) and larger portions to their stockholders (because it takes money to make money). People (real working folks) do not need to pay more taxes; companies and rich (stockholders) need to pay more taxes. Workers do not have money to pay, because they don’t get that much money for their labor.
It’s not about high or low taxes; it’s about redistributing the wealth. What’s to get?
We understand very well that it is about redistributing the wealth. Even more fundamentally it is about power. Government redistributes wealth as one of the tools for retaining power.
That is what we object to.
I don’t think people make money; I think companies make money
And there we have the great divide, as always.
Most of a company’s money is spent on fixed and additional running costs, including expansion or what not. If they do not invest their profits in their business or stock holder dividends, then their profits also disappear because of the competition did invest more of their money back in.
This might make more products or developments in the future, but in the immediate sense, it is the citizen’s personal disposal wealth that allows companies to be formed and for companies to maintain their rate of growth.
Yet helen thinks it is companies that make money, not individuals? Then obviously the progressive redistribution, theft, and slavery machination had it all wrong, for they should have just taxed corporations and businesses, while leaving all individuals alone.
Helen:
I don’t think people make money; I think companies make money and dole out tiny portions to their employees (the folks who actually do the work) and larger portions to their stockholders.
Helen, you might consider facts before you speak. To put things in perspective, the average profit margin for corporate America over last 25 years was approximately 8.3%. Stock dividends would be paid out of profits. Very few stock dividends are above 4%.
The point that Buffett and so many others missed is that Prop. 13 is designed to protect homeowners of modest incomes from the caprices of real-estate bubbles. It keeps crazy price action from turning into confiscatory taxation.
But Buffet has millions to spare so he doesn’t particularly give a damn what other people with less money have to deal with.
That’s why Buffet supports the Democrats. Ideological collusion or spiritual harmony?
Link
Clinton finished by asking Buffett, “Why are you a Democrat?”
Buffett said he thought Democrats would do a better job in evening out the field for those who had drawn the unlucky tickets in life.
The real issue here is not the middle class or those unlucky, the real issue is soothing Buffet’s guilt over having more stuff than the rest of America.
Helen –
I don’t even know where to begin . . .
Look, I am very poor right now. I am in school full-time and will earn less than $10,000 this year because I can’t work more and finish this program by December.
And yet, Helen, I am a stockholder. Yes!! I am. Like millions and millions of other Americans, including an awful lot of people who you would deem as lower middle class or poor and “worthy” of wealth redistribution. I started investing years ago when I was working full time (and making not a lot of money) and have just let it grow.
Helen, you say companies should be taxed. Well, that’s fabulous except there is one problem: lots and lots of those evil companies out there that you think should be taxed to the hilt are small or mid-sized companies – started by regular Americans. These companies are what enable most Americans to go out, get a job, get insurance and put food on the table. If it were left up to you, these companies would be taxed into oblivion, which would force the family or individual who started the business to close their doors. The result? All of those people who had been working and making money would now be jobless and who knows what else all because of your efforts to “redistribute the wealth.” You need to stop thinking that “company” = Wal-Mart or Exxon. A company can be very small indeed and yet still be the employer of of someone else.
And don’t try and get off the hook by claiming that only the Wal-Marts or Exxons of the world should be taxed more. You can’t tax them enough to get the kind of money you would need to “redistribute the wealth.”
My favorite part is this, though: you say that it isn’t about high or low taxes, it’s about redistributing the wealth. Helen, if you are hell-bent on redistributing the wealth, you had better get a firm grasp on what you prefer: high or low taxes, because taxing people is the ONLY way you are ever going to accomplish that. (Unless, of course, you are willing to grab a gun and force someone to part with their wealth. Both of these methods have been tried for a very long time and both are criminal.) People just don’t willingly hand over their money so that everyone is “equal.”
Deana
P.S. And one other thing, Helen. Part of the resistance you see from people who are reluctant to part with the money they have earned so that we can reach this pie-in-the-sky “equality” through the redistribution of wealth is due to the fact that we frequently see an awful lot of people who don’t seem to want to work very hard. You are going to have to bone up on your persuasion skills if you are going to convince each of us that we should hand over the money we make from working 40-60 hours a week to people who seem to have an awful lot of free time on their hands.
Wait – I have an idea.
Helen – you know that a big part of leadership is leading by example. Why don’t you get the ball rolling by handing over your checking and savings accounts and investments to me and I promise I will redistribute your wealth to the poor.
I promise the money will go to good and deserving Americans.
Think about it Helen. Much good could be accomplished by you taking this first step.
You know where to get ahold of me . . .
Deana
“I don’t think people make money; I think companies make money and dole out tiny portions to their employees (the folks who actually do the work) and larger portions to their stockholders (because it takes money to make money).”
And if companies and shareholders aren’t made up of people, Helen, what exactly are they made up of? Monkeys?
Here’s are three questions for you, Helen:
1) What percentage of U.S. income taxes is currently paid by the lowest-earning half of the U.S. population?
2) Why should someone who is working just to have their money confiscated as taxes work at all?
3) What rights does anyone have to claim the fruits of someone else’s labor (no matter how much they are rewarded for that labor).
Remember, Helen, Jesus was a small businessman, too.
Deana – one quibble with your statement:
“…taxing people is the ONLY way you are ever going to accomplish that. (Unless, of course, you are willing to grab a gun and force someone to part with their wealth.”
Taxing IS pointing a gun at someone’s head to get them to part with their wealth. If you fail to pay their taxes, someone comes to arrest you. What is it that they wear on their belt, why is it there, and what happens should you resist arrest?
This is why people ultimately comply with the IRS.
Danny –
I don’t disagree with you. I just wish more people DID equate taxation with armed robbery. The differences between the two are slight indeed.
Deana
From The Economist- 2/7/2007
In a global society, corporate tax rates directly affect the companies profitability– which is what the goal of companies is.
We already lag behind most of Europe, substantially behind new Europe.
Without those evil companies, Helen, there would be no jobs. The company I work for is establishing a manufacturing plant in Europe and they are putting it in a former eastern bloc country because of lower costs (of which taxes is one). This plant will provide product for most of Europe.
To be competitive, America needs to reduce it’s corporate tax rate. Right now, the cheap dollar helps American manufacturing to be competitive world wide. But this is a temporary situation. If we want any manufacturing base to remain in America, this is one of many obstacles that need to be addressed. Stifling government bureauocracy is another.
Helen,
Your thinking is dangerous and reflects a typical liberal ignorance of how business works.
I would suggest from your comments, you have never run a business or have any knowledge of what it takes to meet a payroll, or navigate the myriad obstacles put in place by government bureauocracies, or seen the reward of 70 hours weeks evaporate when the taxman shows up at your door.
Can you get rich owning a business? You bet. Can you lose your shirt? More likely.
The risk deserves an appropriate reward.
“The risk deserves an appropriate reward.” Exactly. Otherwise, not enough people will take the risk.
Helen, even in your view of the world, corporations are the geese that lay the golden eggs. Steal the eggs, and you kill the geese. The corporations will not continue to lay the eggs and everybody suffers. Is that okay with you, so long as everybody, the hardworking and the slothful, suffer equally?
There is an irony here. We all support “equal pay for equal work” in theory. But, when it comes down to it, the Helens of the world want to give equal pay for unequal work, by taking from those who do the work and giving to those who do nothing.
This is why people ultimately comply with the IRS.
Actually, the ultimate reason people comply with the IRS is because Americans see America as their family and when family requests family, it’s hard to refuse on a moral level unless you are literally starving or something.
Because the loyalty of any single American to America is not guaranteed, the IRS is there to enforce things so that the people who willingly pay into the US treasury are not cheated by the people who don’t give a damn whether America goes broke or not.
The progressive income tax was a way for people like FDR to fund all those social programs, after the war has been paid by similar taxes.
The cost to living in America is to obey the laws. Taxes are only one of those laws. People pay taxes not so much because they will be punished, but because they want to live in the hierarchy called America and to become a member of that hierarchy.
You can’t become part of the hierarchy by being an outlaw.
If you want to see the state of things should people have to obey laws that they don’t want to obey, look at the Taliban execution videos in Afghanistan, taken by the AP, in order to extinguish the hope of life and liberty in this world.
To Dq,
To a lot of people, making money requires no personal risks. It just requires brown nosing, exploiting lawsuits, exploiting the law, or exploiting political power.
Look at Obama and his wife for a good example. Look at the Clintons for another. Even a Huckabee can apply.
When you can steal money from other people and give it to yourself because you have acquired more power than they, what exactly do you have to personally risk?
“The risk deserves an appropriate reward.” Exactly. Otherwise, not enough people will take the risk.
Rich people and corporations exist to make money, and people like helen exist to get some of that money.
It’s not all that complicated.
If, “not enough people” will be motivated to take the risk, then you’re just going to have to nationalize the corporations and make them take the risks on pain of punishment, jail, or execution.
What’s the problem? People like Chavez and Khomeini and Kim Jong and PROVEN that such methods work, even only for less than a century. Less than a century is perfectly good enough for the 30-50 year old megalomaniac, Don. Plenty good enuf.
In a surprising epiphany, I just realized that my core fundamental values align more closely with helen than with most other people here.
At the core fundamental and axiomatic level, I value power and see that from it, everything else flows. I don’t believe in “rights”, God endowed or otherwise, and I don’t believe in “the law” either, for that matter.
Helen looks like she believes in wealth, but the truth is that she believes in power. Just as I do.
Without power, nothing else is doable. Without power, no ideal can become reality, and no reality can be changed for the better or for the worse.
I’m not sure what other people here would reduce their core principles down to. But everything of value in my world, the US Constitution, military strength, safety, security, knowledge, and so forth has been based upon power. The ability to do things and the ability to make other people do things.
Power, just like a gun, can be used for good or evil. I’ll leave it to your conscience to decide whether people with helen’s views should be supported or not.
Once the concept of God is removed from a society, coercion by the state using the gun is the only method of control.
The Old Testament describes the effect in the book of Judges when “everyone did what was right in their own eyes.”
A civil society uses various tools for conformity– shame, isolation, indoctrination, then force by the state.
In the end, when moral absolutes cease to be recognized, only force is left.
It ceases to be “morality”, only power.
>>Power, just like a gun, can be used for good or evil.>>
Very true. And of course, “Power corrupts, absolute power corrupts absolutely.”
The concept of God – a Supreme Being – is the incorruptible limit upon mankind. Without it, we’re back to dog eat dog. The concept of a God who will hold us accountable for our rights and wrongs in an afterlife is about the only civilizing influence that exists. Take it away, and you’re right – it’s all about power…what one human can force upon another. The most ruthless among us wins.
And of course, “Power corrupts, absolute power corrupts absolutely.”
But nobody ever actually knows or prefers to explain why power corrupts. If you don’t know the why, then you won’t know where the problem originated from. And if you don’t know where the problem originated from, then it is going to be hard to fix it through anything except trial and error. And there’s a shatload of errors that resulted from trying the “solutions” of Hitler, Stalin, Pol Pot, and what not.
The most ruthless among us wins.
Was Washington more ruthless than the British?
There are more ways of winning than through ruthlessness. Like the myriad arts and ways of warfare, there is one goal, but many paths to it.
>>But nobody ever actually knows or prefers to explain why power corrupts.>>
Personally, I think it’s because the individual with power never has anyone who will refuse to fulfill his desires or contradict the wrongness of his actions. In medieval times, the Court Jester was granted immunity from punishment for ridiculing the King, which he did when the King did something unreasonable or irrational. We don’t have Court Jesters anymore…no one has immunity from some of the worlds worst tyrants.
I suspect it’s in the category of “hey…look what I did/got – wonder if I can do/get _this_!”. As a result, the demands keep getting bigger and badder – no one says no. The result is a three year old mentality that gets everything he wants – and if he doesn’t, people die. He may still not get what he wants, but by golly, someone paid for the denial. I think there’s a maturity regression when one doesn’t have to deal with denial of whims. Call it the narcissism of toddlerhood…
Have you ever dealt with a three year old?
>>Was Washington more ruthless than the British?>>
My statement was based on an equality of motivation. The Americans were fighting for freedom, the Crown was “just” fighting for an increase of taxes. When the cost of the war became greater than the profits, the British quit. You know…like the Dems wants us to do in Iraq…!
If the motivation is equal – both parties are fighting for their life, eg, the “gentleman” who values his honor more than winning will lose. You have to remember, the British considered the Americans to be fighting without honor because they didn’t fight in the manner that was “acceptable” at the time. The Brits were unwilling to change their methods…they didn’t want to become “ruffians”.
>>There are more ways of winning than through ruthlessness.>>
I agree that sometimes strategy etc. can make the difference and ruthlessness doesn’t apply – but ruthlessness is also critical in many situations. You may be able to avoid ruthlessness if you’re the smarter opponent, but it doesn’t always work that way. Saddam, for example was both smart _and_ ruthless. He got the upper hand before his potential opponents knew what was happening, and then killed anyone who challenged him. Or who he _suspected_ might challenge him. Hitler, Stalin, Pol Pot, Kim Jong Il – likewise. Maybe not Kim Jong Il…he’s in a different category. He _started_ on the top of the heap.
>>Have you ever dealt with a three year old?>>
By the way – I consider this a factor in the ME…can you imagine a young boy’s attitude toward women developing when the person who is responsible for his every whim is subject to his demands? Him mother has _no_ authority over him. He is the “man” of the house if his father is not present by the time he is 6 or 7.