"Truth About Taxes"

David Leonhardt lists "basic facts" about taxes "that ideology can’t change":

Plain Truth About Taxes and Cuts, by David Leonhardt, NY Times: You’re going to hear a lot about taxes over the next two years. ... There are big philosophical questions about taxes that facts alone can’t answer. ... But there are also some basic facts that ideology can’t change. If you keep these five in mind, you will have an easier time keeping up with the debate:

As a group, the rich pay a greater share of taxes than in the past. The top 1 percent of taxpayers — those with adjustable gross income of at least $267,000 in 2004 — paid more than 25 percent of all federal taxes that year, according to the Congressional Budget Office. That was up from 15 percent in 1979. People sometimes pick nits with these statistics... But don’t get bogged down in all this. The big picture is clear enough. The main reason for the trend is also clear.

The affluent are paying more of the taxes because they’re making so much more money. ...A family in that top 1 percent of earners paid a total federal tax rate — including everything from payroll taxes to income taxes to capital gains taxes — of 30 percent in 2004. That was down from 41 percent a decade before. Since the 1950s, tax rates on high-income families have generally been falling.

The top earners pay a bigger share of the government tab than in the past because their incomes have risen so sharply — even more sharply than their tax bills. ... The affluent, in short, are paying less in taxes on every dollar they earn but earning many more dollars.

Corporate taxes have dropped significantly in recent decades. ...Everyone from Mr. Rangel on the left to Fred Thompson on the right is saying that high corporate taxes are hurting American companies. But the effective corporate tax rate isn’t any higher than it has been on average over the last 25 years, and it’s far lower than it was in the 1960s and ’70s.

“A dirty little secret is that the corporate income tax used to raise a fair amount of revenue,” says Richard Clarida, a Columbia University economist and former Treasury Department official under Mr. Bush.

What’s going on here? This country really does have a high corporate tax rate, but it also has so many loopholes that companies can often avoid paying the tax. A much smarter policy, economists say, would include a lower rate with fewer loopholes. ...

The nation’s total tax bill hasn’t changed much over the years. Put it all together — less corporate tax collection and lower individual tax rates, combined with more income for the people who face the highest tax rates — and the trends mostly cancel each other out. The taxes that the federal government took in last year equaled 18.4 percent of the gross domestic product, almost exactly the average since 1980. ...

The obvious conclusion is that moderate shifts in taxes don’t dictate economic growth. Mr. Bush’s father and Bill Clinton raised taxes — and the economy grew for almost the entire decade of the 1990s. The current administration has cut taxes — and the economy has grown for almost all of this decade.

So if short-term economic growth were the only thing to worry about, you could make a good argument either for cutting taxes or for raising them.  Unfortunately, there is another problem out there.

The budget deficit is worse than either party says it is. ...White House officials are absolutely correct when they note that the current budget deficit isn’t especially large. But it will soar in coming years, as baby boomers ... move onto the Social Security and Medicare rolls

If nothing changes over the next couple of decades, the United States will build up a debt burden... There are several ways to prevent that. Taxes could be raised across the board, or they could be raised on the affluent. Or the Medicare budget — a much bigger problem than Social Security — could be held in check if the government figured out how to say no to some expensive medical procedures. Or all of the above could happen. But something has to give. No amount of clever argument can pay the bills.

Just one complaint: There is no direct attempt in this set of "truths" to debunk the supply-side myth that tax cuts have paid for themselves, a myth that will survive so long as those making the claim are not revealed as hacks pushing falsehoods. [Note: That tax increases increase revenues is implied in the last paragraph where raising taxes across the board fixes the deficit, but there's no direct challenge to this pervasive myth. Since the topic is "basic facts that ideology can’t change," and given the prominence of this myth among supply-side advocates, it seems to me the myth ought to be addressed directly.]

Comments

[reason]

Mark,
As for your complaint, well what you say is implied in the paragraph starting "The nations total tax bill...", but logical thinking is a declining facility in these emotional times it seems.

[Mark Thoma]

That paragraph doesn't debunk the myth - I'll add a note to clarify. It seems to me that if you are talking about "truths" and ideology, this one should play a more prominent role.

[mark]

Mark Thoma says...
That paragraph doesn't debunk the myth - I'll add a note to clarify. It seems to me that if you are talking about "truths" and ideology, this one should play a more prominent rol

Mark if 10 people produce 1 unit of consumption goods each and want to increase production on average to over 1 good each they have to invest. That means, for example, 3 of them have to be diverted to an enterprise that will have greater yield in the future. That leaves you with and average .7 unit yield or 7 units of consumption.

Eventually, the 3 units come in with ways to increase productivity. Now, 10 people can produce 15 units of goods. (Sometime way in the future)

Now the government has 15 units of production to tax which means that it gains revenue from a lower tax rate. The net present value of the Reagan Tax cuts have been a boon for the economy and still are in operation.

Your arguement Mark, is that 10 people should continue to produce 10 units of goods and the tax should be higher on the highest unit producers. The arguement that, that produces more revenue over time is the big "lie"

And the Berlin Wall comming down is the empirical evidence of it.

[reason]

The obvious conclusion is that moderate shifts in taxes don’t dictate economic growth.

Should just about cover it. But sure enough you have to read and think what it means.

[kharris]

Mark,

Anybody can cook up a batch of numbers to show how things could work out badly. Your example does not prove Mark's point wrong. It just shows that, in a little model constrained just the way you want it to be constrained, you can produce the outcome you want. You have failed to show that your little numerical example represents the real world.

Empirical evidence, as rounded up by the CBO and a bunch of other people over the years, offer no support to the notion that tax rates somewhat higher than those now common in the US will reduce revenue. The simple truth seems to be that we humans want to do better, and won't let the difference between a 30% tax rate and a 35% tax rate discourage us. We are smarter than that.

[reason]

Mark...
ever heard of depreciation. Your example doesn't illustrate your argument. (There is an argument to be made about returns on savings and marginal investment decisions, but it hinges on the determination of real long term interest rates which you don't even address. And the empirical evidence doesn't support your contention.

[reason]

kharris beat me to it seems.

Mark hasn't explained though why he thinks investment will increase if tax rates are reduced (and he has made no allowance for the effect that the spending financed by the taxes will have). His "argument" seems to be be nothing more than bland assertion. And unfortunately investment history doesn't bear him out.

[save_the_rustbelt]

Corporate taxes have dropped significantly in recent decades.

This has a couple of causes:

1) both parties have been lobbied very effectively over the past three decades, looppholes are bi-partisan

2) globalization has made many fundamental changes in business structure and operations, the tax code has not kept up

Lower rates, simpler structure has my vote, assuming Congress can find a suitable means of stopping offshore evasion without screwing up global business.

[Richard]

It would be helpful if links were included in the body of the main text directing the reader to points made. For example, when the myth of lower taxes leading to increased tax revenue is addressed, for those of us who need the logic drummed into our heads, a link to previous posts making the case would eventually get the rationale to sink into our brains.

[Icarus]

I wish we could have an across the board flat tax on income/capital gains (18%)...no loopholes, no accounting nightmares, no 1000 page tax code.

[Alex Tolley]

"The nation’s total tax bill hasn’t changed much over the years...less corporate tax collection and lower individual tax rates...The taxes that the federal government took in last year equaled 18.4 percent of the gross domestic product, almost exactly the average since 1980. ...
The obvious conclusion is that moderate shifts in taxes don’t dictate economic growth. "

1. The average tax take as a % of GDP says nothing about the trajectory of GDP growth based on tax regimes.

2. Economists on this blog have argued that GDP growth was higher during the Clinton years with higher taxes compared to Bush II years with lower taxes. So which is it - taxes make no difference, or they do?

3. I recall an analysis by the bank Credit Analysis group back in the mid-1990s that showed that taxes paid by public companies was declining as a % profits, and we saw a stock market boom during this period too. If my recall is correct, how does that factor in to this argument?

Despite these points, referring to chart 80 in Ken Fisher's "Wall Street Waltz", he shows that taxes as a % of GDP have risen steadily from < 18% in 1965 to nearly 22% in 1985, yet GDP growth was fairly steady - he concludes that tax rates did not significantly affect the growth of the economy during this 20 year span.

[Bruce Webb]

I wish we could have an across the board flat tax on income/capital gains (18%)...no loopholes, no accounting nightmares, no 1000 page tax code. Well I want a pony.

Can you run us some numbers on that? Clearly somebody flew too close to the sun. Except this time it was the brain and not the wings that got melted.

[paine]

"the Berlin Wall coming down
is the empirical evidence .."

first a guy named bill
on health cost containment

now a guy named mark
on the life line to the future
" personal productive investments
out of tax rebates"

who's setting up these duck pins
to BOWL over
is it MT himself
for our pleasure ????

[Brooks]

KHarris

I won't have much time for much discussion due to my workload (I apologize in advance), but I do want to point out something important.

KHarris writes "The simple truth seems to be that we humans want to do better, and won't let the difference between a 30% tax rate and a 35% tax rate discourage us. We are smarter than that."

Investors have a "required rate of return" for a given investment opportunity they are considering, based on risk level, cost of capital, opportunity cost, etc. If the after tax income as a percentage of pre-tax income is lowered, reducing the expected rate of return (or various probabilities of scenarios of return), some investment opportunities will be foregone, reducing long-term growth. So an increase in tax rates on capital gains and dividends will reduce levels of investment, which could have a negative impact on long-term growth (and generally would, although tax increases to reduce our fiscal imbalance might have a net positive impact over some time horizon).

Having said that, the belief some have that "tax cuts pay for themselves" is, practically speaking for tax rates on labor and investment income in the U.S., a myth, and a dangerous one at that. Such tax cuts generally have a very substantial net negative impact on revenues. And I'm very glad to see Mark making that point in this post and in the post on Pete DuPont.

[Bruce Wilder]

DL: "The current administration has cut taxes — and the economy has grown for almost all of this decade. So if short-term economic growth were the only thing to worry about, you could make a good argument either for cutting taxes or for raising them."

Fact or ideology? Hmmm.

[ScentOfViolets]

If the after tax income as a percentage of pre-tax income is lowered, reducing the expected rate of return (or various probabilities of scenarios of return), some investment opportunities will be foregone, reducing long-term growth.

Sigh. So of course, taxes on investment should be zero. Would you care to modify your assertion?

[Brooks]

Scent,

That was a non sequitur. What are you talking about?

[paine]

the real problem
with
domestic productive investment :

too little spontaneous demand capacity today
---out of household job earned income ---
means too little
spontaneous supply capacity tomorrow
---out of firms cash flow ---
supply side capacity tomorrow

why ??

lots of reasons
none of which bare much resemblance
to marginal income tax rates

take "savings out of former tax flows "
this induces social usury
to maintain public expenditures
and or household buying styles

both levels are too high
but still necessary
to maintain adequate effective demand

to induce larger then otherwise
domestic productivity enhancing investment
by firms
requires a targeted incentive system
not
the broad based anything goes
give away set up we have now

state guided development ???

you bet

[ken]

Tax rates should be the same on labor and on capital.

Any one who refuses to work due to taxes will be replaced by someone younger and better trained who will earn the money and pay the taxes.

Any investment not made because of taxes is an investment not worth making in the first place; the money will be invested in other truly productive investments and where taxes will be paid.

The tax rate should be progressive and it should raise adequate funds to run a modest budget surplus until our accumulated debt burden is substantially reduced.

The ten thousand page tax code can be simplified by removing tax loopholes, but the real complication comes in the determination of what constitutes income so it will always remain somewhat complecated.

[paine]

the state goal
all instruments get a green light
to induce
the fastest possible growth
in per hour value added
consistent
with chock full employment

[Bruce Wilder]

Brooks: "Investors have a "required rate of return" for a given investment opportunity they are considering, based on risk level, cost of capital, opportunity cost, etc. If the after tax income as a percentage of pre-tax income is lowered, reducing the expected rate of return (or various probabilities of scenarios of return), some investment opportunities will be foregone, reducing long-term growth."

I know you think you are being logical, Brooks, but you aren't. Not really. You need to grapple with the arithmetic in a little more detail.

Back when the corporate income tax rate was 50% of corporate profits, my boss used to joke that he was in partnership with Uncle Sam. Having a "partner" did not cause him to forego investment opportunities, because the partnership did not make any investments that would be profitable, actually unprofitable. And, having a partner, as it generally does, made investments LESS risky. (That was the core insight of his joke.)

An income tax -- a profits tax -- is never going to turn a pre-tax positive net present value investment into a post-tax negative net present value investment. It is arithmetic impossibility, because there's only a tax, when there are profits, and no tax on profits is going to, by itself, eliminate the profits, because the tax is a percentage. And, the effect on the risk profile of investments is to REDUCE the risk.

[Callahan]

I don't think I can handle the truth. Very taxing.

[Callahan]

I don't think I can handle the truth. Very taxing.

[Farrar Richardson]

Brooks -
"Investors have a "required rate of return" for a given investment opportunity they are considering, based on risk level, cost of capital, opportunity cost, etc. If the after tax income as a percentage of pre-tax income is lowered, reducing the expected rate of return (or various probabilities of scenarios of return), some investment opportunities will be foregone, reducing long-term growth."

Presumably, all income from investment would be taxed the same. So, does this mean investors will just leave their funds sitting in their checking accounts if taxes are increased?

[Brooks]

Bruce Wilder,

Re: "An income tax -- a profits tax -- is never going to turn a pre-tax positive net present value investment into a post-tax negative net present value investment. It is arithmetic impossibility, because there's only a tax, when there are profits, and no tax on profits is going to, by itself, eliminate the profits, because the tax is a percentage."

You are mistaken, and you are confusing two different concepts.

You are mistakenly equating negative NPV with a loss (i.e., negative profit). An investment can generate profits, cumulative positive after-tax cash flow and a positive after-tax return on investment, yet have a negative NPV based on the discount rate. And the higher the tax rate, the lower the after-tax cash flow and ROI, which can indeed turn a positive NPV investment opportunity into a negative NPV outlook and a foregone investment opportunity. If the above is unclear, review NPV analysis so you can see what I'm talking about.

[Brooks]

Farrar, Scent, and perhaps others:

I won't have a lot of time for dialogue (or at least I really shouldn't due to workload, although I'm not doing well at resisting the urge), so I ask you to please think things through and think about investment activity at the margin rather than in absolute terms. No, increasing the tax rate on capital gains, for example, will obviously not cause EVERYONE to keep ALL their money in a checking account. What it will do is lower the after-tax rate of return (per dollar of pre-tax return) which will make SOME investments that would have been attractive at the lower rate unattractive at the higher rate, causing a lower overall level of investment. Think about it. Investments have risk. Often money is even borrowed to finance investments. Risk, cost of capital, opportunity cost -- these are all reasons why investors require some particular rate of return to induce them to invest in a given opportunity. At a higher tax rate, some investments will still be attractive. Others won't. Common sense, right?

[paine]

"Tax rates should be the same on labor and on capital"

why ????

both terms labor and capital
for one thing are wildly incoherent terms

take labor
we must distinguish
the ouvriers (O's)from the travaillers (T's)
to grab M. Say's labels

capital ???

do you mean machines bridges

or stocks and bonds ???

but to cut to the nub
take this vortical notion

human capital

what can you make of that
but chaotic drivel

but i digress b4 i begin

my petty credo-ic essay de jour :

"earned" income per se
should never be taxed at all
so long and to the extent
this income
goes to its creators
whether 'umble Os
or a mighty T

if anything the state
should be in the progressive reward business here

spiffing everyones' marginal value added
not taxing it

to be specific
dynamic profits of enterprise
(narrowly defined)
that go to their actual "creators"
should receive
a progressive bounty payment

how about
capital gains
dividends
interest
assorted other economic rents
ie the makings of most wealth piles ?????

they
should be taxed progressively as hell
but not
on their flow
but rather on their full extent
not at the firm level
but thru
a progressive taxation
of household net worth

and oh ya

we'll need a proportional
consumption tax too of course

[howard]

brooks, surely you don't believe that just because someone considers an investment, it should be made? the fact that all other things being equal, someone might forego an investment because of tax rate doesn't mean the economy has to be "harmed" as a result. the investment may have been a damn stupid idea. the assumptions underlying the inveestment may have been wrong. the investment may have been a good idea if one entity made it, but not if a bunch of entities make it (think of half a dozen developers each seeing a shortage of office space and the net result is a surplus of office space).

there's no reason to fetishize foregone investments as such; now, if no one wanted to make an investment, that would be a different story, but we aren't discussing confiscatory taxes....

[paine]

bw
in bashing poor brooky

you might notice bracket creep
it was a favorite of marty feldstein
in the price roaring 70's

on the other ledger
"And, the effect on the risk profile of investments is to REDUCE the risk.'

could use a gloss
for the handmaidens and lackeys among us :

loss write offs against corporate taxes
are risk off sets

the list grows long fast and i'm too tedious as it is ...

but i love your pranging mode

ps
brooky from what sky hook
are you hanging your discount rate ??

[Bruce Wilder]

Brooks, any income tax is going to allow the recovery of capital invested, so what we are talking about is slicing the net. It really is akin to having a partner, whose contribution includes shouldering a part of potential capital losses.

[Brooks]

howard, paine,

I'm sorry, but I don't have time to keep trying to get folks to think about this sensibly. I think I've laid it out pretty clearly. It's really quite simple: At a higher tax rate, SOME investments will become unattractive because their after-tax ROI will not meet the required rate of return (to compensate for risk, cost of capital, opportunity cost, etc. -- which are factored into the discount rate) for some investors for such investments. So some investments that would have been made at the lower tax rate will not be made at the higher tax rate. I don't know how to make it any clearer, and I can't (or at least shouldn't) keep trying. Please stop and think about it.

[Brooks]

Bruce Wilder and others,

You're not getting it, and I'm out of time for now. I will not be posting again until at least tonight. In the meantime, I really suggest you read up on the basics of investing.

[howard]

brooks, there's nothing more to think about. i get your point, and my response - which i thought was perfectly clear - was BFD. so some investments are foregone at one tax rate than another.

and your response was to repeat your point very slowly, so if you want people to "think about it," maybe you should "think about" the response, first, and not simply repeat your point, very slowly, as if to a 3-year-old.

[Bruce Wilder]

There's a old joke in the military about how the amateurs study strategy, and professionals study logistics.

In the world of corporate taxes and investment, a similar joke could be constructed about how the ideologues study marginal rates, while the CFO's and lobbyists focus on depreciation, expensing, investment tax credits, inflation and timing.

[Lafayette]

MT: It seems to me that if you are talking about "truths" and ideology, this one should play a more prominent role.

The article is much ado about nothing -- very much like the debate about taxes will be as well.

It focuses on tax as a revenue and not state expenditure of revenues. Meaning this: Taxes must have a purpose. A purpose is defined by political policy. Political policy is derived from a understanding of what is best for the country and its citizens - now and in the future.

The present debate is dancing around that fundamental question: What are taxes for? We want them to be for what purposes? What objectives? What outcomes? What priorities?

Let's answer those questions, then we can worry about who pays what and why. Frankly, the question the article addresses is not even worth considering. The rich pay more because they obtain more -- but in fact, they should be paying much, much more, given that they obtain much, much more.

But, they aren't. Which is what income fairness in all about.

Still, don't expect any the candidate millionaires to dwell upon that issue for very long. After all, how can you expect a millionaire to address income fairness with any objectivity whatsoever?

It's like telling the King he's wearing no clothes.

[jamzo]

how can goldilocks decide whether corporate taxes are "too high", "too low" or "just right"?

coporate tax as a percentage of gdp may help

oecd weighted average 2.5%

us 1.8%
uk 2.9%
ireland 3.7%
germany 1.0%
norway 8.2%
sweden 2.4%
japan 3.0%
canada 3.4%
australia 5.3%

KPMG's Corporate and Indirect Tax Rate Survey 2007

Competition between countries to attract and keep foreign investment is continuing to drive down corporate tax rates across the world.

download and read the survey in full (.pdf),.
http://www.kpmg.com/NR/rdonlyres/A180267A-7423-40C6-87C5-7D917585541F/0/2007CorporateandIndirectTaxRateSurvey.pdf

[paine]

bye bye brooks

seems
the marginal opportunity cost
of teaching us all
a lesson we surely need
seems to have swept brooks away
b4 i found out about the source
of his trusty bowie knife
the project humbling
discount rate
------------------------
system wide changes
change system wide standards
eh ??

if all investment returns are lowered
by higher taxes on investment income

discount rates
to the extent they are opportunity cost based
will fall

now if brooks
is hunkered down
with some pataphysical irv fisher type
" hedonic discount "
of future benefits over todays benefits
well
then i get this point out of that

real folks might save less
thus reducing the investment supply pool
to institutions
that actually invest in productive facilities
but that glances off
the real bad guy in this competition
for funds
the alternative activity that really puts
a floor on the discount rate

non productive but very rewarding lending
elsewhere

ie
usury returns
and
various new "wealth storage " games
like buying lots and other fixed or semi fixed real "assets"
old masters
rare but fine vintages ....

and various other less tangible
opportunity cost raising
hi fi speculations

[Patricia Shannon]

Now that I have a job making enough to save, I didn't bother opening a savings account until recently, because the interest was so low, it wasn't worth the bother. Now that my bank has, perhaps temporarily, increased the interest rate on savings accounts, I have transferred part of my money to it. So I can understand that "too high" capital gains taxes might depress investment. What is "too high", I don't know. If I had a bigger amount to save, it would have been worthwhile to put money in the savings account even at the earlier meager interest rate.

[James Killus]

The financial officer of a company I used to work for was always bitching about the corporate taxes that the company had to pay--duing the boom times. Then its market sector hit a downdraft and for the next two years, the company lived off the tax refunds from previous years that various "loopholes" allow when income goes negative.

Bruce Wilder explained this in a general way in a previous message, but some people don't understand what they are told without examples.

Ken also noted the important thing about the complexity of the tax code: separating actual net income from gross income, which is often difficult to do at any level of aggregation, all the way down to the individual. We don't allow most workers to deduct their commuting expenses, for example, nor the cost of buying a house (or renting) near their place of employment (though mortgage interest is a big "middle class tax subsidy" isn't it?). But rent for a corporation is a legitimate business expense, and capital costs can be depreciated. Are those "loopholes" or the recognition of how business works?

So some investments may be forgone due to capital gains taxes (though it may be noted that the taxes only come due when the gain is realized). Big deal. They are, at the margin, the worst investments that may be had.

In the late 1980s and early 1990s, capital gains were taxed at the same rate as ordinary income. Until some shows the data on the Great Investment Drought that occurred during that period (no such thing actually took place), any assertions of the deleterious effects of capital gains taxes must be viewed as theoretical, if not to say imaginary.

[ScentOfViolets]

I think my point is a little broader, but substantially the same as those who are talking about the irrelvance of foregone investments. Let's try this one:

Without impuning Brooks' intelligence in the slightest, I will say from the evidence at hand that I am more intelligent than he is. In fact, considerably more. Let's assume this is the case. I claim that Brooks should give all of the money he was going to invest in various enterprises to me. Why? Because I will make better calls. I will not lose on my investments as often as he would, and when I did, it wouldn't be as much. Contrariwise, I will make money more often than he would, and when I did, there would be more of it. It logically follows, in fact, is obvious, that he should turn over all his disposable income to me.

Maybe Brooks can tell me what is wrong with this 'logical' argument, and then, perhaps, see the flaw in his.

Or maybe he could give us arguments as to why there should be no minimum wage, or why other goods and services should be as taxed as lightly as income from investments.

New ones, that is.

If he can't do either, I would be happy to explain to Brooks why his wife should bear my children, and why he should pay for their upbringing. Rinse and repeat.

[paine]

worth a few repeats

"Competition between countries
to attract and keep foreign investment
is continuing to drive down
corporate tax rates across the world."

all good things must end
if the wealth of nations
has a state of the art
tranfer system
running on
wide open...

[Patricia Shannon]

I don't have time to go back and read every comment of Brooks and those who disagree with him, but so far I've gotten the impression that some people, whose opinions I usually find intelligent (because I agree with them!), are reacting as if he were taking his positions to extremes, like some of our other regular posters, when what he seems to me to be arguing against is taking things to the other extreme. Are we so bored we have to have somebody to attack on every issue that gets posted?

[Patricia Shannon]

I don't have time to go back and read every comment of Brooks and those who disagree with him, but so far I've gotten the impression that some people, whose opinions I usually find intelligent (because I agree with them!), are reacting as if he were taking his positions to extremes, like some of our other regular posters, when what he seems to me to be arguing against is taking things to the other extreme. Are we so bored we have to have somebody to attack on every issue that gets posted?

[paine]

"Are we so bored we have to have somebody to attack on every issue that gets posted?"

possibly

[Brooks]

Patricia (Shannon),

First of all, thank you for your observant comment. It seems that several people here are so itchin' for a fight that they make some erroneous presumption that I'm really making a policy argument (and one to which they object) rather than simply taking my point at face value. I was just correcting an implication someone seemed to be making that tax rates don't impact decisions people make regarding how much to invest and/or work, and in turn how much aggregate work and investment takes place. I explained why such an implication would be invalid, and I think I did so very clearly.

People really shouldn't let their ideology or political positions, or the political battles in which they are engaged, impede their ability to rationally discuss facts, dynamics of economics, math, etc, that are not ideological in nature. But people tend to do so, particularly on blogs. Seems I could say something like "The population of China is greater than that of France", and someone might reply with "How dare you suggest that China has a better system of government than France?!" or "How can you not see that China is oppressing the people of Tibet?!" Maybe some/most people just come here and to other blogs for the catharsis of such expressions (and/or for the emotional benefit of exchanging views with others who are already in general agreement on the "facts" and who provide mutual approval of philosophy and positions) rather than to engage in serious, rational discussion or even debate.

Second, as for your decision to put more money into your savings account, you were able to get a higher rate of return for essentially no extra risk and no loss of liquidity, so that probably was an easy decision. But if you were considering using that money to start your own business or to invest in some other business -- with much higher risk and perhaps less liquidity -- you would only do so if you thought the likely or potential return justified the extra risk and loss of liquidity. It's possible that at lower tax rates you would find that investment opportunity attractive, but at higher tax rates -- leaving less of any pre-tax income for you after taxes -- you would find it unattractive (e.g., not worth the risk) and therefore forego that investment. That's why, other things equal, there will be less investment at higher tax rates. And less investment generally means lower long-term economic growth.

[ScentOfViolets]

Then of course, you know the point I am trying to make. But just to be sure, why don't you tell me what your understanding of it is. I didn't see the implication you are talking about btw. Maybe you were unclear on the 30% vs 35% comment.

[James Killus]

Patricia,

I've just reviewed the comments here, and I can find no personal attacks on Brooks, nor much in the way of unfair criticism. I do believe that people respond to Brooks' claims of "You're just not getting it," with some disdain, since

a) we've all heard these arguments many times
b) a number of people here are more informed and experienced in investing that Brooks seems to be, and
c) when someone says "Go read a book" in pretty much those words, the question of who is spoiling for a fight (be it ever so clothed in courtesy and politeness), becomes in itself a matter of some debate.

[Brooks]

Scent,

KHarris wrote "The simple truth seems to be that we humans want to do better, and won't let the difference between a 30% tax rate and a 35% tax rate discourage us. We are smarter than that", which seems to be an implication that work and/or investment wouldn't be affected by a change from one tax rate to another. (And others on other threads on this site have also stated or implied as much).

As for your comment, in response to mine:
"Sigh. So of course, taxes on investment should be zero. Would you care to modify your assertion?"

Whether that comment of yours was sarcastic (implying that my point somehow led to such a policy preference) or was serious, either way it was a non sequitur, and a puzzling one at that.

As for your argument followed by "Maybe Brooks can tell me what is wrong with this 'logical' argument", I have no idea what your argument or point WAS in that comment, so I can't tell you what was wrong with it.

[James Killus]

I will also note that when Brooks speaks of "investment," he appears to be speaking of capital investment. When labor income is highly taxed and capital income is taxed at a far lighter rate, then it is not at all clear that lowering capital taxation results in greater long term economic growth than investing in quality improvements in the labor force. So the basic claim that "less investment generally means lower long term growth" pivots quite heavily on the word "generally" and what one calls "investment."

I will also note that there is an entire class of "investments," sometimes called "sterile investments" which represent no long term growth potential whatsoever. Then there are the sort of "investments" like buying public roads and installing toll booths, which may or may not show up as future "growth" insofar as they add to calculated GDP, but simple inspection show that they have not added to the wealth of the nation, but rather subtracted from it.

Marginal increases in capital gains taxes, if they suppress any investment, will suppress the most marginal investments. Whether the increase cash flow to the U.S. Treasury can be more profitably used to enhance the nation's wealth is the important question, he said, expecting a simple (and incorrect) answer.

[Farrar Richardson]

Brooks -
If you have time to come back here after your day's work is done, let me renew your confidence in our collective intelligence, by saying that you have more or less convinced me.

At first I took your comment as anti-tax, but now I see that it was neutral. Having spent a little time in a corporate treasury, I can agree that after-tax returns on investments must be considered before making investment decisions. Some marginally profitable investments will not be made if taxes are increased.

You are not saying this is a bad thing, and I believe that at this moment in our economic history it is probably positive, because there seems to be too much money floating around chasing non-productive investments.

I also suspect this is more pertinent to corporate investment decisions than to individual investments, and this brings to mind a pet idea of one of my econ (Public Finance) professors - I think his name was Fagan - of about 50 years ago in old Keynesian days.

Anyway, his idea was that corporations should be taxed only on undistributed profits, thus leaving dividends and interest to be taxed progressively when received by individuals. Perhaps a bit like what Paine was saying. This would also force companies to rely more on the market for their financing, leading perhaps to wiser investment decisions.

Would such a plan make any sense in this brave new world?

[Brooks]

James,

Leaving aside comments toward me on other threads, I'm not saying anyone engaged in any personal attacks. What I AM saying is that some folks on this site (like on political blogs I've been on) are in such a combative mode that they either can't or aren't willing to think straight on some matters and discuss them rationally. So they react reflexively to even questions of fact or theory or even simple math as an instant ideological battle. (And usually they don't see that they are doing so, or at least won't admit it.)

[Farrar Richardson]

Brooks,

On the other hand, I think the small business example you chose for Patricia was a rather poor one, at least it did not apply at all to me when I decided to start my own business. In fact, I couldn't have cared less whether it was taxed at 35 or 30 percent.

My motivation was that I thought I could earn a living doing something that I enjoyed with a reasonable input of time and effort. So in such cases I would agree with Scent.

Mine was never an investment that contributed much to GDP, but I would wager that there are many shoestring companies that start out like that and wind up being extremely productive. (Probably many that bite the dust, too.)

[Brooks]

Farrar,

Thanks. And you're right about my being "neutral" here if you mean in terms of overall attractiveness of higher or lower tax rates. I haven't said anything in this thread remotely resembling advocacy for either higher or lower tax rates of any sort. As for my initial comment (and elaboration/repitition of it), I was pointing out one general effect of higher tax rates on investment income (lower investment level) and the associated drawback that generally accompanies that effect (lower long-term growth). I wrote: "an increase in tax rates on capital gains and dividends will reduce levels of investment, which could have a negative impact on long-term growth (and generally would, although tax increases to reduce our fiscal imbalance might have a net positive impact over some time horizon)".

As for labor income taxation and effect on labor supply, tax rates affect that, too, although there are different effects in different directions and I don't know how it nets out. Following a tax cut, some folks might work more if it were made more attractive by higher after-tax earnings. Others might work less because now they can make the same amount after tax with less work (and more time for their family, recreation, sleep, whatever).

[Brooks]

Farrar,

The small business (entrepreneurship) example was fine. A higher tax rate might not have made a difference to YOU in your decision to start a business, or even in how much you invested in it initially and over time, but that doesn't mean everyone's decision on every investment opportunity would not be effected. I didn't say a higher tax rate would stop ALL investment, just SOME. And of course, entrepreneurship was just one example of all sorts of investment types.

[bakho]

Somewhere in the MYTH, the tax is seen as a total loss to the business. That could be true if all the tax dollars were poked down the giant Iraq Rat Hole or embezzled by unscrupulous politicians and defense contractors. Outside of the mythological fantasy world of the supply siders and libertarians, taxes are used to pay for things like educating the workforce, providing infrastructure, providing health care (in more progressive countries), etc. So some (if not most) of the tax dollars are going to meet costs that are common to business and create an overall economic climate that is good for business investment. In many cases, public funding is more efficient (economies of scale) than single individuals working alone. So the tax is a "cost" to the business but if it replaces "costs that would otherwise be incurred" in a more efficient manner, then the tax is a net gain. The flip side is that tax cuts that lead to service cuts can have an overall negative effect on investment. A problem with really poor countries is the lack of revenue that can be used to provide the appropriate infrastructure necessary to nurture and expand business. There is a reason why auto plants look favorably at Canadian locations where the health care costs for workers are less because tax dollars are used to provide health care at a lower cost.

[paine]

brooks dear mild soul

where does your discount rate come from ???

btw

bridges are usually built by using the credit
of a tax authority

public investment and skill upgrades
both follow different drumers

corporate investment tax credits
for plant and machines etc
make more sense then
blanket exemption of future corporate earnings
from fair progressive taxation
at the household level
( second best to a wealth tax )

btw :

--- less the investment credit off sets ---
i'd pass thru all corporate earnings and losses
the way sub s earnings and losses are now passed thru

[Brooks]

Paine,

I've been avoiding responding to your pestering about the discount rate, but you persist. What in the world is your point?? Do you know what a discount rate is, and it's use for NPV analysis in making investment choices?

Is your point that the discount rate chosen for evaluating a particular investment is highly subjective? Well, whooopdeedoo! No kidding. Darn right it's subjective, because different investors will associate different risk levels with a given investment, will have different costs of capital, opportunity costs, risk-aversiveness, etc., all of which can factor into the discount rate they apply.

The projection of cash flows, of course is also subjective.

What, please, is your friggin' point?

[Brooks]

See you guys tommorrow. I'm banning myself until then so I can focus on work.

[ScentOfViolets]

KHarris wrote "The simple truth seems to be that we humans want to do better, and won't let the difference between a 30% tax rate and a 35% tax rate discourage us. We are smarter than that", which seems to be an implication that work and/or investment wouldn't be affected by a change from one tax rate to another.

Er, no, it's not. Really. Let me put it to you this way: Would you rather be taxed at 35% on an income of $100K/yr, or 30% at $50K/yr?

As for your comment, in response to mine:
"Sigh. So of course, taxes on investment should be zero. Would you care to modify your assertion?"

Whether that comment of yours was sarcastic (implying that my point somehow led to such a policy preference) or was serious, either way it was a non sequitur, and a puzzling one at that.

As for your argument followed by "Maybe Brooks can tell me what is wrong with this 'logical' argument", I have no idea what your argument or point WAS in that comment, so I can't tell you what was wrong with it.

Just so we're clear, this is the second time you said this, so there really isn't much room for misunderstanding:

It's possible that at lower tax rates you would find that investment opportunity attractive, but at higher tax rates -- leaving less of any pre-tax income for you after taxes -- you would find it unattractive (e.g., not worth the risk) and therefore forego that investment. That's why, other things equal, there will be less investment at higher tax rates. And less investment generally means lower long-term economic growth.

So - and don't forget this is your metric - higher taxes lead to less investment, which leads to lower long-term economic growth.

So if all you're concerned about is 'long term economic growth', and this is affected by investment, then logically you should give your money to me. After all, I'll make better investments. Which will be better for the economy.

This is your metric, remember.

The second error you make is that you assume that the taxes collected at the higher rate will not be put to better use - better as defined by better investments (James has already pointed out a few of them, which I at least consider highly important) which will lead to a higher long-term economic growth - than you would make of the money had it not been collected from you. Further, your argument holds for any tax rate above zero (I haven't found the modifiers in your posts which would indicate otherwise.)

Iow, you do not appear to understand, or at least acknowledge, that there are opportunity costs to using a pot of money in any of a number of different ways.

Do I make myself clear? If I sound somewhat impatient, it's because you've regurgitated an anlysis that wouldn't pass muster in Econ 101, let alone in a venue somewhat (presumably) more sophisticated.

[James Killus]

Note to Brooks: It's really not necessary to announce your comings and goings and schedule your posts, unless you believe that the entire discussion revolves around you.

In a more general vein and addressed to all: I would opine that the commenters here constitutes a fairly coherent "community of scholars" and there is a certain amount of conventional wisdom that is at least known by anyone who has been paying attention, even if that someone may disagree with elements of that CW. There is a general understanding, for example, that there is no Social Security "crisis," and that future problems concerning Medicare and Medicaid are problems in the growth of the cost of health care in this country, and cannot be solved in isolation.

People here generally understand that the flagrant claims of "supply siders," especially the notion that "tax cuts pay for themselves," is more than simply wrong; it is an outright and deliberate lie from most of those who spout such rubbish.

There are very few people here who think that the invasion of Iraq was a really good idea, and even fewer who believe that the ongoing occupation is a grand adventure worth even a fraction of the blood and treasure that has been expended upon it.

There aren't many people here who believe in the Libertarian Utopia, although there are a few (I like to think of them as pets) who espouse one or another of the Libertarian Virtues from time to time. As it happens, I myself believe that occasionally Libertarian Virtue overlaps with actual virtue, and I cherish those few occasions.

There are also very few people here who believe that global warming is a "hoax," or that messing with the atmosphere of the entire planet is a good thing. I'm willing to cite chapter and verse on that one myself.

I will also note that most of the bits of Conventional Wisdom that I've just cited are, in fact, part of the Conventional Wisdom of economics and science generally, at least those parts of it that aren't the result of propaganda by think tanks that are essentially manned by political operatives. It's easy to list primary examples of those, just as it's easy to list the major right wing propagandists in the political chattering classes.

Periodically, someone shows up who believes that they Know What They Are Talking About, and whose personal destiny is to Set Us All Straight. Usually, they are people who regurgitate the Usual Drivel, and link to the Usual Suspects, and a collective sigh goes up, because we've heard these arguments a hundred times, often carefully explaining to the newbies where they've gone wrong, which of their facts are not, in fact, facts, and so forth. And in practically every case, the response is that we are the ones who are not following the logic of their really really good arguments, and besides, we're rude.

At times like those, I myself find occasion for a little entertainment sometimes, to see if the self-appointed wise man has enough wit to him to even know what sport can be made of him. Usually, there is little light at the other end, but then, that was the expected result, and the sport is not for the benefit of the folks in the arena, but rather those in the bleachers, maybe even especially the cheap seats.

Or, to sum it up in words of one syllable: Bite me.

[ScentOfViolets]

I suspect another bit of CW is that government is, as a matter of philosophical principle, the last agency that should be involved in solving problems (I hope that's libertarian enough for all the true believers), to be turned to only as a last resort. Iow, a lot of government intervention exists precisely because the private solutions have already been tried and found wanting. Regulatory agencies, for example, exist precisely because - as a matter of historical fact - private enterprises were unable to effectively regulate themselves.

They most assuredly do not exist because freedom-hating sucklers at the teat of the nanny state decided on a whim to impose their vision of collectivism on a hapless populace.

Finally, this may be a bit of a leap, but I imagine that a few people here were actually at some point in their lives, if not out-and-out libertarians, at least enormously sympathetic to their vision and to their grievances. So any distaste acrueing to these people or to their political philosphy was come by honestly. Not rejected in a reflexive spasm against an alien ideology, as is often claimed. I admit this may be a case of projection, but I would not be surprised if this was in fact rather common. I get the sense that a lot of us pride ourselves on being pragmatic, and on being 'numbers' people, and the claim is often made by libertarians that these are just the sorts who should be attracted to the party of the 'classic liberal'. Maybe they're right.

[BJ Feng]

"Er, no, it's not. Really. Let me put it to you this way: Would you rather be taxed at 35% on an income of $100K/yr, or 30% at $50K/yr?".

Yes we'd all rather be taxed 35% on an income of $100k/yr, but how would reducing the tax rate to 30% cause income to fall to $50k/yr?

Some investment that is profitable would still be profitable under higher taxes. But the net returns on that investment might be too low after the tax increase to make it worthwhile for the amount of risk. A certain number of investments would not be made because the investor would decide that the net payoff would be too low given the potential losses. This is standard economic theory.

Now, could government somehow take the taxes and invest in something more productive than the investor so that the economy actually benefits from the higher taxes? Perhaps, but unlikely. If it's a capital investment that produces returns, why wouldn't the investor have found and made the investment himself? Profits are a sign of high demand in excess of supply. It would have to be in an area where government restricts access to. But at least this point is debatable.

[ScentOfViolets]

Sigh. The point is that people who are making $50K/yr at 30% aren't going to stop trying to make $100K/yr merely because it is taxes at the higher rate of 35%. That's, uh, what the first poster said, if you'd bother to read for comprehension. Let me repost:

The simple truth seems to be that we humans want to do better, and won't let the difference between a 30% tax rate and a 35% tax rate discourage us. We are smarter than that.

I am curious: what, precisely, is so difficult to understand in these two sentences? Or counter-intuitive, as the case may be? Speaking for myself, and only for myself, I have never let the fact that I'll be taxed at a higher marginal rate deter me from making so much more money from one year to the next that I enter a new tax bracket.

But I'm willing to concede this may be atypical behaviour.

[BJ Feng]

I think it's a misconception that libertarians oppose any sort of government regulation or intervention; that they are against all government power. That's not the case. Government is clearly needed and necessary for many functions. Plus we label ourselves libertarian, liberal, conservative, to convey a general sense of where we stand on certain issues. It's shorthand, but few people are 100% lock in step with the ideology they identify themselves with. These labels are poor fits, but it's easier than posting a bio listing all of your views on every point. I think that too many people assume that people are 100% in agreement with whichever ideological label they place on themselves while an examination of posts on this board would reveal that there are considerable differences.

[BJ Feng]

A higher marginal tax rate may not change a person's desire to make money, but it will affect the type of investment they make. For example, a person might decide that an apartment building yielding 6% under full occupancy is no longer worth constructing or purchasing given the risk of vacancy, real estate price decline, and excessive maintenance costs. He places that money in a government bond or bank CD instead. You'd have to argue that the government or bank could find a better investment, but in anycase, that particular investment is no longer made. This effect is multiplied all throughout the economy so that in aggregate, there is less investment overall because certain investments would no longer produce enough profit for the particular risk.

[BJ Feng]

If taxes on wage income were high enough, it could also make someone work less or stop working altogether. It depends on the other options available, but some people would decide that making 100K a year and being taxed, let's say 70%, would not be worth the time and effort and choose leisure instead. That person would have to possess enough resources or have other options to make not working an option, but there are many such people and they tend to be the most productive as measured by the GDP they produce per hour of work. He would go back to work if he could find a high enough paying job, but it's assumed that the job he had was the highest paying he could get. You can see that in aggregate, the nation produces less GDP.

[James Killus]

BJ, it is not actually in your power to create an economy where the investment choices are between building an apartment building (for people to live in, yay!) or buying government bonds (bad old government, boo!). In fact, the government bonds are much more likely to be of a lower potential yield. If they are not, then no apartments will be built no matter what the tax policy, because apartments are inherently a much riskier investment than government bonds.

The effects of government on the nature of potential investments are much more often to be found in such matters as fiscal policy, regulatory actions, and the definition of what constitutes property (for example, the "apex" principle in mining). As recent events have demonstrated, it is vastly more important to have intelligent regulatory processes in place to insure the health of the real estate market than any hypothetical marginal changes in capital gains taxes.

The simple fact is that any differentials between levels of taxation produce distortions in resource allocation (including capital). Indeed, the Congress creates such differentials the entire point is to alter the allocation of capital, which is to say, money. Currently, there are entire industries devoted to doing the handsprings necessary to turn "earned income" into "capital gains." If you wish to ponder "distortions in the market," you might wish to turn your attention there.

[Lafayette]

BJF: If taxes on wage income were high enough, it could also make someone work less or stop working altogether.

Patently false. Such a notion is typical plutocrat nonsense.

Where taxation rates are amongst the highest, they do not necessarily make people stop working. Look at both Sweden and Germany as typical examples.

In the former of these countries, there is one of the lowest rates of people below the poverty line. Both have some of the world's highest standards of living.

They just do not have a Tonight Show where the rich can parade their success before the masses. No great loss, mind you.

Only a warped mind, motivated by greed, can either believe that a flat-rate tax is socially justifiable in terms of fairness or that heavy taxation is ruinous to the nation's productivity.

And America seems to have them in abundance. They trot out their trash ideas at nearly every election period.

[Bruce Wilder]

Brooks: "other things equal, there will be less investment at higher tax rates. And less investment generally means lower long-term economic growth."

Maybe, "other things equal" is a hole big enough to drive a fleet of trucks through, in which case, it is not worth discussing.

And, maybe, Brooks, you are being just a tad simplistic. This is how "ideology" is born: constructing truisms out of over-generalization and a refusal to look critically at evidence and experience.

[reason]

Brooks is right guys (I was making the same point) BUT it is not clear that the real rate of interest would not adjust to offset it. It all depends how sensitive the rate of saving is to interest rates (I would say empirically not clear). Hence I think his point about if taxes are used to balance the budget (hence driving down real interest rates by reducing crowding out). Now I personally believe this isn't a killer (being a progressive consumption tax guy) - see my support for Worthwhile Canadian Initiative.

[reason]

Not to mention that PUBLIC investment (in infrastructure and education) could offset any fall in private investment.

[paine]

brooks i'm sure
is now long since departed
prolly
for the salt mine
where he calculates
cave in risks
for management of course

" well mr peabody
using my discount rate
on the flow of the premium reduction
the value of adding any new support elements
can not exceed ...."

he left me this
and it was indeed a treat

" Do you know what a discount rate is ....
Is your point that the discount rate chosen
for evaluating a particular investment
is highly subjective???"

my point
a discount rate among other considerations
is a function of opportunity cost
its not subjective its usually
market driven

change the tax structure
and u change the discount rate
its a general equilibrium effect

much like
all the elasticity related
price quantity adjustments
that entrain and ultimately
shift about
the real burdens of any tax change
throught the whole system

st alfred's for ease
type analysis
ie
holding all else constant
is often badly misleading

discount rates used by firms may
vary of course
but a general reduction
in returns
will lower the discount rate

[paine]

i'm for a higher head tax on libertarians

[Bruce Webb]

What I AM saying is that some folks on this site (like on political blogs I've been on) are in such a combative mode that they either can't or aren't willing to think straight on some matters and discuss them rationally Well that seems to be the problem. Brooks you like Bryan Caplan seem to define 'rationally' as 'agrees with me' or alternatively Caplan. If you have time you might want to read through Caplan's Intellectual Autobiography. You will find there a self-absorbed person so personally convinced of his intellectual authority that he is devoting his academic career to a study of irrationality, meaning not agreeing with his particular take on economics. He takes this so far as to propose removing the right to vote to people who disagree with him on minimum wage (his book is called 'The Myth of the Rational Voter'). A little taste should let you understand why people treat you the way they do. You sound exactly as cocksure as Caplan. Reading the standard libertarian rebuttal - delaying beneficial drugs kills far more people than approving ineffective or even harmful ones - made my head spin. If I asked my teachers “Is there any argument an intelligent person might make against the FDA?” I doubt one of them could have articulated this retrospectively obvious objection.
As I digested the stock of libertarian insight, I noticed a phenomenon central to my mature research: Most people violently rejected even my most truistic arguments. Yes, I was a shrill teen-ager, but it seems like anyone should have recognized the potential downside of drug regulation once I pointed it out. Instead, they yelled louder about Thalidomide babies. True, it was not a complete surprise - I had already experienced the futility of trying to convert my family and friends to atheism during the prior year. But I was frustrated to find that human beings were almost as dogmatic about politics and economics as they were about religion and philosophy. Yep we here can't 'think straight' just as some of Caplan's interlocutors rejected even his 'most truistic arguments'. Well sorry neither you nor Caplan get to define 'rationality' here.

[Farrar Richardson]

Brooks,

A vote of thanks for provoking so many enlightened comments which have made it worthwhile to follow this thread.

From your very rational point of view it is difficult to argue with the probability that at the micro level higher tax rates may discourage mar4ginally profitable investments.

But as Bruce Wilder and others point out it is a very long stretch to transport this to a macro level, and say that it will discourage overall investment and growth. You have perhaps foreseen some of our objections with your ceterus paribus and other qualifications

Here I should mention one additional point of common wisdom that appears to be shared by many commenters here, which is that economic agents often don't act rationally. Even prestigious CEO's have been known to exhibit such weakness, so how much moreso us common mortals.

[Brooks]

James Killus,

You seem intent on clinging to a notion of me as an evil, disingenuous schemer, a complete ignoramus with regard to this subject matter, or perhaps both. You don’t seem like the type whom I can disabuse of that notion, so I won’t bother trying. You seem to be the type that was the subject of this diary I wrote on an old blog of mine Real Debate: An Endangered Species . But for others, I say once again I am discussing all this stuff in good faith, and I ask you to take what I say at face value and address my comments and arguments on their merits rather than presuming that I am advocating something you imagine I am advocating, that I am being somehow disingenuous, or that I must be wrong simply because you must know much more about such and such than I do.

The reaction by some (not all, but some) here has been essentially the same as the reaction I got when I dared to try to convince the folks at RedState.com that the Bush tax cuts have not CAUSED the increases in revenues, and that in fact they have most likely had a substantially negative net impact on revenues (i.e., revenues have increased, but would have increased by much more had the tax cuts not taken place, even assuming some incremental growth generated by the tax cuts and some revenue feedback effects). People reacted as if I had committed blasphemy because I had challenged one of their most dearly held myths (THEIR “conventional wisdom”), they accused me of being a “socialist”, a “lefty troll”, “insane”, unable to see the obvious, etc. (basically evil, left-wing, disingenuous, ignorant, and/or stupid). And yet, I was just making a contention regarding the degree of revenue feedback effects from particular tax cuts, not making an ideological statement or even advocating any policy. Now, I understood that RedState was intended as a forum for people who shared a particular ideological and partisan perspective (conservative and Republican, respectively), but my point regarding the net revenue impact of the Bush tax cuts should have just been discussed and perhaps debated on its own merits rather than as an ideological or partisan challenge. But I had trespassed on their insular comfort zone and created discomfort by interrupting their constant repetition of “facts” to one another, and their impulse was to reflexively reject my assertion and attack my sincerity, my character, my supposed politics, my intellect, and the degree to which I was informed on the question. Sound familiar? Ok, enough. Hopefully I’ve made my point; at least I’ve tried (yet again).

As for your “community of scholars”, you can claim superior knowledge and insights all day and all night, but if you or others make arguments that simply don’t make sense, I don’t know what such claims are worth. In such cases there is either a lack of good sense, an emotional obstruction to applying good sense, or an unwillingness to admit what is obvious. Two things I’ve stated in my brief experience so far here that were met with strong disagreement by several persons:

1) Just because SS is “solvent” for a long time based on its current funding mechanism does not mean that it is not part of our overall long-term fiscal imbalance, nor that reducing SS benefits and/or eligibility could not contribute to reducing that imbalance. The total fiscal imbalance is the projected gap between total revenues and total expenses, so any reduction in expenses could narrow that gap. If we reduced SS benefits and/or eligibility and diverted some or all of payroll tax revenue to general funds, our imbalance would decrease, ceteris paribus. Whether or not that SHOULD be part of the solution to the imbalance is, of course, a matter of opinion, but the fact that it COULD is not. It’s math. Anyone who contends otherwise is simply not making sense. And it was like pulling teeth to get people to realize and agree to that, and if I recall correctly, only one person eventually agreed. (Oh, and on an economics blog I would hope that my use of “ceteris paribus” would not be seized upon to imply that my argument is invalid, at least not without a clear explanation and a plausible argument).

2) (a) Some investments that would be made at a lower tax rate for investment income will be foregone at a higher rate, (b) the overall level of investment by investors (and yes, I think it’s obvious I’m talking about the private sector) will be lower, and (c) lower levels of investment (in the private sector) could lead to lower rates of economic growth (and generally would, but not necessarily, particularly if the lower tax rates exacerbated our fiscal imbalance). If anyone disagrees with “(a)”, they know absolutely nothing about investing (and probably lack common sense, too). “(b)” seems to then follow, at least in terms of strong likelihood, as an aggregate of individual behavior. And “(c)” is at most debatable, and certainly far from clearly invalid, to say the least. And yet look on this thread at the comment to which I was initially responding and the reactions to my comment involving all of three points above.

Now, I can understand, in general, that a group of people or an individual could feel that they are so well informed and insightful, and have already addressed an issue or question within an issue so many times and so thoroughly and conclusively, that they lack patience for a newcomer who makes an erroneous statement. But in this case, that condition clearly does not apply.

Re: “Note to Brooks: It's really not necessary to announce your comings and goings and schedule your posts, unless you believe that the entire discussion revolves around you.”

I only mentioned my upcoming absence so no one thought I was declining to respond to an argument or question addressed to me. Given the tone of some folks here, it seems that some would take a delay as some kind of deliberate avoidance (which would be inconsiderate of me) and others might quickly assume meant that I had been stumped by some check-mate point and the case closed. No egocentrism involved, just an attempt at courtesy and a wish to avoid misunderstanding. I did realize that some might get the impression you did, though, particularly if they wished to project negative traits onto me.

Re: “Or, to sum it up in words of one syllable: Bite me.”
No thanks. And your hostility and borderline paranoia say much about you, but nothing about me or anything I’ve said in this thread or any other on this site.

[Brooks]

Bruce Webb,

Don't project some other guy's attributes onto me in lieu of addressing/refuting my arguments. And just because you think some other guy equates "rationality" with "agrees with me" doesn't mean that everyone who says that others are being irrational is making that equation. If I claim that a statement is irrational, just tell me why I'm wrong.

[Brooks]

BJ,

Thanks for your sensible comments. As for the net effect of labor income tax rates on the labor supply, while I'm inclined to agree with you that lower rates would expand the labor supply, I see two main forces working in opposite directions, and I haven't researched how they net out. On the one hand, lower rates (higher after-tax income per pre-tax dollar earned) will induce some people to make more lifestyle sacrifices to enter the workforce or to work more. On the other hand, as I've mentioned, some people may work less because the lower tax rates enables them to now make the same amount after taxes with less work.

[reason]

Brooks...
you have met the same resistance I have when I dared to suggest that increasing marginal rates of income tax was not the only possible way of making the whole system more progressive. Or when I suggested that carbon taxes offset by tax credits were a good idea.

It seems to be only American commenters take this view (having no experience of consumption taxes, like say europeans have)and it has to do with the political realities in the US - making ANY change is so difficult so the idea of making several related and offsetting changes at once gives them a heart attack, no matter what the micro-economic arguments for that policy mix might be.

I hope at some stage in the future American politics becomes less polarised and policy discussions become more rational. Until them, I guess we will remain in the minority, even on this generally very good site.

[Patricia Shannon]

I distinctly remember Brooks writing that he does NOT think tax cuts result in higher tax revenues, but many comments directed at him sound as if he said the opposite.

I don't think he ever said that higher tax rates WOULD lead to less growth, but that he thinks it COULD. I can't imagine anybody would argue that a tax rate of 100% of all business revenue would lead to less growth, assuming there did not develop big tax loopholes or mass evasions of reporting of actual revenue..

A good thing is that some people finally pointed out other parts of the equation that he was not addressing, and may not have thought of, instead of attacking him for things I didn't see him saying.

[reason]

Besides which as Brooks probably didn't point out, the rate of investment is not a particularly important driver of the (still very mysterious) rate of economic growth. Other poorly understood factors explain much more (even the effectiveness of investment changes!).

[reason]

Oops - that should read even the ex-post effectiveness of investment changes (for those eagle-eyed readers of this thread).

[ScentOfViolets]

Well, since Brooks is convinced he's right, I'm waiting for that check from him that will turn over all the money he was planning to invest to me.

Of course if he doesn't . . . sounds like someone who wants to declare victory, but doesn't want to follow their own policy. We get a lot of those.

[Brooks]

Scent,

You won't let go of this oddly presumptuous point, so let me respond, and hopefully you'll drop it even though you seem to think it is the ultimate "gotcha":

You explained your point to me earlier as "if all you're concerned about is 'long term economic growth', and this is affected by investment, then logically you should give your money to me."

ok, ready for a big revelation? I NEVER said that all I'm concerned about is long-term economic growth. You put those words in my mouth without any reason whatsoever. Thanks for providing (persistently) one example of the kind of problem I'm talking about regarding political discourse in America today.

[ScentOfViolets]

You owe me an apology, you little creep. You have no problem accusing others presuming you are behaving in bad faith, eg:

You seem intent on clinging to a notion of me as an evil, disingenuous schemer, a complete ignoramus with regard to this subject matter, or perhaps both. You don’t seem like the type whom I can disabuse of that notion, so I won’t bother trying.

But you apparently have no problems flinging around such accusations on your own. At this point I'd have to say that you are definitely my inferior, in more ways than one, most importanly in the moral sense.

No, this is not some sort of 'gotcha'; there were hundreds of other points you did not address in your posts, and notice that I did not say anything about those at all. No, I'm calling attention to this lapse because it is an important one. If there are other considerations that trump 'economic growth', considerations that might have to do with tax rates and tax structures, those should be addressed, or at least acknowledged. You did neither. But because I am your moral superior, I will give you a chance to tell us all what those might be. I'm guessing no specific examples will be forthcoming, for the simple reason that in point of fact my initial observation was true, and you weren't thinking about anything other than economic growth.

Note, btw, that you refuse to take any responsibility for your wording; I might not be so peeved had you simply acknowledged that no, your initial posting did not address those concerns, that yes, those concerns were important, and that you apologize for any misunderstandings (I'm guessing that you're some sort of libertarian/conservative, as evidenced by your refusal to take any sort of responsibility for your actions.)

Secondly, you refuse to acknowledge that your argument makes just as much (or just as little sense) at any tax rate, be it 90%, 30% or 5%. Hence my comparison to minimum wage arguements. Yes, it is true that tax policies influence specific investments; it is definitely not true that taxation in general has been shown to discourage investment in general. You seem to be confusing those two . . . deliberately, given your contemptible behaviour.

Finally, you refuse to acknowledge that government investment via taxes could ever be as efficacious as your foregone investments that you forsook because of higher taxes.

And you have the gall to declaim against some percieved fossilized CW. No, that CW is objective fact, not something you can wish away or rail away, or something you can change with the sheer force of your indignation and accusations. That's another wingnut trait.

No, I am not particularly mean or censorius, or even partisan. I do happen to be a math teacher, and I do happen to value logical arguments, facts, etc. highly. If I give a person a poor mark because they factor a polynomial incorrectly, or because they don't know the difference between irreducible and prime, between a graded module and a free module, it's not because of some sort of bizarre political inclinations on my part.

Nor, despite your whining, people are not giving you a hard time because of your percieved politics. They're giving you a hard time because you are giving extremely sloppy arguments and because you are behaving badly in the face of legitimate criticism.

You might actually consider that as a first working hypothesis, think of ways to test that, and then respond accordingly. Rather than setting loose the hounds of bad faith and crying havok. That's assuming you are actually here for rational discussion and not just to stir the pot.

[paine]

brooks innocent points:

"a) Some investments that would be made at a lower tax rate for investment income will be foregone at a higher rate"

no objection besides the potentially metamorphic wording
lets not have to look for two senses of the words investment and investment income
that point to two differnt activities

each use though suitable
for one line of reasoning
is not suitable
in the other line of reasoning
and yet folks use both
as if interchangeable
when one sense can provide a link here
and the other sense there
and they're played as if both meanings apply always
and are really the same "activity "

tell me where
the funds from the foregone investment go

if into household consumption
this is really about
incentives to save isn't it
and what for ???
retirement and education plans are tax exempted

just because we use one word for both
ie
investment
lets not confuse portfolio investment
by households
ie storage of value

with firms plans
to fund the building of new plants
or the buying of new machines

if its about
social per hour value productivity growth

we can
forget about households here
and just
look at firms

putting aside R & D
and its own kind of investment strategy
and purely do it different and better stuff
like
re organizations of job tasks etc etc
all else
unscreened by discount rates
productivity enhancements
if they come at all
come thru plant and equipment purchases right ??

brooks is claiming (by implication)
firms with a rigid unchangeable "real" discount rate
hit with a higher tax on corporate earnings
will cut investment spending
by dropping the lowest return projects
the one's who's npv has gone negativo
now they've got a new paultrified post tax return
they be shattered by the discount hammer

and then what ??

where goeth the unspent pile of cash ???
dividend it out ???
buy up their own stock ???
buy up or into other firms ????

send it .....overseas
where taxes and wages and regs are all lower ???

or was there no money
we're they going to borrow the funds
if so
now we have a credit market
to deal with and a real nominal interest rate
not to mention
credit rationing
and so looking at proposition "(b) "

"the overall level of investment
by investors ....will be lower"

we run into this menacing fact

"....the lower tax rates exacerbated
our fiscal imbalance "
and crowds out investment
by raising the nominal interest rate

the cat has caught its tail

but i can save bro brooks here

consider the nature of our credit system

we no longer operate
with intrinsic value coinage right ???

well since we don't
though some find this
like a perpetual motion machine
and bafflingly fantastical

there's no limit
---short of currency collapse ----
to the real share of investments
in plant and equipment
a credit based market economy can accomodate

yikes the inflation tax !!!!

its a democratic decision ultimately
whether we choose to act or not act
as if we have
a more or less fixed monetary base

talk about hacking at the CW

-------------------
since all this is about social welfare
the brooks point of points is this :

"(c) lower levels of investment ... could lead to lower rates of economic growth "

i think
the reason we all jumped on the chap
lies here

none of us see a tax free wealth zone
as the optimal little guy answer
to social productivity gains

[paine]

the hub of the nub :

"Yes, it is true that tax policies influence specific investments; it is definitely not true that taxation in general has been shown to discourage investment in general. You (brooks) seem to be confusing those two . . . deliberately"

[James Killus]

Brooks,

I do not consider you to be evil, just a narcissist. My posting that ended with "Bite me" was, as I stated outright, a general discourse directed at the community here, and the last comment was existential and absurdist.

When all you have is a hamburger, everything looks like a nail." -- Tristan Tzara, very loosely translated.

I warned you about your narcissism in the first paragraph of my previous post, and gave you proper warning there, as well as general warnings later on. You have nothing to teach us here. You have brought no new information to any discussion you've participated in so far, nor have you made any arguments that we've not heard many times before.

Oh, I take that back. We seldom get detailed descriptions of commenter's schedules so that we can breathlessly await their return to Teach Us Much.

So I make fun of you. Big deal. Deal with it. Try to return the fire, if you have an ounce of wit about you, which certainly hasn't been in evidence so far. What has been in evidence is whiney complaints about how nobody understands the wisdom you've been imparting, coupled with a truly amazing ability to ignore or misunderstand the (much better formulated) counterarguments. Oh, and offensiveness.

And, frankly, you're not even the best example of a narcissist we've had this year.

There is an old book by Henry Hazlitt, Economics in One Lesson, which essentially presented economics as a zero sum game, with the sole exceptions to this being in the private sector, in "investments." You have not said a single thing here that is not said, better and more clearly, in that book. I read that book over 40 years ago.

Hazlitt's book was simplistic. You're arguments are not as good as his. So now, having said it once to the universe in general, realize that this time it is directed at you personally.

Bite me. And grow up.

[paine]

"you're not even the best example of a narcissist we've had this year."

you're right
no he isn't ....I am

a narcoleptic null hypothesis narcissist

hssssing and slithering about on my lunch

[paine]

killer

brooks is really ME

[Brooks]

Scent,

wow, that was amazing. So if I think someone has stated or implied something that I think is incorrect (that a particular policy will not have a particular drawback), and I claim that the statement/implication is incorrect, I am either obligated to list ALL the other legitimate considerations related to that policy choice or it should be assumed that the drawback I claimed is the ONLY consideration I think we should have in deciding on such a policy. Given that I didn't do so, you make such an assumption -- putting those words in my mouth -- then accuse me of hypocrisy. Then you claim moral and logical superiority. I say again, amazing.

Let me again use the analogy to my RedState experience with the tax cut issue to illustrate (with paraphrasing) a similar pattern:

RedState Guy #1: Tax cuts always cause higher revenues. And the Bush tax cuts have clearly done that.

Brooks: The Bush tax cuts have had a net negative impact on revenues. Revenues would have been higher if the Bush tax cuts had not taken place [followed by quotes representing the broad consensus of economists -- including Bush's own economists -- all saying what I was saying, a discussion of the algebra related to the Laffer Curve, the difference between coincidence and causation, other factors in GDP growth besides tax cuts, etc.]

RedState Guy #1: Just look at the facts. Revenues have been increasing since the Bush tax cuts. You are either stupid or you are a lying lefty troll.

RedState Guy #2: You are obviously a creepy left-wing ideologue! Revenue level is NOT the ONLY consideration in tax policy!! And no, maximizing revenue should NOT be the goal of tax policy??!! You are obviously some kind of socialist whose only goals are to expand government as much as possible and to redistribute as much wealth as possible from hard working people to lazy people. Hey guys! This lefty creep thinks maximizing tax revenue should be our goal! Well, if he doesn't give all his money to the government right now, he's a hypocrite.

Brooks: Hey Guy #2, you are putting words in my mouth. I wasn't asserting either of those things. I was just pointing out that it is incorrect to claim that revenues are higher today BECAUSE of the Bush tax cuts (either in whole or part), because the Bush tax cuts have had a net negative impact on revenues.

RedState Guy #2: You only mentioned revenue impact. So maximizing revenue is obviously your goal and obviously all you care about, and you are obviously advocating whatever tax policy you think will achieve that, regardless of any other considerations.

Brooks: Just because I didn't mention other goals, pro's/con's, etc. involved with tax policy choices doesn't mean I'm saying the ONLY consideration is maximizing revenue.

RedState Guy #2: You're not fooling anyone here, you commie. And you owe me an apology -- It's not my fault that you won't take responsibility for your words, you little creep.

RedState Guy #3: Brooks, you are just a jerk. I should be able to keep more of what I earn, period.

RedState Guy #4: Brooks, you are naive. If the government gets more revenues, they'll just spend it all wastefully.

Brooks: Guy #3, that's a philisophical argument that has no bearing on the point I made. Guy #4, I didn't say anything about how higher revenues might affect spending, so you can't call me naive, and whether your assumption is valid or not, it's not a refutation of my assertion.

RedState Guy #5: Brooks, you are a lying scoundrel. Here is a chart showing that revenues have been increasing since the Bush tax cuts, yet you actually have the nerve to claim that revenues have been decreasing and to spew your liberal talking points. Well, you're not convincing anyone here, because the facts speak for themselves, and we have the facts. Now run back to dKos, you troll.

etc.

You see, Scent, there's a right-wing version of you in a parallel universe (called RedState.com).

[Brooks]

James,

You can characterize my comments, and me, is all sorts of ways, and I can reciprocate, but my arguments should be considered on their own merits and considered rationally. Some here have done so, but others have responded instead with all sorts of rhetoric, presumptuousness, diversions, attacks, and non sequiturs.

Does it make any sense to say that reducing SS benefits/eligibility could NOT possibly contribute to reducing our long-term fiscal imbalance? Nope. Is that a matter of opinion? Nope. Is that a matter of ideology? Nope. It's math. So why was I met with such fierce resistance on that point? Please, explain that to me.

Does it make sense to say that higher tax rates on investment income is NOT likely to cause (ceteris paribus) some investments to be foregone, NOT likely to result in a lower overall level of (private sector) investment, and even if it did DEFINITELY NOT going to cause lower long-term growth? Nope. Is that a matter of ideology or opinion? Nope. It's just the very basics of investment analysis and economics, or just common sense, if you prefer. So why did some people here flip out?

Look, you can say what you want about me and I assume it will enhance your popularity here, but that doesn't mean that what you say is accurate or fair, and I assume a minority here will be objective enough to see that it is neither.

Anyway, this "narcissist" would like nothing more than for the discussion henceforth to focus solely on the arguments, issues, questions, facts, etc., and not at all on anything related to me or the nature of my exchanges with people here. If some persist with garbage directed at me, I may respond to reveal it for what it is, but I'd rather be done with it.

[ScentOfViolets]

All that energy expended to demonstrate (by assertion again, how typical) what a mean, rascally guy I am. And not one bit towards answering any questions or objections.

I'm guessing this is the "He's being mean, so I don't have to answer his questions, so I win" ploy.

Uh-uh. _And_ you owe me an apology. You made an accusation(in fact, the very same charge you were levelling at others:the imputation of bad motives), you were wrong and you refuse to own up.

Do you realize how childish you're being?

[James Killus]

The idea that one is right and wonderful because people on both sides of some ideological divide detest them is the sort of idea that keeps people with bad breath from understanding that they have bad breath.

Brooks, you owe me nothing, because I've been making sport of you from the beginning, and I can find entertainment in all sorts of ways. But you do owe SOV an apology. And if you cannot understand why, find some grownup to explain it to you.

[Brooks]

Scent,

Perhaps you can tell me how you got from my initial comment, and anything else I've said, to the implications/statements/conclusions you've made without being wildly presumptuous.

In your initial comment to me, you quoted my statement (from my initial comment) that "If the after tax income as a percentage of pre-tax income is lowered, reducing the expected rate of return (or various probabilities of scenarios of return), some investment opportunities will be foregone, reducing long-term growth." You didn't include the following sentence, which was "So an increase in tax rates on capital gains and dividends will reduce levels of investment, which could have a negative impact on long-term growth (and generally would, although tax increases to reduce our fiscal imbalance might have a net positive impact over some time horizon)."

You responded with:
"Sigh. So of course, taxes on investment should be zero. Would you care to modify your assertion?"

You later said:
"if all you're concerned about is 'long term economic growth', and this is affected by investment, then logically you should give your money to me."

And then:
"Well, since Brooks is convinced he's right, I'm waiting for that check from him that will turn over all the money he was planning to invest to me. Of course if he doesn't . . . sounds like someone who wants to declare victory, but doesn't want to follow their own policy. We get a lot of those." [elipses yours]

So lay out for me, please, the steps in your logic. How did you get from my statements to your conclusions and implications/statements without being wildly presumptuous? I only see you going from Point A (my statements) to Point C (your conclusion) by fabricating a premise at Point B and putting words in my mouth, then implying that I'm a hypocrite on that basis. If there's somehow a plausible explanation, I will not only consider it, I will welcome it, and if any apology is due, you'll get one. Go ahead. Connect the dots for me, and do so in a clear, straightforward way. I'm all ears.

[ScentOfViolets]

Anyway, this "narcissist" would like nothing more than for the discussion henceforth to focus solely on the arguments, issues, questions, facts, etc., and not at all on anything related to me or the nature of my exchanges with people here. If some persist with garbage directed at me, I may respond to reveal it for what it is, but I'd rather be done with it.

Given that in fact, you have ducked issues and questions, this is not, shall we say, in accord with the actual events.

Does it make sense to say that higher tax rates on investment income is NOT likely to cause (ceteris paribus) some investments to be foregone, NOT likely to result in a lower overall level of (private sector) investment, and even if it did DEFINITELY NOT going to cause lower long-term growth? Nope. Is that a matter of ideology or opinion? Nope. It's just the very basics of investment analysis and economics, or just common sense, if you prefer. So why did some people here flip out?

Sigh. More argument by assertion. If changing levels of taxes on investment income affects investment in general, then let's see the data that you've based this conclusion on. Don't have the numbers? If you don't, why should anyone believe you?

And in fact I can point to concrete cases where raising taxes increases investment: in my own home town of Columbia, MO, several taxes have been raised over the years to improve roads and sewage systems. This over the united opposition of developers who maintained just what Brooks said, that they wouldn't be able to 'develop', and that therefore the community as a whole would suffer from lack of 'development'. The reality: we had a boom in housing in the late 90's in the less-travelled parts of town. The reason? Nobody wanted to build on tracts even quite close to the working part of town if it was only serviced by a narrow two-lane road and there was no city sewage to hook into. People didn't like the commute, you see, and were unenthusiastic to say the least about private sceptic systems they would have to pay for and maintain themselves on top of the cost of the new house.

So no, it's not a given that raising taxes curtail investment.

[ScentOfViolets]

Sigh. You owe me an apology aside from any discussion because of your accusation. No, I am not acting in bad faith. And I've explained your errors several times. Go back and look. For example, my post at 11:42, though there are earlier ones that also address your logical missteps.

[Brooks]

James,

Re: "you do owe SOV an apology. And if you cannot understand why, find some grownup to explain it to you."

See my request of Scent above, and if you want to take a crack at it, give it your best shot.

Scent simply fabricated an argument on my behalf and presumptuously attributed it to me, then persistently implied that I was a hypocrite. Tell me, please, if somehow you see the facts differently, and what in my response obligates me to an apology. You can use a cheap cop-out technique by telling me to "find some grownup" to explain it to me, but you're right here. Put your mouth where your mouth is. Spell it out for me plainly and clearly.

[Brooks]

Scent,

First, please point me to where I accused you of "acting in bad faith". I accused you, with very, very good, demonstrable reason (as I've just demonstrated) of being presumptuous, putting words in my mouth (and I didn't say it was deliberate, but was at least careless to a very inconsiderate degree), and then repeatedly using that as a basis for implying that I'm a hypocrite. I've asked you to offer some alternative explanation of how you could have gotten from anything I had said to your conclusions/implications/statements without being presumptuous and putting words in my mouth exactly as I've described, and I hope you'll be so kind as to either provide some plausible explanation or admit that you did so. And while an apology to me would be in order, I don't really care.

Second, regarding demands that I apologize even IF I had implied that you were acting in bad faith -- which I DIDN'T -- my goodness, that's a double-standard worthy of the Twilight Zone. Did you and James demand apologies from anyone for making such implications about me in the threads we've been engaged in since I joined you guys a couple of days ago?? Why the sudden indignation and high standards? Bias perhaps? Just perhaps?

Re: "So no, it's not a given that raising taxes curtail investment."

Please stop with the straw men or careless misrepresentations of my statements, whichever it is (and I think the latter is more likely). I didn't say that raising taxes always lowers investment levels. Please read what I've actually said, not something I didn't say that would be easier to argue against.

[Brooks]

Scent,

Re: "If changing levels of taxes on investment income affects investment in general, then let's see the data that you've based this conclusion on. Don't have the numbers? If you don't, why should anyone believe you?"

1) It's simple, basic investment analysis, economics and common sense that if the potential/likely after-tax return from an investment opportunity (ROI) is lower, it will be less attractive, ceteris paribus. Agree or disagree?

2) A higher tax rate on investment income lowers the potential/likely after-tax ROI, ceteris paribus. Agree or disagree?

3) Given #1 and #2, a higher tax rate on investment income makes investment opportunities less attractive, ceteris paribus. Agree or disagree?

4) To compensate for risk, opportunity cost, cost of capital, etc., in general, a given investor will only invest in a given investment opportunity if the potential/likely ROI is high enough to be worth that risk / opportunity cost / cost of capital, etc. Agree or disagree?

5) If (after-tax) ROI is lowered, ceteris paribus, by an increase in the tax rate on investment income, some investments that would have been attractive to some investors in terms of ROI before the tax increase will no longer be attractive to them, and will be foregone. Agree or disagree?

6) Given #5, and given that nothing about this tax increase, in itself, makes (most) investments MORE attractive, the aggregate of #5 is that the effect of a tax increase on investment income, ceteris paribus, is that total level of private sector investment will be lower. Agree or disagree?

7) There may be some ways in which incremental revenues from this tax increase can be used to create a better investment climate or to make particular investments more attractive, in which case it's possible to have a net impact of a higher level of investment, but this is not the direct effect of the tax increase, is dependent on those other policies, and is very far from a certainty. Agree or disagree?

Now, if you think one is obligated to produce an abundance of data before he contends any of the above, and before you'll consider it, well, I'm not sure what to tell you. I guess you feel I'd need to collect data before contending that most goods have a downward sloping demand curve (that's not related to the topic we're discussing; I just offer it as an example where basic economic theory and common sense can suffice for making some assertions here).