ECON 101 for 2013

Stephen Green lays out an excellent set of reasons why it doesn’t matter what the President and the Congress do over the next few days; the federal budget and deficit won’t be fixed by any of the proposals now being offered.

I have one factoid to throw out in addition. It doesn’t matter what tax rates are. Since WW2, federal tax collections have always been more or less 19% of GDP. Because people, especially rich people, plan their affairs with tax consequences in mind, riaising rates slows economic growth so that collections invariably fall short of expectations. Lowering rates stimulates growth so that the feds get 19% of a bigger pie.

Mr. Green seems to understand this basic law of economics.

Reynolds/Green 2016.

2 thoughts on “ECON 101 for 2013

  1. Even the ratings agency S&P says it will be okay it we go off the cliff and even marginally better if Congress comes to no grand solution this weekend. The tax code is getting bizarre. That we’re routinely ignoring things in the Constitution like the first clause to the seventh section to the first article, otherwise known as The Origination Clause, with this weekend’s shenanigans does bother me quite a bit.

    I really do wish we’d import from the UK the notion of Law Reform Commissions and marry it with the Base Realignment & Closure process. Get a panel together, tell them to look for spent enactments and other things that need repealing, and throwing an omnibus repealing bill before both houses. The law books need to be put on a diet.

    Reynolds/Green 2016 FTW.

  2. Yeah. The whole ‘raising rates doesn’t work’ thing kinda threw me for a trip when I first learned it. I had expected, that although it would suck, that raising rates would at least work. Turns out I was wrong.

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