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.