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Trivia Tidbit Of The Day: Part 462 -- Worldwide Tax Trends.

Wrong Way On A One Way Track-

The world, looking to the American economic juggernaut for guidance, is becoming more like us with each passing day. Some countries have even become more like the United States than-- well-- the United States itself.

Take the past 15 years or so of tax policy changes in the OECD, for example. Art Laffer has the data (.pdf):

What this tells us is that "the world" (the part we compete against, at any rate) is dropping its tax rates in most major categories in order to become more competitive. In some categories, the OECD average is actually lower than the United States average. Ruh, roh. It seems fairly obvious that we had better watch these changes closely and be prepared to act to keep our country's various competitive tax advantages intact.

Oops. We just recently put Charlie Rangel in charge of taxes, so not only are we not poised to become more competitive, we're poised to help our competitors. For example, as Kevin Hassett calculated:

Since Rangel's tax hikes are focused on the rich, and the AMT is scheduled to draw ever more revenue from the middle class in federal budget estimates, the rate increases necessary to maintain current revenue levels are enormous. Rangel adds a 4.6 percent "surtax" on adjusted gross incomes above $500,000 in the first year of the law. This gives voters the impression that we are simply lifting the current top rate of 35 percent to the good old Clinton rate of 39.6 percent. But in 2011, when the Bush tax cuts expire, the surtax sticks, lifting the federal rate to 44.2 percent. Rangel also grabs revenue from the rich by phasing out exemptions and deductions. Add in the Medicare tax, and average state and local taxes, and the combined marginal income tax rate goes to 52 percent. As the accompanying chart illustrates, that would make our top marginal rate the second highest among the ten largest OECD economies, right below France.

Sorry, Charlie, but that's just the wrong direction for America.

Additionally, odds are, under Rangel's plan, after a brief flurry of higher tax revenues, we'll actually lose tax revenue over the medium-to-long term, leading to additional tax hikes in the future. More importantly, we'll see lower economic growth relative to what we've seen in recent years, lower economic growth relative to other countries, and a lower future standard of living. Knowingly harming America's future median and mean standards of living for the sake of greater "equality" is anything but virtuous.

And it's anything but a recipe for political success. One can only hope that all the various disgruntled members of the Republican coalition who sat out or defected in 2006 get wise to what is at stake here.

Previous Trivia Tidbit: Inequality.

Posted by Will Franklin · 15 November 2007 04:55 PM

Comments

Posted by: JGsez at November 16, 2007 06:58 AM

Posted by: Will Franklin at November 16, 2007 09:44 AM