Higher taxes, reduced deficits and Milton Friedman

While Congress debates whether to increase taxes on the “rich” (yes, allowing the Bush tax cuts to expire is a tax increase), it it worth reflecting on the words of the late economist, Milton Friedman.

Politicians will always spend every penny of tax raised and whatever else they can get away with.

And, a study done by Richard Vedder and Lowell Gallaway of Ohio University examining the data from World War II forward bears this out.  For every new dollar in taxes raised by the government, Congress appropriates anywhere between $1.05 and $1.81 in additional spending.  The study was done in the late 1980’s and has been updated over time using data since then, variables and models,

[b]ut no matter how we configured the data and no matter what variables we examined, higher tax collections never resulted in less spending.

So, when you hear the left bemoan the fact that taxes must be increased on the “rich” in order to reduce the deficit, understand that no such deficit reduction will happen.  New income will result in new spending, and then some.

Congress seems incapable of doing anything else.

20 replies
  1. sammy22
    sammy22 says:

    If being rich is defined, by anybody, as someone having a TAXABLE income above $250,000 I do not feel at all sorry. TAXABLE is the key adjective, there are lots of ways to reduce the actual "income" through "operating" expenses!  We all know how that is done.

  2. Gary J
    Gary J says:

    Reduction in spending is the only thing that makes sense. Near every single person in this country legally has had to do that over the last couple of years. For some reason our elected officials will never get it,not ever. No matter who is watching or who gets elected they all fall into that same trap. That history lesson you just read prove it……………Sad but here comes socialism.

  3. Lynn
    Lynn says:

    Increasing taxes makes NO sense. People will stop working and live on their savings, if there is no benefit to making more money and losing it in taxes. Small business owners have literally become slaves to their workers. Reduction in spending is the ONLY way. I wish Congress would reduce their salaries to 2008 or 2006 levels and reduce their benefits. They should acknowledge our pain and understand that is what is happening to small business owners. We need some proof that CONGRESS gets it!

  4. rperezwyd
    rperezwyd says:

    ok sammy22 your a loser and hater, I'm not rich but I cant hate on a person that worked there but off to become successful and then the gov. just takes more because they feel like it. Imagine if your kids went to college and after accumulating $500k in debt they work till its payed off now there finally making a decent living the gov. just says I'll take some more. whether rich or poor the gov. has no right to take more just cuz you have more. FIX THE PROBLEM GOV. SPENDING

  5. bobabrown
    bobabrown says:

    For most purposes, the Obama tax increase proposal applies to married couples with taxable income above $231,300 and to singles above $190,650.  These odd amounts result from subtracting a standard deduction and one or two exemptions from the 200/250 we hear so much about.

    I wonder why there isn't any outrage about this huge increase in the marriage tax or about the fact that the "top 2%" Obama et al keep referring to is the top 3% of marrieds and top 1% of singles.  Seems like a bit of anti-family tilt in addition to the "soak the rich(?)" part.

  6. sammy22
    sammy22 says:

    Hey rperezwyd, I am neither a loser nor a hater. people whose TAXABLE income is $250K and above have already gotten a BREAK by not having to pay a FICA tax above whatever the threshold is now. I pay my  share. I think they should pay their share and stop complaining that they're getting soaked, because they are not!<cite></cite>

  7. PatRiot
    PatRiot says:

    The spending binge needs to stop.  The parties only want to discuss tax increases(Dems) and tax credits (Repubs).  They are in denial of reality and keep Americans divided.

    Take the booze away from the drunk and the drugs from the addict and you get results.

    Do not pay taxes and we may get their attention.  After all, what will they do, take our houses?  The Gov't holds most of the mortgages anyway. 

    Take away their power, the little bit that they haven't squandered already.

  8. sammy22
    sammy22 says:

    Well, the President froze salaries for Federal civilian employees for 2 years. Good idea and gets NOT a comment on this blog! Is anybody else following that "example"?

  9. GdavidH
    GdavidH says:

    Here is your comment Sammy.

    Pathetic!! .

    1) The freeze does not include contracted increases(yesterday's show).

    2) 5 billion over 2 years when the budget could be as much as 4 TRILLION for the next 2 years(we don't know because the Dem wooses would not pass a budget this year for fear of election cosequences).

    3) When the 2 year freeze expires the repubs in control will be blamed for either continuing the freeze or not approving raises to get fed employee pay "back to where it should be".

    Obama does not do anything that isn't political.

    This freeze is a joke played upon people like you who don't want to know Obama's true agenda.

  10. sammy22
    sammy22 says:

    Thanks a lot GdavidH! Your comments are the usual B.S. that the party of NO is fond of putting forth. Only the failed policies of the past will get the nod from the Right. And the usual predictions of doom to come. At least you could be glad the the military personnel was not included in the freeze.

  11. mynoc3
    mynoc3 says:

    Sammy22, you said what GdavidH said is B.S., how so?  You also said that those in the higher brackets should pay their share and stop complaining, they already pay more than the lower brackets.  This issue is that whenever you raise taxes (even if it is to get more revenue) you discourage economic activity.  We need to encourage economic activity to get revenues up.  Tax cuts do that.

  12. sammy22
    sammy22 says:

    More B.S. The ones w/ the money want to be rewarded (that's OK). Then they complain that they don't want to take risks because there is uncertainty. AND that is before taxes are even raised! This is the B.S. from the Right.

  13. mynoc3
    mynoc3 says:

    They are not looking to be rewarded, they are looking to keep their reward.  They already earned their money and the government wants to take more of it.  If you raise taxes, it means they get to keep less of their reward.  In other words: Same risk, less reward.

  14. winnie888
    winnie888 says:

    Anyone here want to start a small business to provide jobs for the lefty whiners?  Anyone want the risk, the stress (personal and family), the aggravation and outright theft by the government (local, state, federal)?  It's this kinda stuff that kills the entrepreneurial spirit in this country. You work your butt off just to have your financial gains ripped out of your wallet.  Obama freezing federal workers' pay for 2 years…bfd.

  15. sammy22
    sammy22 says:

    So, mynoc3. the way you would like it is: lower taxes, hence same risk, but more reward. Niiiiiiiice. As to the lefty whiners, winnie888, I'd say you whine too.

  16. GdavidH
    GdavidH says:

    No B.S. here

    Sammy, do you listen to this show everyday with your fingers in your ears saying "lalalalalalala"???

    If you are not here to learn and be informed and enlightened, why are you here???

    You know the format of the show and the blog. You know the specific areas of expertise that Jim, Steve, and the sound off sister bring to this arena. Over at HuffPo they like the way you think.  

      

    Sorry Jim if I'm suggesting a listener go elsewhere.

    Obama's agenda is simple. He has exposed it through his own words repeatedly. He is a Prgressive, possibly a socialist, intending to redistribute wealth from those who take risks to earn it to those who take no risk, even to those who bring nothing to the game.

  17. djt
    djt says:

    GdavidH, some people come to this site to read a particular point of view, and one with which they do not necessarily agree. It helps to get out of the one sided "information cocoons" once in a while.

    I don't see how freezing the pay of federal workers is in line with a progressive socialist agenda. Considering who is griping about it (union heads mostly), it would seem to be something the right would celebrate. I listen to the show occasionally, but often enough to know that unions have largely been made out to be overpaid workers. Freezing their pay would seem to be something this show has been largely calling for.

    In fact, when Chris Christie capped the pay of a small handful of administrators in each New Jersey town (see "I'll help you pack" from november) and freeze teachers saiaries (see "Chris Christie he's our man" from July) he was hailed as a hero, yet Obama freezes all civilian federal worker pay for 2 years and its no big deal.

    These freezes, be they christie's or obama's, will only serve their purpose if the money saved is not turned around and spent again. I do trust christie to do a better job of that than the feds, neither party in DC can seem to stop the spending habits, proving the brilliant Milton Friedman correct yet again.

  18. GdavidH
    GdavidH says:

    djt,

    I did not say the pay freeze was an indication of Obama's socialist/progressive agenda ( although I stand by my statement about his agenda). The point I was trying to make was in response to Sammy saying that no one would comment on the "good idea".

    I agree that any spending freeze or cut is a good idea at this time. My point was that this pay freeze in itself is no big deal in the big picture and I believe it to be totally political. This action by the president is getting more than it's fair share of attention. C'mon mr. President and congress let's get serious about cutting spending

     

    I listen to the show almost daily and visit the blog religiously to see if I missed anything. The 3 points I alluded to were all topics of discussion on the show.( I should correct that I meant to write "budget deficit" at 4 trillion for 2 years), hence the "lalalalala" comment about right wing talking points. (typical lefty "bunch em all together and dismiss them tactic")

     Don't assign an "information cocoon" to my comments. I visit The HuffPo site and other lefty media on a regular basis to compare the ways things are reported. What I find is that I can't relate to most of the reporting on these media sites. The name calling is horrific, especially when their argument can't be made. The Hollywood worship, the skewed moral compass and the anti-family values are not in line with the values I hold. They don't agree with me and I don't agree with them. That does not mean I am not aware of how the left views things. You will be happy to know that I don't always agree with Jim or Steve, although I think the Sound off Sister is pretty much spot on, and maybe that's an indication of my ignorance or just a differing opinion. You may have noticed that the biggest difference between the media sites on the left and the right are the stories they actually choose to report. IMHO the sins of omission are greater on the left. But that's just me.

    Sorry Steve for the length of my response

  19. mynoc3
    mynoc3 says:

    Sammy22, that is correct.  I would like to see lower taxes.  If there is the same risk for a larger reward, then more people will be willing to take the risk.  In other words, more people investing, starting businesses, etc (economic growth).  Keep in mind, congress is not talking tax cuts, but an extension/increase of tax rates.

    GdavidH, I agree.  There is a difference in what stories are reported as well as how they are reported.  Phrases and language are an issue.  The "lefty" media phrase it as giving more money to the rich.  The extensions do nothing of the sort.  It is all about keeping things the same.

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