Taxes already are sky-high

MuggingDec. 14, 2012

By John Seiler

California’s misled voters just increased taxes by passing two initiatives. Federal taxes are set to go up sharply on Jan. 1. And local taxes have gone up in many areas, including for bonds I’m going to be forced to pay for the failed school systems here in Orange County.

But taxes already are sky high!

The evidence comes from Edward C. Prescott, co-winner of the 2004 Nobel Prize in Economics, is director of the Center for the Advanced Study in Economic Efficiency at Arizona State University and Lee E. Ohanian, the associate director of the center, is a professor of economics at UCLA and a senior fellow at Stanford University’s Hoover Institution. They write:

“President Obama argues that the election gave him a mandate to raise taxes on high earners, and the White House indicates that he won’t compromise on this issue as the so-called fiscal cliff approaches.

“But tax rates are already high—much higher than is commonly understood—and increasing them will likely further depress the economy, especially by affecting the number of hours Americans work.”

And that goes doubly for the massive California tax increases.

High tax rates

“Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes—Edward Prescott has shown (especially in the Quarterly Review of the Federal Reserve Bank of Minneapolis, 2004) that the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60.

“Research by others (including Lee Ohanian, Andrea Raffo and Richard Rogerson in the Journal of Monetary Economics, 2008, and Edward Prescott in the American Economic Review, 2002) indicates that raising tax rates further will significantly reduce U.S. economic activity and by implication will increase tax revenues only a little.”

That’s what I’ve been saying all along: That Gov. Jerry Brown isn’t going to get the $6 billion he’s expecting from his massive Proposition 30 tax increase, mainly an income tax increase on the top producers. Tax producers more, and they’ll produce less.

Indeed, the latest data from Controller John Chiang shows that income tax receipts in Nov. 2012 are down a shocking 19 percent from that expected in the fiscal 2012-13 budget that Gov. Brown signed into law back in June. Looks like rich folks are getting out of Dodge, Calif. before they get mugged again.

Wait! Didn’t Brown promise us before the election that millionaires would never flee, but would love to have their taxes raised? I rebutted the phony Stanford study he was touting back in October that supposedly showed millionaires wouldn’t leave.

Now, it looks like they really are leaving. And the research of the Nobel economist shows that tax increases will reduce economic activity and increase unemployment.

Republicans, as usual, remain clueless and timid at both the state and national levels.

Looks like 2013 is going to be a doozy of a bad economic year.

 



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