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Saturday, January 25, 2014

Exposing Walker's Election Year Tax Cut For The Political Stunt That It Is

Retitled from "Laffer Curve Flatlines Walker's Election Year Tax Cut For The Stunt That It Is"

State of the State Excerpt:
“What do you do with a surplus? Give it back to the people who earned it. It’s your money.” -- Gov. Scott Walker

Except, when somebody says they're giving money back to me in those direct terms, I expect a direct refund. Not the next time I make a payment, I get to pay a little less. That's not giving me my money back. That's simply a tax cut.

Sure, a tax cut is a tax cut is a tax cut, so in some regard, who really cares about the dynamics behind it or the future consequences so long as my taxes are less. Yippie! Hooray! To be sure, tax cuts are inanimate objects. Tax cuts don't care whether government is running a deficit or a surplus and unfortunately, neither do many taxpayers.

Well, except for fiscal conservatives. Some time ago they used to care and at least put on a good pretend face about things like increased state spending, deficits, increased borrowing and long-term debt. In fact, the Tea Party in large part was built on wrongly projecting spending, borrowing and debt growth onto Democrats and Liberals for years. But who knew all the spending and debt was really all okay so long as a tax cut was included? That's what the Tea Party seems to be saying on social media about Walker's proposal to return a "surplus" to taxpayers in the form of tax cuts. They think it's earth-shattering balls-out conservatism, when all it is, is an election year political stunt.

Now enter the Laffer Curve. If you're not familiar with the Laffer Curve, here's a brief generalization. The Laffer Curve is an economic theory for tax policy suggesting that, as taxes (rates) are cut from perceived high levels, government will collect MORE revenue than if it did nothing (no changes) with tax rates, because more money in pockets means greater consumer spending and economic activity which in turn will drive higher tax revenues back to the government. In theory.

The Laffer Curve also suggests that tax rates increasing after a certain point would cause people not to work as hard or not at all, thereby reducing tax revenue. As you probably can tell, small government supply-side conservatives tend to use both sides of the curve to argue tax policy against opponents, particularly to justify cutting taxes using Laffer's "increasing revenue" side of the theory for economic growth.

Gov. Walker of course must think our state taxes including income taxes are too high when he hilariously said that no one told him that Wisconsin taxes were too low. Now THAT'S solid evidence! Honest, he really said that.

So let's put this all together.

Walker said the state developed almost a $1 billion "surplus" due to increased revenues and he wants to give it back to the people who earned it through tax cuts.

But according to Laffer's Curve, it is impossible to spend down a surplus with a tax cut because the tax cut will only increase revenue to the government. The tea party really believes in this stuff. Laffer is like the Holy Grail to them.

In fact, prior deficits or surpluses have no relevancy at all to Laffer's theory. Only the starting base point of whether taxes are too high or low matter, and Walker established our current taxes as too high with his off-the-wall, "no one said taxes are too low" remark. So in Laffer truth, people won't be getting their money back. We're simply getting a tax cut.

IF however the state reports (understand that the surplus is a projection report) that the tax cut is indeed reducing the so-called "surplus," that means less revenue is coming in, which in turn means that the extra money in our pockets did not spur greater economic activity, which in turn means the taxes were just about right to begin with, which in turn means Scott Walker's "return the surplus to those who earned it" is nothing more than a costly election year political stunt. On both counts.

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