"Ignorance, Stupidity or Connivance"

[Cosima___J]

Economics professor Walter E. Williams hits the nail on the head once again. Please read:

Ignorance, Stupidity or Connivance?

President Barack Obama has called for a luxury tax on corporate jets as a means to generate revenue to fight federal deficits. The president's economic advisers ought to be fired for not telling him that doing so is unwise and counterproductive. They might have already told him so, only to have the president say, "Look, I know you're right, but I'm exploiting the public's envy of the rich!" Let's look at what happened when Obama's predecessor George H.W. Bush signed the Omnibus Budget Reconciliation Act of 1990 and broke his "read my lips" vow not to agree to new taxes.

When Congress imposed a 10 percent luxury tax on yachts, private airplanes and expensive automobiles, Sen. Ted Kennedy and then-Senate Majority Leader George Mitchell crowed publicly about how the rich would finally be paying their fair share of taxes. What actually happened is laid out in a Heartland Institute blog post by Edmund Contoski titled "Economically illiterate Obama, re: Corporate Jets" (7/12/2011).

Within eight months after the change in the law took effect, Viking Yachts, the largest U.S. yacht manufacturer, laid off 1,140 of its 1,400 employees and closed one of its two manufacturing plants. Before it was all over, Viking Yachts was down to 68 employees. In the first year, one-third of U.S. yacht-building companies stopped production, and according to a report by the congressional Joint Economic Committee, the industry lost 7,600 jobs. When it was over, 25,000 workers had lost their jobs building yachts, and 75,000 more jobs were lost in companies that supplied yacht parts and material. Ocean Yachts trimmed its workforce from 350 to 50. Egg Harbor Yachts went from 200 employees to five and later filed for bankruptcy. The U.S., which had been a net exporter of yachts, became a net importer as U.S. companies closed. Jobs shifted to companies in Europe and the Bahamas.
The U.S. Treasury collected zero revenue from the sales driven overseas.

Back then, Congress told us that the luxury tax on boats, aircraft and jewelry would raise $31 million in revenue a year. Instead, the tax destroyed 330 jobs in jewelry manufacturing and 1,470 in the aircraft industry, in addition to the thousands destroyed in the yacht industry. Those job losses cost the government a total of $24.2 million in unemployment benefits and lost income tax revenues. The net effect of the luxury tax was a loss of $7.6 million in fiscal 1991, which means Congress' projection was off by $38.6 million. The Joint Economic Committee concluded that the value of jobs lost in just the first six months of the luxury tax was $159.6 million.

Congress repealed the luxury tax in 1993 after realizing it was a job killer and raised little net revenue. Why did congressional dreams of greater revenues turn into a nightmare? Kennedy, Mitchell and their congressional colleagues simply assumed that the rich would act the same after the imposition of the luxury tax as they did before and that the only difference would be more money in the government's coffers. Like most politicians then and now, they had what economists call a zero-elasticity vision of the world, a fancy way of saying they believed that people do not respond to price changes. People always respond to price changes. The only debatable issue is how much and over what period.

Here's my question for you: Is it likely that in the two decades since 1990, American human nature has changed? If Congress imposes a luxury tax on corporate jets and other luxury items, will Americans behave differently this time? In other words, can we expect federal tax revenues to rise and unemployment to fall as a result of Obama's tax proposal?

I don't believe that Obama is dumb enough to believe that a tax on corporate jets would be a revenue generator. His agenda is to inspire envy and resentment against wealthy Americans as a tool in pursuit of his higher-tax agenda.

Walter E. Williams is a professor of economics at George Mason University.

[lennygoran]

>"Look, I know you're right, but I'm exploiting the public's envy of the rich!" <

That guy has me pegged! Regards, Len

[jbuck919]

Why, I am aghast. I had no idea that raising taxes on the super-rich would reduce employment in the luxury yacht building business. And in a country the size of the United States that's a one-off of a couple of thousand jobs held by people with transferable skills! What is Obama thinking of? I'm going in to the county offices today to change my enrollment to Republican.

[Bill_N]

Why, I am aghast. I had no idea that raising taxes on the super-rich would reduce employment in the luxury yacht building business. And in a country the size of the United States that's a one-off of a couple of thousand jobs held by people with transferable skills! What is Obama thinking of? I'm going in to the county offices today to change my enrollment to Republican.

To paraphrase Josef Stalin: A thousand people losing their jobs because of a tax hike on the super-rich is a tragedy; a million people losing their jobs because of massive spending cuts is a statistic (or, if you prefer, a 'so be it').

[Cosima___J]

I guess you missed or chose to ignore the whole point of Williams' article. Well, this sentence of his sums it up:" Congress repealed the luxury tax in 1993 after realizing it was a job killer and raised little net revenue."

It's all about the unintended consequences of trying to get more money from "the rich". Multiply that silly luxury tax by several hundred and you're talking serious job losses with little to no extra revenue from the tax. In addition to the job losses, unemployment payment expenditures went up.

Now do you seriously believe that "the rich" will actually end up paying much more taxes if attempts are made to "soak the rich", get the rich to pay "their fair share", etc???? If you do, I've got some swamp land to sell you. The truth is, the rich will change their behaviour in some way to thwart being taken to the cleaners. And that change in behaviour could have major bad consequences for the rest of us.

[jbuck919]

The tax on luxury items is not the same as raising the marginal income tax rate--and I don't mean to 90% or even 45%--for the uppermost income levels. Ending silly deductions for corporate jets and such is also not the same as taxing them, though I suppose it will have an effect on those industries. But the corporate jets thing was always symbolic, like "grand opera" when they were cutting the arts budget some years back. Obama's use of that to make a rhetorical point has backfired on him because the opposition is milking the false impression that Obama or anyone else ever thought that this particular change would raise a lot of revenue. (It should be eliminated anyway as a matter of cleaning up obvious tax code idiocies).

I have read the argument that very high tax rates on the rich just make them find shelters and loopholes, and there is probably truth in this. But the additional amount being discussed is only a return to the rates prevalent before the Bush tax cuts, i.e., a move toward normal in a chronically under-taxed society. And as far as I am concerned, they can eliminate those cuts across the board and not just for the rich, even if it means I pay more taxes myself. However, I would want not want a tax increase to, ahem, trickle down to the level where it really did start to damage the economy even further.

The fact that the Bush cuts did nothing to cause the wealthy to change their behavior in an economy-stimulating way is evidence that we are better off narrowing the deficit gap (about which you, Cosima, are so rightly concerned) than continuing lower rates that are not actually helping the economy. It seems to me that you and other Republicans argue for the priority of debt reduction over stimulating the economy when it comes to spending, but argue the reverse (with no evidence to back up your belief that tax relief in this case is a stimulus to begin with) when it comes to taxes.

[Teresa B]

Now do you seriously believe that "the rich" will actually end up paying much more taxes if attempts are made to "soak the rich", get the rich to pay "their fair share", etc???? If you do, I've got some swamp land to sell you. The truth is, the rich will change their behaviour in some way to thwart being taken to the cleaners. And that change in behaviour could have major bad consequences for the rest of us.

...So, how do we get the rich to convert from greed to compassion, and at least agree to pay their fair share?

Teresa

[BWV 1080]

While I agree that narrowly focused populist policies like the luxury tax usually fail to achieve their intended results and often have serious unintended negative consequences, I would question the causality that Williams claims. The passage of the tax in 1990 did coincide with the onset of a recession and demand for luxury items is notoriously cyclical. That was the end of the 1980s real estate and LBO boom which generated the nouveau riche customer base for these products

[Cosima___J]

There are good arguments that can be made for a whole lot of different definitions of "fair share". Some rich people might say they are already paying their fair share in that they already pay, by far, the biggest share of income tax revenues. And since almost half of American households pay no income tax, are they paying their "fair share"? BTW, I'm not advocating putting income taxes on the poor. I actually got the EITC when I was poor. But the fact is, half of all American households are not poor, eventhough they pay no income tax! Shouldn't all but the poor be required to pay something, even if it's just a small token payment?

[John F]

Shouldn't all but the poor be required to pay something, even if it's just a small token payment?

It's called the alternative minimum tax.

http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

[Cosima___J]

Are you saying that the AMT guarantees that all but the poor pay income taxes?

[John F]

If you want to spell out more specifically what you mean by "all but the poor" and "a small token payment" - say, in the form of a tax table - that might be discussable. How much revenue would actually be raised? As it is, I don't know what you have in mind, so I've nothing more to say about it.

[BWV 1080]

AMT has nothing to do with the poor - it only kicks in at higher income levels and assures that the rich pay some minimum level of taxes by removing most of the ordinary deductions

[Cosima___J]

Thanks BWV. You've answered my question. The AMT affects the well-to-do. It does nothing to guarantee that all but the poor pay taxes.