Anti-Tax, Anti-Spending, Pro-Growth

[zeitgeist]

Interesting Article from a recent Barron's

Barron's

Other Voices

SATURDAY, JULY 6, 2013         

Anti-Tax, Anti-Spending, Pro-Growth

By HOWARD FLINKER 


So now we know how the fiscal cliff was resolved: more government spending than in 2012, and higher tax rates, too. This strategy will backfire, but too often any attempt to criticize is labeled a Republican defense of the rich. That shouldn't be.

Raising tax rates doesn't even hurt the rich. They spend more time with their grandkids, become happier, work less or take their businesses overseas. Raising tax rates does hurt the not-yet-rich who are striving for financial success.

President Barack Obama says that if we keep tax rates low, "the numbers don't work." Actually, that's the only way they do work. Cutting tax rates and cutting government spending almost always leads to higher tax revenues and more-successful economies, which should make us wonder why it is so rarely tried. The opposite approach—raising tax rates and government spending—almost always leads to lower tax revenues and a weaker economy. The more heavily this approach is used, the more the nations that do it court economic collapse. See the exhibits on display in Greece, Argentina, and Venezuela.

 WHEN SKIING DOWN A STEEP HILL, the natural instinct is to lean back, away from the plunge, but all good skiers know that the right thing to do is to fight those instincts and, counterintuitively, lean down the hill. There are similar tricks in economics, but they are even harder to adopt, in part because the connection between cause and effect isn't as immediate or obvious, and there are too many extraneous factors involved.

People keep forgetting economic truths they should have learned. So here are five reminders about nations that addressed their recessions and financial morasses by cutting tax rates and cutting government spending. It may not work every time, but it worked like a charm in each of these cases.

• Socialist Sweden came to its senses in 2006, and decided to cut both government spending and tax rates. At the time, its growth had been slowing as its very important export market, the European Union, slowed. The new lower tax rates spurred growth, which reduced unemployment and increased government revenues. As unemployment fell, the number of workers on disability also sharply fell, perhaps because of the miracle of more money being available to workers from working, as compared with being on the dole.

Parts of the underground economy emerged from the shadows. Those above-ground businesses paid taxes and paid employees above ground, too, adding further to tax revenues. In addition, the reduction in tax rates on ordinary income and capital gains spurred an increase in new businesses, according to Sweden's annual budgetary reviews. Having seemingly learned its lesson at last, Sweden this year installed a further cut in corporate tax rates, from 26% to 22%. Sweden is now the fastest-growing developed economy in Western Europe.


• Estonia was mired in a worsening recession in January 2003. It cut its top tax rate from 26% to 21% and reduced its governmental budget. Its economy took off. Estonia's economy has grown faster than any other in the European Union for almost all of the last 10 years.

• Canada was once widely viewed as considerably more socialist than the U.S. For 11 years, it has cut tax rates over and over. It has attracted entrepreneurs and foreign investors, increased the number of jobs and increased federal revenues because of the expanded economy. Prime Minister Stephen Harper continues to cut Ottawa's expenses. Canada has become one of the strongest economies in the world, and not just because of its energy resources.

• New Zealand leaned heavily toward socialism for 90 years until 1986. But its growth of jobs and national income significantly trailed that of Australia and similar countries. New Zealand adopted lower tax rates and cut government spending in 1986. It slashed its corporate rate from 48% to 28% over several years. Personal tax rates dropped by at least one-fifth and by two-fifths for some taxpayers.

In four years the New Zealand Treasury's revenue rose 86%, as workers returned to the work force because they suddenly found they could take home more money when they actually worked in the above-ground economy.

• Here in the U.S., we should look at the presidency of Calvin Coolidge. When Warren Harding died and Calvin Coolidge took office in 1923, economic growth and prices in the U.S. had been falling for two years. Under Coolidge, the U.S. cut tax rates by 50% and also cut the federal budget by 50%. The economy turned upward almost instantaneously. The economy grew by 7% per year for the next six years.

While Coolidge's administration was friendly to business, that of the next Republican, Herbert Hoover, was not. The Great Depression was partly brought on and partly exacerbated by Hoover's spending policies, then made worse by the "relentless experimentation" of the New Deal. Distorted again by World War II, the U.S. economy did not regain normal growth until about the time Eisenhower took office in 1953.

 AS ANOTHER FISCAL CLIFF approaches, Americans can choose high taxes and high spending, or lower taxes and reduced intervention in the economy. We can move our economic attitude to be closer to Bolivia, Venezuela, and France, or we can try to be more like Hong Kong and Singapore, which have no natural advantages at all except ambitious citizens and policies that are pro-growth. States can choose to be like Texas and Florida, or they can choose to be more like California and Illinois.

The next fiscal and tax debate shouldn't be about punishing the rich. It should be about raising massive tax revenue from the growth of the economy and the growth of income at all levels in America, best done with tax cuts and spending cuts. Let's do what works. 


HOWARD FLINKER manages money long and short at Flinker Asset Management in New York City.

Damn, the rest of the world can figure it out so why can't DUmmies?  Socialism just doesn't work.  Not the last time it was tried, not this time, nor the next.   

[Wineslob]

The OP assumes that the "99%" actually want to work. 

[NHSparky]

Zeit--and yet, when you read the Portsmouth soon-to-be-defunct rag, they're doubling and tripling down on teh stoopid.  Read Che-Pelosi's letter from the other day, but have a barf bag handy.

[zeitgeist]

Zeit--and yet, when you read the Portsmouth soon-to-be-defunct rag, they're doubling and tripling down on teh stoopid.  Read Che-Pelosi's letter from the other day, but have a barf bag handy.

True enough but who is going to run against her? Guinta?  I think not.  I had a whole week of P_town He_ralds to read through when I got back so I just gave her drivel a quick scan.  When I want to kill brain cells I will just drink a bunch of beers.   "Hey, hey, Carole Che, how many brains did you kill today??"

I am wondering about Bradley vs. Shaheen too.  And the NHGOP really needs to figure out how to get a web page to pop.  I mean the pictures are sure pretty but it is a load killer on a fast machine on anything marginal it must really inhale donkey.

Dow Jones owns the Herald, which is more a hobby loss than news paper.  Seacoast MEDIA group is about ad sales.  They print and pass advertising in the Herald, that is its real mission.   I took a pic of a weeks worth of the color ink versus the news print one time on a baby scale, pretty telling actually.  The liberals would toss their brie and wheat thins if they knew how they were being played.

[NHSparky]

Hell, I'D probably be a better GOP candidate than Guinta.  Surely I have less to hide than he does.