In an editorial in Investor’s Business Daily, Thomas Sowell writes about the contentious and drawn-out debate over the debt ceiling. He gives credit to Speaker Boehner and the Republicans for holding out to get a debt ceiling bill that (ostensibly, at this moment) doesn’t include raising income taxes, and reinforces the idea that raising income taxes doesn’t necessarily mean the government will collect more revenue. He also acknowledges that Boehner’s bill, or any bill for that matter, isn’t going to be perfect. Regardless of which bill ultimately gets passed, people are going to be mad. Hopping mad. However, we shouldn’t -we can’t- let that stand in the way of passing something.
Many of us never thought that the Republicans would hold tough long enough to get President Obama and the Democrats to agree to a budget deal that does not include raising income tax rates. But they did — and Speaker of the House John Boehner no doubt desires much of the credit for that.
Despite the widespread notion that raising tax rates automatically means collecting more revenue for the government, history says otherwise.
As far back as the 1920s, Secretary of the Treasury Andrew Mellon pointed out that the government received a very similar amount of revenue from high-income earners at low tax rates as it did at tax rates several times as high.
How was that possible? Because high tax rates drive investors into tax shelters, such as tax-exempt bonds. Today, as a result of globalization and electronic transfers of money, “the rich” are even less likely to stand still and be sheared like sheep, when they can easily send their money overseas, to places where tax rates are lower.
Money sent overseas creates jobs overseas — and American workers cannot transfer themselves overseas to get those jobs as readily as investors can send their money there.
All the overheated political rhetoric about needing to tax “millionaires and billionaires” is not about bringing in more revenue to the government. It is about bringing in more votes for politicians who stir up class warfare with rhetoric.
Now that the Republicans seem to have gotten the Democrats off their higher taxes kick, the question is whether a minority of the House Republicans will refuse to pass the Boehner legislation that could lead to a deal that will spare the country a major economic disruption and spare the Republicans from losing the 2012 elections by being blamed — rightly or wrongly — for the disruptions.
Is the Boehner legislation the best legislation possible? Of course not!
I agree – it’s not the best legislation we could come up with, but it would be hard to do all the things we want -or need- to do with one bill. There are so many things about the way our government spends money that need to be changed, we’ll need to eat the elephant one bite at a time. Sowell goes on to applaud the Tea Party’s influence in the negotiations over the debt ceiling, but warns that having a “rule or ruin” mentality about this bill could marginalize the group’s influence in the future. He noted that we were able to win the American Revolution because George Washington retreated again and again to avoid being destroyed by the numerically superior British. Like many times in American politics, both parties are going to have to swallow some nasty medicine to raise the debt ceiling.
Go ahead and take the medicine, and get this debt ceiling thing out of the way for now. It’s pretty much guaranteed that nobody is going to get everything they want, and there’s certainly nothing good to be gained by not taking care of it. There’s an election coming up. If the American people are as disenchanted with Obama and the Democrats then as they are now -and there’s not much reason, from an economic perspective, to think much will be different- change (not the hopenchange kind; just the regular kind) will come, and more battles will be won in Congress. Perhaps, there may even be a way to win the war. For now, we need to survive.
Update: Charles Krauthammer thinks it would be disastrous for Republicans not to pass the Boehner plan (here’s the link if the video doesn’t show up)
