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Friday, August 3, 2012

Economists: Cutting income taxes won't increase revenue

Posted By on Fri, Aug 3, 2012 at 6:45 AM

The Arkansas Republican Party plan to end the state income tax may eventually get the attention it deserves.

Despite a long professed love for a sales tax (seen in, among others, proposed Republican legislation, a draft and past platform statements and frequent campaign pronouncements by GOP politicians) and the dead certainty that an increase in the sales tax is the only way to cover a $3 billion loss of revenue from end of the state income tax, the Republican Party is choosing for now to play make believe. It wants voters to believe you can end the income tax without specifying an alternative revenue source. It's bad for politics to admit you'd need a 15 percent state sales tax rate to make up for a bonanza for the wealthy that elimination of the state income tax would produce. And to admit there's no option but the sales tax for such a crippling revenue loss.

Some Republicans lamely argue the income tax reduction would be gradual and be replaced by the prosperity sure to ensue from increased economic activity. It would take a tidal wave of investment beyond anything ever experienced for that to be true.

A reader last night sent a link to an interesting sounding of economic experts on this theory on the national level. The economists tend to favor, though not overwhelmingly, the idea that a federal income tax cut could spur a growth in GDP. But replace the lost revenue by tax revenue generated from growth? A whopping 71 percent disagree with the notion that tax revenue would be higher in five years after an income tax cut. But what do a bunch of economists know? Wouldn't you rather get your economic advice from a reactionary Republican who's a struggling chicken farmer in Mena?

PS — Some of the commments are funny on that economists' link, such as Austin Goolsbee from University of Chicago on notion that tax cut would increase revenue to government:

Moon landing was real. Evolution exists. Tax cuts lose revenue. The reasearch has shown this a thousand times. Enough already.

Let me remind you again what that income tax elimination proposal is really about, based on a breakdown of the tax burden in the most recent full year of statistics available.

3,077 Arkansans reporting taxable income (after deductions) of more than $500,000 reported $3.8 billion in income and paid $263 million in taxes for 2010. Their savings of $263 million from ending the income tax would be more than $87,000 each (bad typo in original post corrected on this figure). The Mitt Romneys among them would sock that money into the Cayman Islands.

Poor folks, who'd save in the hundreds of dollars on income tax elimination, would either a) pay a big chunk of it in the increased sales taxes necesssary to keep operating state government or b) see a huge portion of state services they use slashed to the bone, including medical care, education, college and other important services, not to mention the need for increased home security on account of the people that would be turned loose from prisons. These are not the people for whom the Republicans platform is crafted.

SPEAKING OF WINDFALLS FOR THE WEALTHY: The Republican congressional plan is a dream come true for the rich. Talking Points Memo has the outline.

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