Dec. 9, 2014: Senate Majority Leader Harry Reid of Nev. meets with reporters on Capitol Hill in Washington. (AP)
"Anyone know what this is? Class? Anyone... anyone? Anyone seen this before?"
In the classic teen film, "Ferris Bueller's Day Off," the dorky economics teacher played exquisitely by Ben Stein answers his own question posed to his comatose high school class.
"The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve you will get exactly the same amount of revenue as at this point."
You hear the excruciating screech of chalk on the blackboard, but never actually see the bell curve being drawn. Instead, the camera focuses on a passed out kid drooling all over his desk. Too bad. Apparently, those somnolent slackers -- "pals" of Ferris-- grew up to run the government.
The Tax Curve
According to legend, 40 years ago economist Arthur Laffer sketched out a non-linear graph on a cocktail napkin illustrating the relationship between taxation and government revenue.
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His argument was this: at some maximum point, the government taxes people excessively. When taxes become too onerous, they act as a disincentive. So, people work less and spend less, and the corresponding revenue to government coffers decreases. Beyond this threshold level, the burden of higher taxes extinguishes the flame of economic growth.
Conversely, Laffer contended that lowering taxes tends to incentivize people to work harder. The more they are permitted to pocket what they earn, the more they produce and spend. It also motivates the creation of new businesses and the expansion of existing ones. This leads inexorably to a stronger economy.
The Laffer curve cannot, of course, identify the optimal tax rate. But why should it? Why is it that politicians, both Republicans and Democrats, think it is their job to maximize government revenue --to wring every last dollar out of the pockets of hardworking citizens? So they can spend more of other people's money, ostensibly, for the public good? The trouble is, politicians fail to recognize their own incompetence.
President Obama admitted as much when he confessed that his $1 trillion dollar stimulus spending failed to produce the "shovel-ready" jobs he promised.
Very little of the money was directed toward goods and services. Much of it was sucked up by "transfer payments" to state and local governments to reduce their borrowing.
In essence, the government borrowed money from the public to reduce borrowing from the public. Thus, the net impact on aggregate economic activity was negligible. The government was not equipped to spend a trillion dollars judiciously.
Wasteful Spending
Washington is notoriously inept at spending the money it takes in. Milton Friedman, who won the Nobel prize for economics, knew this and argued that revenue should never be the goal of tax policy. He said repeatedly, "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."
Friedman understood that governments are inherently inefficient and prone to spending money unwisely. Frequently, they squander or waste the hard-earned dollars of taxpayers.
Friedman's rationale seems more valid today than ever. This year alone, the feds frittered away some $25 billion dollars on worthless projects. Read all about it in Sen. Tom Coburn's annual report on government waste.
Like what, you may ask?
How about laughing classes for college students, paying people to watch grass grow, teaching monkeys how to play video games and gamble, giving Swedish massages to rabbits, and analyzing mountain lions on a treadmill.
The report is a hoot and a holler -- until you remember it is your money being discarded like yesterday's trash.
My personal favorite was spending $350 million dollars to build a NASA launch pad, never realizing that the rockets to be used there were scrapped years ago. Now, it sits idle. Time magazine dubbed it "the launch pad to nowhere." Honestly, what kind of stupidity does such profligacy constitute? Apparently, the government kind.
While politicians are preoccupied with spending your money, they seem utterly disinterested in performing their primary function. When it comes to legislation, the current Congress is "on track to be one of the least productive in 60 years." Except insofar as spending is concerned.
Their extravagance perpetuates their own power by currying favor with interest groups which, in turn, financially support their Capitol Hill benefactors when it comes to re-election. It adds texture to the word, "corrupt." And it shows no signs of abating.
Income Inequality
Enter President Obama who served up his own anti-Laffer twist. A year ago, he vowed to dedicate the remainder of his term to fighting "income inequality."
It has a lovely, populist ring to it. But he conveniently overlooks the evidence that his policies of raising taxes on income, capital gains, dividends and small businesses appear to have exacerbated the divide. Real median household income has decreased under his stewardship, even as the economy has rebounded from the financial panic and ensuing recession, albeit at a lethargic pace.
The reason is plain: income inequality is a symptom, not an illness. Persistent unemployment and anemic economic growth are what plague the U.S. economy and the upward mobility of Americans.
Confiscating wealth by tax and then spending the revenue recklessly in a vain attempt to redistribute income is a fatuous invention that punishes the successful. At the same time it rewards the unsuccessful by perpetuating a culture of dependence and entitlement.
A recent Fox News poll found that a majority of Americans believe it is a "bad idea" for the government to spread the wealth from the people who make more money to the people who make less.
Mr. Obama famously remarked, "I do think at a certain point you've made enough money." The affluent, he said, are not paying their "fair share." This belies the fact that the top 10% of wage earners pay roughly 70% of all federal income taxes, according to IRS data. The top marginal rate has increased from 28% to almost 40% since 1986.
Appropriating someone else's money does not remedy income inequality. Fostering a healthier economy with better paying jobs does.
"Wealth" As A Pejorative
Sometimes the truth can be inconvenient. It is easy to denounce "wealth" as a dirty word and demonize success. Never mind that wealth, both personal and corporate, creates jobs.
Whenever the affluent make gains, it benefits the middle class and poor. It proves the aphorism attributed to President John F. Kennedy, "a rising tide lifts all boats."
Kennedy's tax cuts lifted the economy and the middle class, while federal receipts increased. Under Obama, the punitive tax burden and the tide of entitlements are running the economic boat aground.
Social welfare states have a long and distinguished record of failure. Sweden, for example, teetered on the edge of insolvency before reversing course by slashing social transfers and cutting taxes. This, as America moves in the opposite direction. Nearly half of households in the U.S. pay no federal income taxes, and half the population receive government benefits.
More people are now reliant on entitlement programs than ever before. Together with the cost of ObamaCare, they will consume more than 50% of our nation's budget in just one decade. As the Swedes will attest, it is unsustainable.
By his comments and policies, President Obama implies that accumulating wealth constitutes greed. As if hard work and success are something of which to be ashamed. He has cast himself in the role of a modern day Robin Hood, creating heroes and villains where none truly exist.
Instead of solving the root cause of income inequality, he gins up class warfare and foments division. He seeks to deprive people of the benefits of achievement, while reinforcing dependency. In the process, he transforms hope into victimhood.
Thomas Sowell, an economist and social theorist who has authored more than 30 books, described it this way, "I have never understood why it is greed to want to keep the money you've earned, but not greed to want to take somebody else's money."
Clearly, Sowell was not "buddies" with Ferris Bueller.
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