Wednesday, May 11, 2011

Continuning Ignorance of Tax Rates & Their Effects On CNBC

House Minority Leader Eric Cantor appeared on CNBC on Tuesday morning. He was at the NYSE, apparently having accompanied John Boehner to the city the previous evening for the Speaker's address to the Economic Club of New York.

Cantor was interpreting and defending Boehner's pointed remark to the effect that a debt limit rise will necessarily include spending cuts of equal or more size, or there won't be a limit increase.

As usual when he appears on SquawkBox, Cantor was subjected to some economic idiocy, but this time, to my regret and shock, it was from Becky Quick.

Quick is a veteran Wall Street Journal reporter of many years, before joining CNBC. But, as are most other CNBC anchors, she is a journalist by training, not an economist.

Still, I know from watching the network's 6-9AM program fairly often that Quick still reads the Journal regularly.

Thus, it is inconceivable that she would have missed the editorials featured in prior posts here, here and here.

Never the less, she assailed Cantor in what may only be called an exasperated tone why the Republicans just refuse to raise taxes, pass bills to enact more taxes, in order to reduce the deficit. She then disingenuously compared that to a family under financial pressure not only cutting its spending, but having the adults take extra jobs to provide more income.

Well, consider those three Journal editorials.

In the first, from last May, David Ranson updated Hauser's Law, reminding readers that, regardless of tax rates, over time, only about 19% of GDP will be paid in taxes. Period.

In the second post, a recent Journal editorial by and Alan Reynolds reiterated Hauser's Law, then added that the non-business component of that 19% is just less than half, or about 8%. He wrote,

"Both individual income taxes and overall federal taxes have long been a surprisingly constant percentage of GDP- 8% and 18%, respectively- regardless of top tax rates on salaries, small business and investors. It follows that the only reliable way to raise real federal revenues over time is to raise real GDP."

Finally, John B. Taylor provided a simple but powerful graph in a recent Journal editorial displaying the differing percentages of GDP that federal spending would require under various alternative budgets recently proposed by the president and House Budget Committee chairman Paul Ryan.

As a responsible media anchor and occasional reporter, one would think Quick is abreast of current, mainstream, published economic findings such as those written in the Journal by Ranson, Reynolds and Taylor. We're not talking an economics journal, but the very mainstream business newspaper The Wall Street Journal.

So, assuming Quick read these pieces, why was she bludgeoning Cantor about raising taxes to collect more revenue, when the first two editorials presented clear evidence that (top) tax rates are irrelevant. It's total tax revenue that matters, which is maximized by lower rates to foster a growing GDP. The tax/GDP ratio is going to max out at 18%, so the only sensible way to raise more government tax revenue is to lower rates in order to induce more economic activity that will raise the denominator, GDP.

Why won't Quick acknowledge the empirical findings which make this so clear? Why does she continue to badger Republicans to raise taxes when she must be reading the same editorials I do which contain empirical evidence that such strategies are pointless?

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