Obama’s plan to tax the rich won’t work

Businessweek discusses Obama’s plan to increase the marginal tax rate back to the level under Bill Clinton and before the Bush tax cuts

Of the 149 million households filing federal income taxes for 2006, some 3% reported income between $200,000 and $500,000; fewer than 1% claimed income above half a million dollars.

The Bush administration instituted a federal tax cut for all taxpayers. Among other changes, the lowest income tax rate was lowered from 15% to 10%, the 27% rate went to 25%, the 30% rate went to 28%, the 35% rate went to 33%, and the top marginal tax rate went from 39.6% to 35%

Many people believe that increasing the marginal rate will collect more revenue from the the rich or for the government in general. Historically it does not matter if the top marginal rate is 90% or 25% the government collects 19.5% of GDP. The only way to get more tax revenue is to increase GDP. Such as a concerted effort to accelerate a manufacturing and construction revolution using new systems and technology.

Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser’s Law says it will also lower tax revenue. That’s a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

Although Hauser’s Law sounds like a restatement of the Laffer Curve (and Mr. Hauser did cite Arthur Laffer in his original article), it has independent validity. Because Mr. Laffer’s curve is a theoretical insight, theoreticians find it easy to quibble with. Test cases, where the economy responds to a tax change, always lend themselves to many alternative explanations. Conventional economists, despite immense publicity, have yet to swallow the Laffer Curve. When it is mentioned at all by critics, it is often as an object of scorn.

Because Mr. Hauser’s horizontal straight line is a simple fact, it is ultimately far more compelling. It also presents a major opportunity. It seems likely that the tax system could maintain a 19.5% yield with a top bracket even lower than 35%.

The fact that no matter what the rates and brackets all that can be obtained is 19.5% that argues for as simple a tax code as possible for getting that 19.5%.

The fair tax
or a
Relatively flat tax

The wealthier someone is then the more control they can have over their financial profile. Money can be shifted between income, corporate profits, dividends and capital gains and new income can be shifted between jurisdictions.


Tax brackets 1971-1978

1975 Median income 11,800 Mean income 13,779
Someone making 5 times the median income. Would be in the 60k-70k range.
(equal to someone now making 200,000).
Tax rate would be 53-55%.

1965 Median income was $6900 Five times that was 35,000 for 50-53% tax rate.

CBO analysis of long term taxes

Heritage examination of taxes

Comparing some tax burdens between countries

Comparing top marginal individual and corporate tax rates

Historical lessons of lower tax rates

5 thoughts on “Obama’s plan to tax the rich won’t work”

  1. I thought some Recent Nuclear News may be interesting here:

    The Japanese earthquake story continues to be updated.

    TEPCO ups report of impact of earthquake on its reactor

    The Japanese company TEPCO has revised upwards its estimates of the impact of the recent earthquake in Japan on one of its reactors. It is now saying that 400, not 100, drums of low level waste overturned and that the amount of very weakly radioactive water that leaked into the sea was 50% higher than recent estimates.

    However, before worrying about the leak it should be noted that the water that leaked was only two and a half times more radioactive than regular Bordeaux wine!

    click here for the full story

    Russian-built reactor operates at full power in China

    The Tianwan 2 nuclear reactor, built by Russia in China, operated at full power for five days in mid-July. The plant is due to enter full commercial service in a few months. The Russians have already built one reactor at the Tianwan site and they have contracts to build two more soon.

    click here for more information

  2. So in 2018-2023, the world could be making 200+ reactors per year which would be enough to replace all of the new coal reactors. However, currently it appears that 100 per year would be a good level to achieve. If those are the 50% up powered (MIT donut fuel and nanoparticle coolant) reactors then each would be 3 GW reactors.

  3. It will take time and commitment to scale up.
    Training people and separately getting less people intensive designs through automation or from the design would take time.

    However, it does take 4-5 years to build a reactor and maybe 2-X years for approvals and licensing.

    There is a ramping up globally now. 30 are being constructed and completed over the next 4 years. We could make 150 in the next 5 year build cycle (2013-2018) by following the historical scale up. The US scaled in 5 years from almost 3 small reactors to 12 larger ones in 1974. (8 in 1972, 10 in 1973) The world can scale up to 30 per year within 5 years.

    The people to be employed for those reactors can go through 4-5 year training now. The global available supply of engineers and technicians is enough to provide those people. Universities are re-establishing nuclear training programs and bachelors degrees and the PHD programs.

    China, India, Russia, Japan, S Korea, USA and the major corporations are scaling up and assembling the resources to build hundreds of reactors. It currently seems that the scale may only have 70-90 reactors (20 per year) built in 2013-2018.

    I hope that more effort is made

  4. Nice article and nice response to comment.

    I’m wondering about the manpower question, the skilled workforce to build these plants.

    If robots could build nuclear plants, and we had enough robots from robots building robots, it wouldn’t be a problem.

  5. I am serious and don’t call me Shirley. 😉

    I am not saying nuclear is the only thing we should use.

    “Nuclear waste” is incompletely burned nuclear fuel.

    There are high burn reactors which can use up 100% of the fuel instead of 0.7 to 2%.

    I have looked at the costs of all energy sources

    Money “spent” on nuclear energy was an investment that provided energy for consumers and profit for the companies. This is like saying that 30% of the money spent on Walmart coud have been spent on research for energy breakthroughs.
    You invest money in energy and get it back at a price per kilowatt hour.

    Oil and coal kill 3 million people each year because of air pollution. Oil is about 50% of that. Plus little wars over oil. Japan started WW2 with the USA over lack of access to oil. The Iraq wars.

    Electric cars use electricity. So 50% electricity from coal means that half of the electric cars are batteries powered by coal. Electric cars are the way to go but you have to clean up the sources.

    I have written a lot about coal

    Status of breeder reactors and nuclear waste reprocessing

    Nuclear waste analysis

    Look at my past articles on nuclear power

    Nuclear power and water

    Getting the scope of the energy problem right

    Nuclear proliferation has killed no one

  6. And what about the TONS of radioactive waste your little glowing plan will produce.

    Surely you can’t be serious.

    If every modern country spent only 30% of what has and may be spent on nuclear energy I’m pretty confident that we would see significant breakthroughs.

    Why it was only as few years ago GM pulled the plug on their electric car because nobody wanted it (Who Killed the Electric Car) and they couldn’t figure out how to make it worthwhile. But Th!nk, Telsa and others managed to figure it out and with a hell of a lot less money than the billions US car makers have pissed away on that foolish hydrogen dream they have been peddling since the 70’s oil crisis for Pete’s sake!

    The World Nuclear industry is no better and probably a lot worse (in the long run) than big oil.

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