Free Markets, Free People

correlation isn’t causation


Kristof–America needs higher taxes

Needs?  America needs higher taxes?   Really?  According to Nicholas Kristof, that’s exactly right:

President Obama in his speech on Wednesday confronted a topic that is harder to address seriously in public than sex or flatulence: America needs higher taxes.

Maybe I get hung up on the meaning of words to darn much but “needs” isn’t one I’d link with “more taxes”. 

What America needs is a profligate government to cut spending – dramatically.  That’s its primary need right now.

Oh, and check out this bit of lazy and fallacious “correlation is causation” nonsense Kristof runs at those ignorant enough to buy it:

There is no single reason for today’s budget mess, but it’s worth remembering that the last time our budget was in the black was in the Clinton administration. That’s a broad hint that one sensible way to overcome our difficulties would be to revert to tax rates more or less as they were under President Clinton. That single step would solve three-quarters of the deficit for the next five years or so.

The last time our budget was in balance was because a Republican Congress put some budgets together that actually ended up giving us a surplus.  What Clinton did was sign the bill.  Secondly – it wasn’t because he had high tax rates that the surplus happened.  It was because revenue was up from a booming economy.

Kristof goes off into some pretty bizarre thinking out  loud in his piece .  And he tries to address three “fallacies” used in the discussion today, thinking he bolsters his claim that America needs tax increases (he uses the discredited “Medicare is cheaper to administer than private insurance”.  Yeah?  And it also has waste, fraud and abuse in the $60 billion range each year – so how cheap is it really?). 

My favorite:

Low tax rates are essential to create incentives for economic growth: a tax increase would stifle the economy.

It’s true that, in general, higher taxes tend to reduce incentives. But this seems a weak effect, often overwhelmed by other factors.

Were Americans really lazier in the 1950s, when marginal tax rates peaked at more than 90 percent? Are people in high-tax states like Massachusetts more lackadaisical than folks in a state like Florida that has no personal income tax at all?

Tax increases can also send a message of prudence that stimulates economic growth. The Clinton tax increase of 1993 was followed by a golden period of high growth, while the Bush tax cuts were followed by an anemic economy.

Back to correlation is causation.  High taxes = high growth, low taxes = low growth just because the economic cycles happened to coincide with those particular policies?  Of course there are any number of instances when the opposite is true.   Again, the Clinton tax hikes were in the middle of a booming economy, so people succeeded despite the government raising taxes.   We also know that we were spiraling down economically when the Bush tax rates were enacted.  But in neither case did the increase or decrease in taxes have much to do with the overall economy.

As for the “lackadaisical” riff, you’ll have to ask Kristof about that, but here’s a guess – if someone was looking at establishing a business in either MA or FL, given the tax rates, which state do you suppose would find favor (among other considerations) on the pro side of “taxes?”

You have to love the waive off of his initial “it’s true that … higher taxes tend to reduce incentives”.  Well, duh!  And if taxes are too high people do what?  Look elsewhere where the incentives are more positive.  So given that which is “true”, tell me again why America “needs” more taxes?

~McQ

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