Ignorance and ideology do not combine to form knowledge

I got some rather hysterical comments submitted today about my views on Obama and the economy. One person told me that the best way to close the budget gap is to hike the top income tax rate to the high 40's while also ending the Bush tax rates. So let's look at that possibility. If the Bush rates were allowed to expire and no other changes were made, the tax revenues for the next decade would rise by about 4 trillion dollars under a static scoring method. A little over 80% of the total would come from the middle clase. if there were also a rise to 45% for the top rate, there would be yet another 800 billion dollars in revenue again using static scoring. Sounds like it would work doesn't it?

The answer, however, lies with the phrase "using static scoring". Nearly all of the Democrats like to use static scoring when they talk about the budget. Unfortunately, there is no such thing as static scoring in the real world. Static scoring means figuring out the revenue achieved by a tax change without considering the effect that the tax change would have on growth in the economyh. In other words, if the economy is growing now at 2.5% and there is a large tax increase which sucks billions of dollars out of consumer demand, static scoring assumes that the growth rate remains unchanged. Indeed, in the numbers that president obama set forth in his speech the other day, not only did he use static scoring, but he also assumed that the growth rate for the decade would be about 5%, a rate we have not seen for a long time.

The opposite of static scoring is called dynamic scoring. Using dynamic scoring, an attempt is made to determine the effect of the tax change on the rate of growth in the economy and then the numbers are computed. It is undisputed that a large increase in taxes will slow economic growth or lead to a recession. Of course, under static scoring, that is just not considered. The truth is that a tax increase like that being pushed by the hysterical liberals who made comments today would actually cause an economic slowdown that would reduce and not increase government revenue. That's right, raising taxes brings in less revenue. The opposite is also true; lowering taxes can bring in more revenue.

I realize that many liberals live by the ideology that says that having wealth is a bad thing. After all, anyone who makes money must have gotten it by cheating the rest of the people. The rich are all evil, right. So most liberals love the idea of higher taxes on the wealthy. Sadly this ideology combined with a lack of understanding as to the effect on revenue of most tax increases makes for a dangerous brew that could lead to disaster for the country. It is imperative that growth be increased and jobs created. To accomplish this we need strong economic growth. There is no question that it will take tax restructuring to have an impact on the US growth rate.