Close Obama associates not doing as President says
By Clark S. Judge
Texas Insider Report: WASHINGTON D.C. Isnt that just like government? Always blaming someone else taking no responsibility for the blunders it makes like raising tax rates to where an
Obama-supporter like Google CEO Eric Schmidt is ready to endure the accusations and outrage that politicians and governments will inevitably throw at him in order to protect those who depend on his companys economic health shareholders and employees primarily.
Heres a quiz. If the government were to raise the top personal income tax rate by say 25
what would be the increase in its take of the total gross domestic product?
Twenty-five percent? Are you sure? After all how much of the governments total personal income tax take
actually comes from the top say 1 of earners?
OK its not fair to pile question on question so here is the answer to that question taken from a recent column by George Mason University economist Walter Williams:
According to IRS 2007 data:
- The richest 1 of Americans earned 22 of national personal income but paid 40 of all personal income taxes.
- The top 5 earned 37 and paid 61 of personal income tax.
- The top 10 earned 48 and paid 71 of all personal income taxes.
- The bottom 50 earned 12 of personal income but paid just 3 of income tax revenues.
So again class how much more will the government claim of our GDP once those who make more pay more?
Stumped? Actually it is a trick question. The answer is somewhere around zero.
In economic theory the reason is called the Hauser Rule after San Francisco financier Kurt Hauser. Some years ago Hauser asked what has been the historic impact of changes in tax rates on the overall federal tax receipts as a proportion of GDP?
Analyzing tax collections from 1950 on he found that high tax rates or low tax rates government receipts consistently fell in a narrow band around 19 of GDP.
Do you have trouble seeing how that theory would work class? After all the government charges more so it must collect more. Right?
Well not exactly.
Consider the case of Eric Schmidt and his company Google. Together they make a lot of money and yes they pay a lot of taxes. Mr. Schmidt is a close associate of President Obama and just this morning is reported to have refused an offer
from the president to become the new Treasury Secretary. Mr. Schmidt agrees with the president on many things including we can assume that the top tax rate on people like him should be raised.
But also this morning
there is a Bloomberg report that over the last three years Google presumably in anticipation of increasing tax rates here and abroad has been shifting its corporate earnings to a Bermuda shell company. Bermuda has no corporate income tax.
The United States has one of the worlds highest.
Google has doubled its reported Bermuda revenues over the last three years. In 2011 the earnings from those revenues totalled 80 of Googles global pre-tax profits.
Bloombergs story notes that:
The increase in Googles revenues routed to Bermuda disclosed in a Nov. 21 filing by a subsidiary in the Netherlands could fuel the outrage spreading across Europe and in the U.S. over corporate tax dodging. Governments in France the U.K. Italy and Australia are probing Googles tax avoidance as they seek to boost revenue during economic doldrums."
And class if Mr. Schmidt is moving money to protect his company f
rom high corporate tax rates what is he doing to protect himself from rising personal tax rates?
Actually we have real world examples of what those kinds of high tax rates prompt people to do.
France is preparing to boost its top personal tax rate to seven75.
This morning the Associated Press reports that French film start Gerard Depardieu holder of the French Legion of Honor has established residence in Belgium where the top tax rate is only 50.
But heres the thing class. Considering the good of society at large moving is one of the best ways for Mr. Depardieu to respond to rising rates. Worse would be for him or you or me or any productive person to just quit working or work less that is to stop or reduce contributing to the world through our labor because after all whats the point with the
government taking so much more of our earnings.
So as the budget talks continue in Washington class maybe the negotiators should keep in mind two rules: first of course Hausers; second Hippocrates Do no harm."
Clark S. Judge is managing director of White House Writers Group and chairman of Pacific Research Institute.
