30 November 2010
Hauser’s Law
(Graphic depiction of Hauser’s Law, which holds that tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Copyright Wainwright Economics 2010.)
I got a note late yesterday from a pal who retired from the Federal workforce. He said he had got out, just in time, having heard of the President’s declaration that he was imposing a two-year pay freeze for civilian federal workers.
I wrote him back immediately, saying: “Let the games begin. This is just the thin edge of the wedge. None of us who are on the public teat are going to like what is coming next. It is going to be big and profound and unpleasant.” I had to pause as the prospective elements of the pain occurred to me.
Increased premiums for the military healthcare. No COLAs. Pressure to shut down the Commissary system. Elimination of the twenty-year pension for military service. That is just the list for people like me. We will all share in other elements of pain to pay for the irresponsibility of our elected officials and the criminally creative conduct of our financial wizards, some of whom should be serving jail terms for bankrupting us with malice aforethought.
“The alternative to taking action now,” I concluded grimly, “is going to be worse, and the people who are going to implement the pain don’t like us much.”
My older boy was a little glum when I saw him later.
“No cost of living for two years,” he said. “This sucks.”
“Not as bad as losing to Ohio State for seven consecutive years,” I responded, which touched off a long and emotional discussion of the merits of retaining the services of Rich Rodriguez as the head coach of the Wolverines.
“If you fire him there is just three more years of chaos in recruiting,” said my son. “That is the trench Notre Dame dug themselves into.” I conceded he had a point, but the alumni was a volatile bunch, and as Boomers, used to immediate gratification.
This morning, I saw that The Times quoted the President as saying: “The hard truth is that getting this deficit under control is going to require some broad sacrifice, and that sacrifice must be shared by employees of the federal government.”
I smiled as I read the words, since the President is not one of those who is going to sacrifice a thing. Taxes are going to go up, if not now when the Bush tax cuts expire, or later, when the current crisis has passed as the Domenici-Rivlin deficit reduction panel recommends.
It is hard to keep straight. The President’s Panel- the one headed by Erskin Bowles and Alan Simpson- launched a trial balloon that shot-gunned the entire budget. Taxes and budget cuts are the heart of the assault on the $13 Trillion dollar deficit that will strangle us all if nothing is done about it.
The President’s panel is supposed to have their final recommendations out this week. We will see how much grit the distinguished members can muster after their balloon was shot to ribbons.
One thing to keep in perspective as the witch hunt for citizens who have the temerity to make more than $250,00 a year and would like to keep it. The Wall Street Journal ran a piece yesterday by a guy named W. Kurt Hauser on the benefits of increased taxation.
He is a pretty smart guy, chairman emeritus of the Hoover Institution at Stanford, and chairman of a prestigious San Francisco investment management firm. He updated his data from his 1996 book "Taxation and Economic Performance” as part of the counter-barrage against what is about to happen.
Hauser says that receipts from increased taxation won’t do what most think they will: to wit, raising taxes will not raise revenues and will in fact dampen growth. If that sounds like supply-side Vodoo Economics, take a look at the chart of performance.
I have to go with the data.
This is an exciting time to be alive, considering the alternative. But having been around the government as long as I have, I am not optimistic that it is going to start suddenly getting anything right.
Do you?
Copyright 2010 Vic Socotra
vicsocotra.com | Subscribe to the RSS feed!