House of Eratosthenes

Learned something today. Neal Boortz went off on the Congressional Budget Office’s forecast that this latest proposed tax increase on the wealthy, this time, for once, is sure to make a dent in the deficit.

The Congressional Budget Office did say that the 5.6% surtax on millionaires would bring in $450 billion over 10 years. But here’s the rub: The Congressional Budget Office is compelled by law to make a static analysis of changes in the tax law. The CBO cannot issue a dynamic analysis. This works to the favor of those who propose ever-higher taxes.

Here’s an explanation from Wikipedia of static economic scoring vs. dynamic:

Static analysis, static projection, and static scoring are terms for simplified analysis wherein the effect of an immediate change to a system is calculated without respect to the longer term response of the system to that change. Such analysis typically produces poor correlation to empirical results.

Its opposite, dynamic analysis or dynamic scoring, is an attempt to take into account how the system is likely to respond to the change. One common use of these terms is budget policy in the United States, although it also occurs in many other statistical disputes.

Now .. a question for you. Do you think that there is any chance in the world that the high achievers subject to this punitive 5.6% surtax are going to find a way to change their economic behavior when this tax goes into effect? These people aren’t exactly picking up paychecks every two weeks from some employer. They earn their money in a variety of ways – imaginative ways – often from the operations of businesses and through investment techniques. These people are going to move to take advantage of information technologies, tax laws and the ease with which money is moved electronically around the world in order to find a way to moderate the impact of this class warfare tax.

None of this is news to anybody who’s been making a point of digging in a little bit deeper, going beyond Jon Stewart, Bill Maher and the six o’clock news, making some effort to figure out why governments at all levels seem to be perpetually in debt…maybe tuning into some right-wing hate radio now & then. We vote in these people who can wear suits well and talk well and have big hair, then they bring in these “brain trusts” and the brain trusts sit down and try to manage the economy with third-grade math: Okay, we’re short five million dollars, this industry over here is a hundred million dollars a year, so we’ll hike the tax rate five percent and the problem’s solved.

And, if you’ve been doing this digging, you’ll not be surprised to learn our federal government requires itself, through the CBO, to think in this primitive way.

But here’s where I learned something new. I went and found the Wikipedia page that Boortz (for some reason) didn’t link…it’s not hard to find at all, and I’d already read it over a couple of times in the last few years, since this is a subject that comes up now & then…and I read it again. Well, I must have missed this before:

The term was used in 1977 in an international academic journal, in a discussion of tax policy. In recent years, it has become very common in academic, business and political discussions of US government economic policy. [emphasis mine]

Uh, just WOW…pretty fuckin’ late. So I was mowing lawns in my holey-jeans earning money to go see Star Wars…and these economists who are supposed to know everything, were just starting to invent some phrases to describe the idea that maybe tax revenue shortfalls cannot be solved by means of simple multiplication.

I want to be fair here, it’s entirely reasonable to expect some of the professionals in the field might have noticed this, without explicitly coming up with a name to describe it. But if it’s all about “reasonable,” I would have to file that under “possible but not likely.” Even today, the notion that there might be a curvilinear relationship is conflated with the “Laffer Curve” and there’s a lot of progressive propaganda out there that this has been “debunked,” although the regurgitators of this propaganda cannot give you a decent explanation as to why it is debunked. That’s because it has not been, and cannot be.

In fact, it’s pretty easy to prove. In geometry, three points on two dimensions will define a curve, and three can be defined with respect to tax revenues: Zero revenue at zero percent, probably-zero-revenue at a hundred percent, and non-zero revenue at something between zero & a hundred percent. None of these three points require experimentation, none can be subjected to serious intellectual challenge. If you accept the three, then the laws of geometry say you have to accept that there is a curve.

The argument then becomes — presuming you can keep the progressive engaged in an honest and coherent discussion this long, and that’s a little like giving a pill to a cat — on what side is such-and-such a tax policy on, relative to the apex of that curve? Are we on the left side, meaning we can still ratchet up that tax rate a point or two & rustle up some more bucks…or are we on the far side?

Well if you read that last paragraph of what Boortz wrote, and ponder for awhile what it means, you realize the ramifications are that the curve’s apex migrates toward the left when you start to deal with higher incomes. Or, at least, when you start to deal with the entrepreneurial mind, which almost by definition is going to be inhospitable to the idea of keeping-on doing things just because that’s-the-way-we-always-done ’em. You go down toward the trenches, and you’ll start to deal with people who are more interested in just constructing a routine that works. They’re not quite there yet, or if they’re there, it takes some effort to “make ends meet.” So they’re at the make-ends-meet stage. Unlikely to change behavior based on a revised tax policy. The apex moves toward the right, and you have more latitude to raise taxes and still realize revenue…maybe…we don’t really know that, because we aren’t too aggressive about taxing people down there.

But what we do know is there’s a long trail of wreckage and failure behind this notion of “taxing the millionaires and billionaires.” These are individuals highly likely to change their behavior in response to a new tax policy. And that is not to say they are necessarily more intelligent people. All this overlooks the issue of bracket mobility. People start out trying to build that routine that works, that is sustainable, and then if they’re a mind to, they’ll start looking at new routines that do more than work. Less security, more opportunity. That’s after they’ve stopped associating with the old college roommate who comes by to practice guitar-playing on Friday nights, drinking all the beer in the house. Life throws you the same lessons over & over until you learn them, and then it moves on to some different lessons to throw at you over and over again until you learn those. Some of us graduate from one lesson to the next, a little quicker than others. Some of us settle for a humble station in life, others don’t. The point is this: If you’re the type to forsake the paycheck every 15 days and try to make a living on your wits, and you actually manage to succeed at that — you are highly, highly unlikely to just bend over and take it just because your local, state or federal government thinks it’s time to “make the millionaires and billionaires with their private jets pay their fair share.” Odds are, you will find a way to adapt and survive.

And the government will not take in what it was planning — according to straight-edge, third grade math — to take in. It has been ever thus.

But I’m rather flabbergasted to see we were only just starting to come up with terms to describe this, in ’77. What an awful lot of time, before that, for all the misery and the struggling, apparently without too much disciplined thought about what was happening. “Brain trusts,” you say? My goodness…what was it I was saying about life handing you the same lesson over & over until you learn it?

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Static ScoringTuesday, October 11th, 2011

Static Scoring
Tuesday, October 11th, 2011