Don’t Follow the Judas Goat – a Tax Commentary

Don’t Follow the Judas Goat – a Tax Commentary

A ‘Judas Goat’ is a goat trained to associate with other herd animals, primarily sheep or cattle and lead them to slaughter.  By following the Judas Goat the unsuspecting livestock calmly walk right up to their own demise.  When it comes to taxation, make sure that you don’t follow the Judas Goat!

I’m consistently amazed at the stupid things that celebrities say and the questionable causes they support.  Just look at how many celebrities have been hoodwinked by the extremist group PETA into endorsing their agenda and even posing naked to support it.  I understand the need to ‘make a difference’ in the world but do your homework folks!  The worst of these celebrity ’causes’ is the recent rash of celebrity ‘tax the rich’ and last year’s ‘support Occupy Wall Street’ celebrity endorsements.

These tax-increase celebrities remind me of that Judas Goat…with their expectation that we will be so star-struck that we calmly follow them into taxmeggeddon.  Even seemingly rational businessmen like Warren Buffet have chosen to play the Goat.  My only guess is that if you’ve accumulated all the wealth you’ll ever need than it’s worth it to deflect the animosity of the class envy by saying “no, really, I should be taxed more” or maybe the motivation is just guilt.

The problem with the Judas Goat is that his or her approach doesn’t lead to the Goat’s slaughter…just the rest of us.  If you really believe you should pay more taxes it’s easy to do…just look how hard most U.S. citizens work to keep their tax burdens manageable.

Judas GoatThe late President, Ronald Reagan (Republican & Union Boss…go figure) once described how at the height of his acting career (when our top tax bracket was 90%) he just went to the ranch to hang out for half of each year.  He could have been working on additional pictures and provided good paying jobs to his fellow actors, trades people, horse wranglers, support folks, etc., but instead he went home because he could only keep 10% of the fruits of his labor.  Any business owner or ‘leading man’ (or woman) would be crazy to take the kind of risks an entrepreneur or artist typically takes… just to give away their salary to others.

Think about risk for a moment…if something as silly as Bonzopoking Reagan in the eye had ended his days as the handsome leading man…then Reagan’s ability to earn a living would have been over.  It’s just not worth the risk for 10% of the rewards.  Is it worth it for 30% or 50%?

This whole ‘tax the rich,’ class warfare rhetoric concept would be laughable if it wasn’t so effective at creating a class divide…remember that we’re a nation that valued equality of opportunity but that concept is being twisted by jealousy to become the concept of equality of outcomes.  The reason that the ‘tax the rich’ concept is laughable (but capable of making the economist in me cry) is that the math just doesn’t add up…increased taxation hurts everyone.

Consider this from a Forbes article written by John Stossel called: Tax The Rich? The Rich Don’t Have Enough. Really.

We see the folly of trying to raise revenue with high taxes by looking at tax receipts over time. Before 1963, when Reagan rode his horse, every single dollar after $400,000 (in today’s dollars) was taxed at more than 90 percent. And government revenues equaled about 18 percent of gross domestic product. Then the top rate was lowered to 70 percent, then to 50 percent, and then to as low as 30 percent, before it was raised back to 40 percent in the 1990s. Despite those sharp changes, the chart below shows that tax revenue seldom exceeded 20 percent or fell below 17 percent of GDP.

Stossel also points out that even if we tax all revenue over $1 Million at 100% it would only bring in $616 Billion or about 1/3 of 2012’s Federal Government deficit…and that wrongly assumes that the rich would continue to produce and don’t go hang out at the ranch.

The Republican elite certainly know this won’t work but are too afraid of the class warfare rhetoric to adequately explain the facts.  Even the Democrats know this or at least they used to.  Consider these words from President Kennedy (Jan. 24, 1963, special message to Congress):

The largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of federal income taxes on private purchasing power, initiative and incentive.

Laffer CurveMaybe these Judas Goats have never heard of Austrian Economics or can’t cognitively deal with the fact that… not only does punishing success decrease investment, but it also decreases the risks that the wealthy (and wealth builders) are willing to take.  Let’s confront these Goats and introduce them to Dr. Art Laffer and his very informative ‘Laffer Curve.’

 

Investopedia describes the Laffer Curve like this:

Invented by Arthur Laffer, this curve shows the relationship between tax rates and tax revenue collected by governments.

The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point ‘T’ would cause people not to work as hard or not at all [Andrew’s note:  people go to the ranch like President Regan did], thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.

Governments would like to be at point ‘T, because it is the point at which the government collects maximum amount of tax revenue while people continue to work hard.

Human psychology as explained by the Laffer Curve shows that contrary to traditional wisdom, tax increases (beyond T) actually decrease tax revenues.

Look, I get that we’re in dire financial straits and raising taxes sounds like a good idea…but take the long view, the rational view and embrace the idea that a rising tide really does raise all ships.  We must set a course that stabilizes tax rates and regulations so that entrepreneurs and business men and women aren’t afraid to take the risks that drive the U.S. economic engine.  Ignore the Judas Goat or confront the Judas Goat…let’s just get the U.S. on the road to prosperity once again.

For a good example of a ‘tax the rich’ Judas Goat hitting their own Laffer Curve ‘T’ watch this video of the actor Will Smith learning of France’s (then proposed) 75% tax rate.

 

 

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