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Obama tax-increase designs not likely to shrink deficits, debt

by The Oklahoman Editorial Board Published: January 17, 2013

Those figures show how demand for tax shelters rises with income tax rates. That's one reason higher rates often fail to generate greater revenue. When the top income tax rate was 91 percent from 1951 to 1963, Pethokoukis notes, the revenue generated was equal to 7.7 percent of gross domestic product. In comparison, between 1988 and 1990, after reforms lowered the top rate to 28 percent and eliminated many tax shelters, the revenue generated was equal to 8.1 percent of GDP.

It's bad economic policy to allow politicians to direct economic activity via tax breaks because loopholes often encourage people to spend money in less beneficial and economically productive ways than would otherwise occur. It's a process that also favors the well-connected over working families.

We saw that in Oklahoma with two incentive programs for small business and rural venture capital. In 2006, citizens learned those programs were allowing investors to obtain $2 in state tax credits for every $1 invested; the investors were guaranteed a profit even if the business failed. Those programs were effectively funneling hard-earned income from the pockets of Oklahoma's working families to the accounts of “investors” whose expertise was tax avoidance more than job creation.

Obama's tax-hike designs will likely have the same outcome, giving us a higher-rate tax code doing little to reduce deficits or debt, but empowering politicians to reward the politically connected in ways that distort the free market and impede economic growth.

by The Oklahoman Editorial Board
The Oklahoman Editorial Board consists of Gary Pierson, President and CEO of The Oklahoma Publishing Company; Christopher P. Reen, president and publisher of The Oklahoman; Kelly Dyer Fry, editor and vice president of news; Christy Gaylord...
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