Elasticity and the Silver Bullet

The term, elasticity, is used to describe the effect of a price change on demand. When demand for an item is said to be elastic, a small change in price causes a significant change in demand. If Clancy’s Bar & Grill adds a buck to the price of a glass of beer, Clancy can watch demand for his beer head toward zero as folks head next door to the Longbranch Saloon. Elastic. If the Longbranch happens to be 300 miles away, maybe folks won't be so quick to head on over. Less elastic.

There is a degree of elasticity in taxable income. For folks getting minimum wage there is no elasticity to their taxable income. It is what it is. But when you get to the higher income ranges, people have choices. They do tax planning. They engage in tax avoidance. They put their investments into tax shelters or tax free instruments, or they defer some income to a later year. The more onerous the taxes, the more effort that's put into avoiding them. Quite legally of course.

How does this bode for Lord Kerry’s plans? The tax cut rollback is the silver bullet Kerry is counting on to cure all our ills. He’ll cut the deficit, reduce health care costs, create jobs, and save the environment. Hell, to hear John Edwards talk he’s going to raise Christopher Reeve from the dead and get him walking again. He's going to pump those tax rollbacks right straight into embryonic stem cell research and miracles are going to happen. Kerry and Edwards have promised.

But rolling back the tax cuts for people making over $200,000 won’t be quite the payoff that Lord Kerry thinks. Raising taxes will change taxpayer strategy, and that's going to cut into that pot of gold at the end of his rainbow. And we haven’t even begun to talk about the demand side issues of a tax hike. Remember when they thought it was a brilliant idea to put a luxury tax on yachts? It nearly killed the U.S. luxury boat industry and put a bunch of skilled craftsmen out of work. The tax was repealed. Kerry’s higher taxes will translate into lower consumer spending, and that will put a different set of workers in the unemployment line.

Unfortunately, it escapes Lord Kerry. In the Kerry world view elasticity of taxable income is not a consideration. It doesn’t exist. It doesn't exist because, well, maybe people don’t really exist. Kerry's penetrating insight is that taxpayers are not thinking people, and that makes the Kerry plan work. It's the key. The taxpayer is an income generating unit. Kerry will raise taxes on the high capacity income units, relieving the burden on the low capacity units, and he'll know exactly how many wheel chair bound units he can get to walk again.

He panders. If he thinks he's got a silver bullet, what he will do with it is shoot the economy right in the foot. We'll do much better by sending him back to the Senate, where he can continue to have absolutely no impact on us, just as he has for the last 20 years. Safely back in the Senate, he can do what he has always done so beautifully. He can take up space.

Comments

[Bryan]

Thought this might interest your readers:
Recently, my nephew (age 27) asked "What is the real difference between a Democrat and a Republican?" He seemed sincere, so; in summary, I explained as follows:
1. Democrats believe that tax revenue belongs to the federal government, to allocate as it sees fit. Republicans believe that taxes belong to taxpayers--if the money isn't specifically earmarked, return it in some form.
2. Democrats believe that the use of the words "God" and "government" in the same sentence can only come from a religious zealot. While both Republicans & Democrats believe that every man has a moral obligation to his fellow man, Republicans believe that the government has that same obligation. "God" has many interpretations but, Christian principles, as generally set by the 10 commandments and "the goleden rule" (from which moral obligations derive) belong in government. The word "God", as a reference (only) to those Christian principles belongs in the pledge, belongs on our currency, and belongs (as a directive) in government policy.
3. Both Democrats & Republicans believe that the government must protect its citizens from each other, and from subjugation by other governments. Only the Democrats, however, believe that our government must protect its citizens from themselves.

[Tom Bowler]

Good points, all of them, but I think you're being way too kind to the Democrats. I would never have imagined the dishonesty that we're seeing this in this election. When Dan Rather broadcast a story based on forgeries in an attempt to swing the election to Kerry, it was characteristic of the Democrats, not an anomaly.