CBO on tax increase - believable? 

Now my pal Jamie got a bit peeved with me for bringing this up on the air yesterday.  No problem.  Remember --- often I’m trying to goad him into a little dust-up when he’s with me on the show.  Makes for entertaining radio.

Now Jamie was right:  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,^[1] 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.  To give you just one example:  Wealthy people will move investments into tax free municipal bonds.  Other wealthy people will simply defer activities that generate a tax liability and wait the situation out.  Money will be moved overseas to generate income there – income that will remain overseas.

Here --- try this.  Since we’re talking income tax here and not a wealth tax --- why not just respond to the tax surcharge by slowing down your income producing efforts – or by deferring income to later years.  But if you defer your income to later years, how do you get the cash to maintain your lifestyle today?  Actually, that’s pretty simple.  You’re wealthy, right?  So just get a million-dollar line of credit secured by your assets.  Trust me .. such lines of credit are available if the assets to secure the loan are there.  Then you just draw on that line of credit for the cash flow that you need for your lifestyle – or to make other investments; whatever.  The money from the line of credit is not taxable.  It’s not income.  You pay it back later when the government is over its class warfare orgy and tax rates come down again – and you start cranking up your income producing activities.  

The point here is that these wealthy high-achievers being targeted by Obama’s class warfare campaign aren’t idiots.  They didn’t get where they are by simply drawing a paycheck every two weeks.  The tax rates go up, their income producing activities go down.  

Fact is, I don’t think that any CBO estimate on the amount of revenue that would be produced by a tax increase has ever been shown to be correct.  Why, then, the law that requires a static analysis of the effect of tax increases on revenue?  Because the politicians set it up this way so that they could present tax increases to the dumb masses as a way to both punish the rich for having more than anyone else, and to redistribute their ill-gained wealth to those who clearly deserve it more.

Some of you who think that Obama is on the right track here need to do a bit of research.  See how many times these CBO projections have proven to be correct over the last 60 years.  See how many times income tax revenue has actually dropped as a result of a tax increase.

Remember this about Obama:  He earnestly believes that people with large incomes and a large net worth got that money by exploiting others.  His core belief is that this money must be seized from these people and redistributed to those who (a) deserve it because they don’t have as much; and (b) are more likely to support him politically.