So I Obama just had a press conference, and while he said a lot that sounded good, for all of you watching, I want to point out one major flaw.

At one point, he said that the current plan is funded two thirds, and they are trying to figure out how to pay for the last one third. aside from the fact that of that 2/3, 200 billion of it is good faith savings from the health care industry, let's just talk about that 1/3.

Obama basically said the only thing he is going to sign, is a plan that gets the 1/3 from the rich. Right now, congress is talking about getting it from people who make 1 million or more, and if that gets to Obama's desk, he will sigh it. His ideas are a little different, but basically it's to collect the funds from the same group of people (the rich).

Here is the problem.

Over the last 60 years, the tax rate on the rich has been as high as 91% in the 1950's, and as low as 28% in the 1980's, and just about everything in between. Today it's around 35%. Every one of those years, the rich paid 19.5% of GDP. This indicates that no matter what you tax the rich at, 19.5% of GDP is what you are going to collect from them. Raising taxes on the rich does not increase GDP. In fact, almost all economists think the opposite. But even if it doesn't, you could double there tax burden, and you will not collect more money from them.

So, Obama is trying to pass a bill on expected dollars, that he will never see (or at least history tells us he will never see).

Here is my question. Why don't they raise taxes this year, to pay for a plan that starts next year, and only use funds they collected for the plan, to pay for the plan? That way, they know how much money they can spend?

Why doesn't Washington ever do this?

^ You do realise that the overall % of wealth earnt per year by the 'rich' has increased since then inspite the lower tax rate? Also the people who earn the most actually benefit the most overall from the government as their most valuable assets, I.P. , property rights, legal rights etc are protected.

"Why don't they raise taxes this year"

You want his approval rating to go down to Bush levels?

None of that matters, just the math.

Obama wants more money, and the proof shows that raising the rate on the rich, will not bring more dollars into government.

We can debate about the rich getting richer, or anything else you like, but the point is, he is expecting revenue that will not come in. When it doesn't come in, what will he do?

I don't see how your statement proved anything. If the total income relative to the rest of the people increased by X % and the tax rate decreased by Y % and the overall tax take remained static, how does that prove that increasing taxation would not increase revenue? Since they have more data than you and they knew it was the case then they wouldn't even bother. You may think that the government are idiots, but that doesn't mean that the people crunching the numbers for these 'idiots' are idiots themselves.

http://online.wsj.com/article/SB121124460502305693.html

Because it never has. Don't ask me why, there are 100 reasons we can debate. The proof is that it never works.

I mean, look at the data for the last 60 years. How can you argue that? Tax the rich anything you want, and you will collect 19.5% of GDP from them.

If you want to collect more money from the rich, you need to figure out how to raise GDP, and not worry about there tax rate.

Ironically, most economists will say if you want to raise GDP, the best way to do it, is lower the tax rate on the rich. When you do, the rich pay less % of total taxes collected, but government generates  more revenue.

So the answer is what do you want as a Government? More dollars, or a larger % of all taxes you collect to come from the rich?

For this instance, we want more dollars, as the cost is fixed, and they are looking for real dollars to pay for it (that they will never get).

AN example of what I mean, is this.

Two examples.

Rich pay 50% tax.
Everyone else pays 30% tax.
GDP = 100.


Rich pay 40% tax.
Everyone else pays 30% tax.
GDP = 150.

If the rich pay 19.5% of GDP, the government makes more money in the second case, even though the non rich pay the same tax rate.

Why, if this is true (and it is by the way), would you ever want the first example?

If a country spent a year without taxation, what would happen to its GDP? (Trying a new tact)

What TheRealMafoo talks about is a well known well studied principle, but the theories about why it happens are diverse ...

Personally, I think a large portion of it is based on the fact that the people who really pay taxes are the people without the ability to pass on the costs of higher taxes to others. Basically, if you impose a 50% tax on people who have power and influence (basically, people who earn more than $100,000 per year) they will either increase the price of their products or services, or reduce payments to their employees, in order to double their income so that their standard of living doesn't change as a result of a tax increase.

Now, the difference between the government spending this money and individuals is that individuals tend to act rationally and favour the most innovative and/or efficient companies while the government is remarkably inefficient; and even if they do contract to a private company, they still end up spending far more than retail price even if they buy products in massive quantities.

it would go through the roof, but the government would not make any money.

Also, this only works on the rich, for the reasons HappySqurriel states. If you raise or lower taxes on the middle class, you gain or lose real dollars.

So an argument would be that if you left the tax brackets the way they were for everyone other then the top 1%, and removed all tax from the top 1%, you might actually bring in more dollars for government.

I don't propose you do that, as I think everyone needs to pay there fair share, but that's what the numbers tell us would generate the most dollars for government.