No Runny Eggs

Barack Obama came out yesterday hammering John McCain over his support for making President Bush’s tax cuts permanent.   Instead of extending the cuts, Obama wants to remove them and reinstitute higher rates for people he considers “wealthy.”

Along with increasing personal taxes, Obama is now calling for increasing taxes on oil companies.   Obama has the mistaken belief that taxing the oil companies will somehow make Americans feel better about increasing prices  for gasoline.   Of course one item that Obama has overlooked in this effort is that the result of his additional taxes will either be higher costs for gasoline as the oil companies pass those taxes along or higher costs for gasoline and oil companies are disincented to produce gas and lower supply will drive prices higher.

And here is where the inconvenient truth comes in….

Barack Obama believes he can increase revenues to pay for all his social support programs by increasing taxes. That simply won’t work.

Tax increasing on corporations get passed along to consumers in the form of increased prices which causes consumers to buy less of the product which minimizes any tax increase and in some extreme situations, can actually reduce the overall taxes remitted.

Tax increases on individuals don’t increase revenue either. A new and significant economic law states that regardless of what the individual tax rates are, total taxes collected will equal 19.5% of GDP. This law has been dubbed Hauser’s Law after the man who did the research.

According to Mr. Hauser, the reason the rate stays constant is:

What makes Hauser’s Law work? For supply-siders there is no mystery. As Mr. Hauser said: “Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.”

Putting it a different way, capital migrates away from regimes in which it is treated harshly, and toward regimes in which it is free to be invested profitably and safely. In this regard, the capital controlled by our richest citizens is especially tax-intolerant.

Now here’s where the truth become really inconvenient.

Allowing fuel prices to continue to increase will have one certain impact on the American economy, it will hurt it. Whether for truck traffic, farming, commuting for work or driving for commerce this economy relies on fuel for transportation. If we increase the price of fuel we will either increase costs or decrease transportation. Either one will ultimately have a negative impact on GDP.

Someone ought to take Obama aside, point to Hauser’s law and help him understand that no matter what he does to taxes, he won’t get any additional income without an increase in GDP. Also, to the extent he increases fuel costs or restricts transportation by either by his cap and trade nonsense, windfall profit tax, no drilling anywhere, anytime mentality, betting on “green” solutions that are no where near viability he will hurt GDP and in turn, drive revenues lower.

It must stink to be a socialist when your only real solutions are to turn back to the free market and capitalism and cry “Uncle!”