Finley: Want more taxes from the rich? Lower their rate

Joe Biden’s denial of established economic theory at the start of his first presidential term produced the worst inflation in 40 years and ruined American household budgets.

He was warned pouring trillions of dollars in government spending into a post-COVID economy already struggling to keep up with demand would send prices skyrocketing. And it did.

Having spent the country to near oblivion, Biden is now going to tax it the rest of the way there.

The president wants a host of new levies on wealth and profits, ignoring the most simple economic truth that the more you tax something the less you’ll get of it.

For perspective, I turned to the nation’s foremost living economic theorist, Arthur Laffer. He’s the father of the Laffer Curve, which seeks to find that sweet spot where tax rates produce the most revenue while doing the least damage.

“Every single time we’ve raised taxes on the top 1%, three things have happened,” Nashville-based Laffer says. “The economy has under-performed, tax revenues have gone down and those at the lowest echelons of the economic ladder have been damaged terribly.”

Laffer calls Biden’s proposal to impose a minimum tax rate of 21% on corporations and 25% on millionaires to fund his enormous spending ambitions “classic redistributionism.”

“The idea is if we can take from X and give to Y to make X a little worse off and Y a little better off,” says Laffer, author of the recently published “Taxes Have Consequences,” written with Brian Domitrovic and Jeanne Cairns Sinquefield.

“It never works. Everyone ends up worse off.”

We don’t need to rely on theories to see where Biden’s efforts to vanquish wealth and profits will lead us. In Michigan, when profits dried up for the Detroit Three automakers in the early years of this century, 850,000 manufacturing workers lost their jobs, more than 100,000 residents left the state, and we endured a Lost Decade in a single-state recession. By contrast, soaring automaker profits in recent years enabled a new United Auto Workers contract that is the richest in its history.

When American corporations faced double taxation on the profits they made from overseas operations, many packed up and moved their headquarters to other countries. When those punitive levies were eased, they came back home. If Biden restores the dual tax, they’ll leave again.

And the last time the government tried to impose a base rate on the rich through the Alternative Minimum Tax, it backfired and hit the middle class because the brackets weren’t inflation adjusted over time. It’s always the middle class that pays for ill-considered tax gouging.

Biden’s outlandishly false claim that the richest Americans pay just 8% in income taxes is aimed at inciting a popular call for raising tax rates on top earners. That ignores the fact that their rate is already 37%, and no one pays anywhere near that amount because they can take advantage of the shelters, credits and deductions built into the tax code. Raise the rate, and they’ll just hire more tax attorneys. There’s a simpler way to reap additional tax revenue from the rich.

“If you make the rates low enough, they’ll pay them,” Laffer says.

Sign up for the Nolan Out Loud morning report at detroitnews.com/newsletters.