So the basic argument i'm hearing a lot recently is that it is emprically proven that when the top marginal income tax rate is higher the economy grows faster. They cite articles like this: http://www.presimetrics.com/blog/?p=301
I was wondering if the argument has a name? I have tried googling it and searching for it on Mises but I can't quite figure the keywords out. If anyone can link me to an article.video/mp3 by one of the Austrian scholars talking about this I would be incredibly greatfull.
Also, how would you as an Austrian respond to this argument?
I will post my response to this article as a reply to this post just in case anyone is interested. I would love if someone could tell me where I went wrong/right etc.
A good Austrian response would be, "Read Economics in One Lesson, and then come talk me."
Thanks for pointing that argument out. I did get that when I read through it, but didn't convey very well here on Mises. I figured that this sort of data, comparing two charts, really leaves about a million variables. Including investment going overseas and the general flow of the economy.
I'll accept the label cporter gave as the "logical fallacy" behind it all, although I really have no idea if that's correct. To me it smacks of common Keynesianism, and therefore suffers from several incorrect assumptions:
1) The people with the money (aka "the rich") either aren't using it for any kind of benefit, or...
2) The government knows better how to spend the money than the people who earned and own it.
3) The people who the government gives the money to will be productive with it, thus contributing to the GDP.
4) The cost of the government handling the money as they redistribute it from the "haves" to the "have-nots" is negligible.
I wish I could find the cite, but I once read an analysis of the equilibrium between size of government and economic growth. The thrust of the argument was familiar, basically that government workers, in an economic sense, aren't productive because every dollar spent on government must first be taken from someone else who produced it. Therefore, government workers would have to be something like twice as productive as their private counterparts just to break even on economic growth, since they not only have to produce enough to pay for their own costs (salaries, benefits, infrastructure, etc), but enough to replace the growth was lost when the money was taxed from the people who earned it in the first place. A government "breaking even" in the sense of growth would be the best of all possible realities, since in reality it's probably the opposite - government is counter-productive, spends less efficiently, and government employees are less productive than their private counterparts.
Government workers are taxed also, but the money taken from them has already been removed from the "productive" economy, so it is "inert" in an economic sense - taxed from someone who is not productive, and given back to someone who is not productive. Marginally-speaking, every additional person employed by the government is one less who contributes to economic growth, and an inflection point occurs where growth is not possible once a government grows larger than a certain size. So, economically-speaking, government is a necessary evil that is most efficient when it is as small as possible.