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It's Possible to Raise Rates and Get More Tax Revenue

With regard to Arthur Laffer's "The Soak-the-Rich Catch-22" (op-ed, Aug. 2), one must first be reminded that when raising taxes, one must also plug loopholes. Secondly, the impact of changing tax rates depends on the actual percentage change. The examples Mr. Laffer offers show large percentage declines since 1978 for income, capital gains and dividend tax rates which indeed had their intended effects on the spending habits of the wealthy. But what if the percentage changes were more modest?

Since 1978, we also witnessed the Clinton tax increases, which had the salutary effect of balancing the budget. Mr. Laffer's graph shows that in the interval 1996-2000 income taxes paid by the top 1% rose dramatically, while continuing a downward trend for the bottom 95%. Between 2000 and 2004 the percentages of taxes paid by each group declined sharply. It would appear that the modest increase in taxes under Clinton increased revenues while failing to produce the damping effect on business activity Mr. Laffer fears. The Bush tax cuts had the opposite effect on revenue intake, despite their spur to business activity.

Raising taxes, if done judiciously, could increase revenues while simultaneously allowing business expansion. Robert Peel, the architect of classical-liberal budgetary orthodoxy, faced a severe depression when his Conservative Party returned to power in 1840. His budget of 1841 combined customs duty reductions with the reintroduction of the income tax which fell exclusively on the wealthy. His budget was, for this pre-Keynesian era, innovatively redistibutionist, taxing the rich, who accepted their responsibilities without demur, while relieving "the bottom" and simultaneously increasing their "effective demand." A year later the country returned to prosperity.

Albion M. Urdank

Los Angeles

Mr. Laffer asks, "And who on Earth wants higher tax rates on anyone if it means larger deficits?" Answer: Democrats. It's not about raising revenue; it's about punishing success. Democrats call it "fairness."

David C. Williams

Albuquerque, N.M.

Lower tax rates are good for many reasons, but when the argument for lower tax rates includes government ultimately bringing in more tax revenue, lovers of liberty should object. There is no reason government should grow just because the economy grows. Government certainly does not shrink when the economy shrinks.

Steve Stanek

McHenry, Ill.

The data that Dr. Laffer uses in his article also point to something many soak-the-rich liberals would find interesting. Namely, that tax increases actually seem to lessen tax burden equality and raise the relative burden on the middle class. For example, the tax increases of President Franklin Roosevelt seem to have increased the tax share of the bottom 95% by a factor of five. Then, in 1961 and then again over the past decade, the relative tax burden grew for the wealthiest and lessened for the middle class—directly coinciding with tax cuts. Perhaps as more limousine liberals take up the mission of tax equality they will see how counterproductive their policies are to their own goals.

Zachary Yancer

Ann Arbor, Mich.


Young Illegals Show Disdain for the Rule of U.S. Law

Regarding John-Clark Levin's article: "Young Illegals Out Themselves, Daring To Be Deported" (Cross Country, July 31): The failure of government agencies to enforce immigration laws and deport illegal aliens encourages further violations.

We have reached a nadir of respect for law and order when 36 senators sponsor the "Dream Act," and the Immigration and Customs Enforcement agency will not act to deport the young illegals who demonstrated in Washington on July 20.

Vann Eberlein

Mobile, Ala.

These young illegal immigrants will likely claim that their family came here to escape the evils that a lawless society and corrupt government spawn. Yet they want preferential treatment and hope that laws will not be enforced. Isn't this the type of corruption and lawlessness that they escaped?

Heidi Adams,

Clearfield, Pa.

The "Dream Act" enables people who are illegally in a state to pay the in-state college tuition rate. For every illegal immigrant who gains a state college seat, the child of a taxpaying citizen will lose the opportunity to enroll in that college. No law prevents illegal immigrants from entering college, but they should not be rewarded with lower tuitions and state-supported scholarships.

The rights of Illegal immigrants should not come before the rights of American citizens.

Robert F. LaPorta

Dix Hills, N.Y.

I take strong exception to Mr. Levin's statement that if the ICE came down hard by deporting the students, ". . . it would risk drawing overwhelming public outcry." To the contrary, I and many others believe that ICE should vigorously enforce our laws and begin deportation proceedings against those arrested. In my opinion the majority of the American public would strongly support such measures.

There seems to be much more outrage and "public outcry" when our laws are flagrantly flaunted and no action is taken by governmental agencies and politicians. Furthermore, our law-abiding citizens are perplexed and annoyed when our government caves in to "international backlash" regarding Eric Balderas's deportation proceedings, whereas the ICE ". . . backed down, halting Mr. Balderas's deportation indefinitely."

When are we going to start upholding our own laws and not be so sympathetic with other countries' viewpoints, à la President Felipe Calderon of Mexico? The American public at large is sick and tired of law enforcement personnel, bureaucrats and politicians who take an oath to uphold the Constitution and our laws, and then do absolutely nothing to implement the law; read sanctuary cities.

James Darnell

Glenview, Ill.

If enforcement of immigration laws is optional, shouldn't the government also make tax payments optional on the same grounds? On compassionate grounds, shouldn't the government also exempt families that are barely making ends meet from paying income and Social Security taxes?

Manish Agrawal

Tampa, Fla.


Don't Worry About Lance Armstrong

Federal prosecutors investigating the possibility that Lance Armstrong used performance-enhancing drugs ("Prosecutors Step Up Armstrong Probe," U.S. News, July 27) seem to be wasting federal resources.

The article speculates that Mr. Armstrong may have "defrauded investors" if he doped after representing that he would not. This is not fraud, but a breach of contract. Fraud would require a misrepresentation of fact, not a failure to keep a promise. Moreover, no investor could have been harmed by this "fraud," as investors were interested in his success, not his pharmacological habits. Even if he did commit fraud, is this a matter for federal prosecution? The feds have far more important matters to be concerned with.

Mark Loewenstein

University of Colorado

Law School

Boulder, Colo.

While the average Journal reader may not be interested in deciphering the intricacies of the Tour de France, almost all of us are interested in taxes. Here is a mystery worthy of investigation: How many of our tax dollars are being spent by the FDA looking into alleged historical drug use in professional cycling and where are the taxpayers who support these expenses? This is a misguided use of public funds.

Sam Clarkson

Santa Cruz, Calif.


The U.S. Needs a Real AfPak Policy

Regarding your editorial "The AfPak Papers" (Review & Outlook, July 27): The truth is that there is not and nor has there ever been any coherent American policy in the Southwest Asian region. What has often passed as realpolitik has really been a hodge-podge of conflicting policy and military initiatives.

As you note, following the Soviet defeat in Afghanistan, "America abandoned the region in the early 1990s."

In fact, all through the post-World War II years, U.S. policy vis-à-vis Iran, Iraq, Afghanistan, Pakistan and India has been inconsistent and hypocritical. At times, any nation that was an enemy of our enemy was considered a friend, temporarily, until a new policy shift dictated new alignments and alliances.

Is there any wonder that the U.S. is not trusted in the region? The people of Southwest Asia are not stupid. From time to time they see golden opportunities to reap billions of dollars of "aid" or "military assistance" when the U.S. needs their help for our self-interested policies, but they also have learned how ephemeral our interest in their internal agendas can be.

Given our history in the region, is it really any surprise that Hamid Karzai's government in Afghanistan and elements of the Pakistani military, secret service and central government often play both sides of any conflict, and often line their pockets with American largess?

Unfortunately, U.S. policies have promoted distrust and corruption instead of bedrock partnerships that are necessary if we are to defeat the forces of evil ensconced in the region.

Steven Morris

East Hampton, N,Y.


Golden State Is Better Than Its Government

Troy Senik, in his review of Joe Mathews and Mark Paul's "California Crackup" (Bookshelf, Aug. 6), makes the common mistake of confusing the state of California with its government. The state government, not the state itself, is "imploding." Certainly, the two are related and certainly the economy of the state, like those of other states, is fragile. But the state's economy is among the top 10 largest on Earth and still kicking out gushers of production.

The effect of the "crackup" will be much less on the state at large than on two distinct groups. Either the over-benefitted public sector retirees are going to face Enronesque pension disappointments, or the bondholders foolish enough to lend money to the irresponsible folks in Sacramento are going to get Chryslered.

To those who advocate the bailing out of the unionistas and Wall Street bondholders with tax increases: I would not attempt such a bamboozle in the forseeable future unless I had a second home offshore in a privacy-loving jurisdiction, perhaps Spain.

John Rogitz

San Diego

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