Non-blue bluebonnets

Above, from our first 2021 visit to the Lady Bird Johnson Wildflower Center on March 25th comes a bluebonnet displaying a purple as richly saturated as I think I’ve ever seen in Lupinus texensis. No extra charge for the tiny green nymph of a katydid or grasshopper. And below are two white bluebonnets scattered in the large colony we saw in Dubina on March 29th.

A theme I’ve been pursuing here for some days now is that it’s common to hear politicians and activists bandy about the phrase “common sense,” which is a loaded and misleading term because some or even many things that a majority of people believe to be common sense can be shown not to be true.

Take taxes. Many say it’s only “common sense” that if a jurisdiction raises a tax rate it will bring in more revenue. The truth is that sometimes it will and sometimes it won’t. For example, if a tax rate goes from 10% to 11%, the increase is small enough that the higher rate won’t be enough to cause people to take an easier job with a lower salary to avoid the higher tax, so revenue will increase. On the other hand, if a tax rate goes from 10% to 50%, a lot of people will lower their earning and spending because the higher rate is just too burdensome, and as a result the government may well end up taking in less than before. And, to take an easy-to-understand extreme, if a government imposed a 90% tax on earnings, many people would stop working altogether, go on welfare, and the government would have no income of theirs to tax. There’s a good example of that kind of work avoidance in the current pandemic: the American government has given out such high supplemental unemployment benefits during the pandemic that some people find they make more money by not working than by going to a job. As a result, some owners of small business have been having a hard time finding workers.

Another consideration is that if one jurisdiction raises its tax rates to be significantly higher than the rates in other jurisdictions, people and companies have an incentive to go elsewhere. That’s happening now as people and companies from high-tax states like New York and California move to lower-tax states like Florida and Texas, so New York and California will lose all the money they used to get by taxing those people and companies. If federal corporate tax rates are raised to the point that they’re significantly higher than corporate tax rates in other countries, some companies will relocate a portion or even all of their operations to foreign countries with lower tax rates, and the United States will lose the revenue it used to get. As a historical example, in Britain by the end of the 1960s the upper tax rates were so high that the Rolling Stones moved to the south of France and John Lennon moved to the United States.

In the opposite direction, sometimes lowering tax rates ends up bringing in more revenue by encouraging people to spend more now that they have more. Lowering corporate tax rates can induce American companies to repatriate earnings they’ve kept in foreign countries to avoid excessively high tax rates at home.

In short, it’s not always true that raising tax rates brings in more revenue. The sweet spot depends on many factors, and finding it seems more magic than science.

© 2021 Steven Schwartzman