THIS ARTICLE BY JEFFREY MIRON @ CATO gives a good explanation as to why Warren Buffett--President Obama's informal economic guru----is wrong in wanting to summarily raise taxes on the rich. Of course, Buffett advocates this because it seems intuitively correct. Many economists however play the devils advocate, as to why conventional wisdom is really magical thinking. An excerpt from Miron's piece:
So raising capital tax rates will not make the super-rich---who are relatively few in number---pay their "fair" share; it will encourage capital flight, driving factories and innovation abroad. The rich will still get their high returns, but U.S. workers will have fewer jobs and lower wages.
Buffett errs, most fundamentally, by focusing on outcomes rather than policies. The right question is which policies promote differences in incomes that reflect hard work, energy, innovation and creativity, rather than reward the unethical, the politically connected and the tax-savvy.
In economics, as in sports, we should adopt good rules and insist that everyone play by them. Then we should stand back and applaud the winners.
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