I found this video on YouTube that explains supply side economics.
(Yup, I found it right where I put it.)
Not all tax cuts will increase revenue to the government. There are many different tax brackets. When tax rates are to the right of the apex on the Laffer curve, they should be reduced until they are on the left hand side of the curve at a minimum.
Regards!
March 1, 2008 at 6:10 pm |
Obviously! Good find!
March 1, 2008 at 6:37 pm |
I think that any self-respecting economist is going to take one look at the curve in this video and state that you cannot boil down the effects of tax cuts over four decades to a single, neat line, especially when the points on the other side of the curve are *complete* guesses.
President Bush’s former economic adviser wrote an interesting paper on this concept, which used a *bit* more data than a single curve:
http://www.economics.harvard.edu/faculty/mankiw/files/dynamicscoring_05-1212.pdf
which noted that cutting taxes on labor had a feedback effect of about 17%, and cutting taxes on capital gains resulted in an increase in economic activity that made up for about 50% of the lost revenue. Not quite the effect that adherents of the Laffer Curve ideology like to hear.
I’m all for discussing how to distribute taxes more evenly, fairly and efficiently, but merely assuming that you can pay less and get more is the type of economic approach that got us into deep deficits. Do it with your household budget and you go bankrupt, but do it at a national level and you have Reagonomics.
March 1, 2008 at 7:21 pm |
Well, it isn’t theory. It is fact. Every tax cut in the past 100 years has led to massive revenue increases. The Bush Tax Cut cost the government nothing. In the end, the government has far more money to spend than it did before the tax cuts were proposed.
As a small-government advocate, I’m actually quite upset because the Bush Tax Cut has done little to make government smaller.
March 1, 2008 at 8:10 pm |
But you’re arguing for two separate things! If you’re intending to make government smaller, then cutting taxes is a means to an end: cutting off revenue streams to ensure that the government does not have the money to operate. However, suggesting that this is merely an efficiency measure to optimize revenues is disingenuous, since the explicit goals of tax cuts amongst the Republican Party are not to ensure that the government can cover its expenditures most efficiently at current spending levels.
Assuming that every tax cut within the past 100 years has paid for itself is misleading. How do you trace this? Do you account for the role of inflation? Long-run economic growth? Underlying economic trends? And if you’re looking at the tax cuts over the past two decades, do you consider the effects of running up massive deficits on economic growth in the long run? Mankiw’s paper, which I have yet to see refuted, makes the claim that the most efficient of tax cuts (cuts to capital gains), only pay for about half of the revenue directly lost. Is there more knowledgeable proof that this *isn’t* so?
If you could post something aside from a simple chart from an Excel spreadsheet that proves this, that would be great!
And don’t get me wrong… I’m not preaching for economic irresponsibility, and I think that taxing people for projects that may make little economic or social sense are not reasonable. Improperly applied taxes can be an inefficiency (as can improperly administered tax breaks), and developing an effective and fair tax (and NOT FairTax) is a very important role for government. But just assuming that tax cuts are the way out? That’s not the one-size-fits-all answer here.
March 2, 2008 at 5:50 am |
The Republicans are hardly united in their view of the role of government. About half feel that government should be bigger and better and more efficient. The other half feel that government should be smaller and less intrusive and less efficient. I tend to fall in the latter half.
But tax cuts do please both sides. The first half understand basic economics, and wants to see the economy grow so that government can do more while taking a smaller percentage of the people’s money. The second half wants to see taxes reduced until they disappear. They would rather Washington D.C. never saw the money and never dreamed of spending it.
The facts are never farther than Google: Search for “increase revenue decrease tax rate”, for instance.
Here’s two links if you have a hard time finding it.
http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
http://www.cato-at-liberty.org/2008/01/15/imf-concludes-lower-tax-rates-can-yield-more-tax-revenue/
As far as a “fair tax”, you’re going to find that there is very little agreement, anywhere. What is fair? Is it fair that the wealthiest pay all the tax, while the poor, who benefit the most, pay nothing? Or is it fair if everyone paid the same rate on their income? Or is a per-capita tax fair since all are equals in the eyes of the law? Is it fair to tax corporations, or is that a double-tax on those who work in corporations? Is it fair to tax imports and exports, sales and purchases? Or is the most fair tax the tax that simultaneously encouraged the fastest economic growth while raising the appropriate amount of revenue?
In my mind, the federal government should shift the burden on finding a fair tax to the states. Let the states experiment with the variety of taxes that have been invented over the centuries. Just send an invoice for their representative portion of the federal budget, like they used to do before the federal income tax.
October 31, 2009 at 6:12 am |
iI am very glad with what i generate from this site, May God continue to assist. (Amen).
November 22, 2009 at 8:48 pm |
I’ve been active in taxations for lengthier then I care to admit, both on the personal side (all my employed lifetime!!) and from a legal standpoint since satisfying the bar and following tax law. I’ve rendered a lot of advice and redressed a lot of wrongs, and I must say that what you’ve posted makes perfect sense. Please continue the good work – the more people know the better they’ll be equipped to cope with the tax man, and that’s what it’s all about.