Over at Montana Headlines, we have noted on a couple of occasions the importance to supply-side tax policy of the Laffer curve, even reproducing it more than a year ago for interested readers when writing a post in support of an opinion piece that Sen. Roy Brown had written about tax policy in the state of Montana. Briefly stated, the Laffer curve demonstrates why cutting high taxes can actually result in increased government revenue, and why raising taxes can result in decreased revenue.
Recently appearing in the Wall Street Journal is a piece that demonstrates yet another inconvenient truth about taxes in a simple form. Economist Kurt Hauser plots revenue as a percentage of GDP against the top marginal tax rates. Not surprisingly, what is demonstrated is that revenue as a percentage of GDP remains constant at about 19.5%, regardless of what is done with taxes at the top rates.
This of course reflects the fact that people at top income levels have a great ability (and motivation) to come up with ways to shelter, under-report, reclassify, or decrease their incomes. As tax rates increase and as incomes increase, those motivations also increase. That is one of the reasons why in 2004 we learned that Sen. and Mrs. Kerry paid a far lower percentage of their income in taxes than did President and Mrs. Bush (and indeed a far lower percentage of their incomes than did the average middle-class voter.)
Since raising taxes generally decreases GDP, this is yet another demonstration that raising the top marginal tax rate actually is more likely to lower revenue than to increase it.
Sometimes a picture is worth a thousand rhetorical flourishes, and one hopes that the Hauser graph joins the Laffer curve in the tax-cutting (or at least anti-tax raising) Hall of Fame.
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The nice thing about being conservative is that you are not held to standards of proof or even evidence. Laffer is bonehead - yes, there is a point where increasing taxes will produce diminishing returns. But you’ve no clue where we are at on that curve. Further, tax cuts (save capital gains, which generally nets a one-time bonus) have not increased government revenues. After Reagan’s tax cuts, and Bush’s, government revenues decreased, and then began to recover on a normal trend line that was similar to that before the cuts.
Regarding marginal tax rates, I’d like to see a cut in payroll taxes, as we now have a structure where middle class American working people pay a higher rate than the highest income taxpayers.
But there’s no harm in having the high marginal rates - our economy was not less healthy, we were not worse off, before we cut those taxes. All that has happened is that some wealthy families and corporations spawned a cottage industry of economists and think-tanks to carry water for them.
I prefer high marginal income and estate tax rates, elimination of the payroll tax - it promotes equality, incentive, and prevents aristocracy wherein you see low achievers like a certain Bush fella taking up prime spots in our best colleges.
Sheesh, all of those pixels had to die for that tripe. Not one thing that you said is correct. And you know it.
Nonsense. Rote denial may get you plaudits on your side, so you don’t have to provide data. There’s a distinct absence of rigor over in your camp.
As a conservative you are entitled to (at least) five unchallenged assumptions:
1) Reducing taxes increases tax revenue
2) Taxes are bad for the economy
3) Wealth collected by the wealthy automatically trickles down and benefits everyone
4) Regulation of business is bad for the economy
5) Minimum wage increases cost jobs
These are gospel on your side, and at your meetings and rallies and in your writing, you only need state them to receive acclamation and applause.
But there’s no intellectual rigor. There’s no discipline. There’s no data to support you. In fact, the data even contradicts you, especially on #5, yet you back slap and give kudos for baseline intelligence for any who parrot these assumptions. You live in a dream world.
The Laffer curve indeed started out as pure theory, albeit theory backed up by rises in revenues after JFK’s tax cuts and one other one prior to that, as I recall. It is commonsense.
Hauser’s data is pretty clear — I notice that you don’t touch that. There has been plenty of intellectual rigor on the conservative side in the economic world — to claim that there isn’t is to ignore both the Chicago and Austrian schools of economics. The work done by economists who have results favoring leftist solutions are hardly more rigorous or disciplined.
And as we have discussed before, you have it exactly backwards. You essentially argue that the default setting is that raising taxes — especially on the “rich” — should be a done deal, and that conservatives have to have proof carved in stone (proof that I suspect would never convince you, no matter what it was) that raising taxes will hurt before it shouldn’t go forward.
I would argue that the default setting is leaving people’s own money in their pockets, unless tax-raisers can provide strong proof that it will actually increase revenues that are actually needed. Hauser and Laffer both made strong cases that raising taxes tend to result in revenue-neutral results or decreases in revenue.
http://www.cato-at-liberty.org/2007/01/29/lower-tax-rates-yielding-more-tax-revenue/
This is one very small piece of proof that lower rates results in more revenue for government coffers. There’s plenty more. Do a little reading before making claims that there is no proof of the benefits of tax rate cuts. It isn’t just an “unchallenged assumtion”.
Mark, you say that I make unfounded assumptions, and you prove it with - Drum roll Please! - unfounded assumptions.
I am not about to go through the amount of time to teach an economics course, but you have nothing other than your assertions.
We do not live in a zero sum economy. Except, inasmuch as government does not generate wealth, it only consumes it. Wealth left to the individual will, through a certain amount of trial and error, achieve ta da greater wealth.
Wealth left with the government will result in nothing.
If I had a nickel for every time some conservative offered to teach me some economics, I’d have many nickels. It’s so condescending, and the insulation and blindness on your part is off-putting. Over here on our side, we attempt to tie real economic outcomes with theory. On your side, you’ve got theory and beliefs, and my whole point is that the two don’t jive with reality.
I haven’t examined your Hauser principle, as it seems pretty bonehead - it’s a game we play - wealthy people are always trying to reduce their share of the tax burden, and hire and finance and con many people to do their bidding. On the other hand, there is usually populist sentiment that those who harvest wealth without creating it should pay a higher rate than those of us with our noses to the grindstone. It’s called progressive taxation. I’m in favor of it.
I don’t dispute the logic of the Laffer Curve. It’s indisputable. I ony say that you don’t know where we are on that curve, and that evidence (Reagan and Bush deficits) indicates that we are on the left side of the crest.
The Kennedy tax cuts may indicate one or both of two things: One, that we were near the crest of the Laffer curve at that time, or two, that his closing of tax loopholes and enforcement or nominal rates of taxation as real rates in effect raised real tax taxes. Closing of tax loopholes was a very important part of his strategy.
You guys blindly dove into tax cutting based on Laffer like a kid with an Easter basket. It has the earmarks of a con job. It has produced massive deficits - collections from personal income taxes went down by over two percent of GDP due to the Bush tax cuts. Favorable rates for wealthy people were installed (15%), as opposed to rates as high as 39% for working stiffs.
Wealthy people have hired economists and funded think tanks to do their bidding. They have also conned the rank and file right wing.
Read more about it here. - I call it the “Einstein Curve”.
This is total nonsense. Hauser’s “Law” is ideological claptrap that is taught in no serious economic program.
Why? It restricts its analysis of taxation to the top income bracket, but it presents total government revenue. What happened in the period of 1950-2008 is that the top marginal rate generally went down, and the tax rates on everyone else generally went up. It is not surprising that overall revenues remained more-or-less flat, therefore. What happened was not some magical interference by the Invisible Hand, but a transfer of the tax burden from the very wealthy to the middle class. Not coincidentally, the middle class has been shrinking and real wages have been declining during the same period.
Hauser’s Law joins the Laffer Curve in the dustbin of right-wing voodoo economic theory. The only people who promote either are the people who, one way or another, benefit by doing so. Like those paragons of objective, scientific analysis at the WSJ editorial page.
My favorite quote about the Laffer Curve came from my econ professor, who said “The Laffer Curve is relevant to policy in exactly the same way that the melting point of steel is relevant to washing the dishes.”
