Laffer curve -- discuss

[doobs]

http://www.prepaidreviews.com/blog/wp-content/uploads/2007/10/laffer_curve.jpg




I'm new, so go easy on me.

It looks like Obama is going to win. It also looks like Obama and his Democratic Congress will raise taxes.

What I've posted above is the Laffer curve. The main insight of the Laffer curve is that government revenue doesn't necessarily go up as you raise taxes. For instance, a 100% tax rate yields $0 government revenue (after all, who would work as a slave for the government, if they had a choice?). A 0% tax rate also yields $0 government revenue. So the ideal rate of taxation for raising government revenues is somewhere in the middle. Will Obama take us to the ideal level of taxation? Or will he raise taxes so much that government revenue will be less than it otherwise would be under current tax rates?

I just think this is an interesting thing to consider. We have a huge deficit and debt to pay down. We are in the midst of a GLOBAL economic downturn. What should we do about taxes?

[DarrinS]

Raise the tax on the wealthy and give it to me. I'll invest it.

[ElNono]

http://www.prepaidreviews.com/blog/wp-content/uploads/2007/10/laffer_curve.jpg




I'm new, so go easy on me.

It looks like Obama is going to win. It also looks like Obama and his Democratic Congress will raise taxes.

What I've posted above is the Laffer curve. The main insight of the Laffer curve is that government revenue doesn't necessarily go up as you raise taxes. For instance, a 100% tax rate yields $0 government revenue (after all, who would work as a slave for the government, if they had a choice?). A 0% tax rate also yields $0 government revenue. So the ideal rate of taxation for raising government revenues is somewhere in the middle. Will Obama take us to the ideal level of taxation? Or will he raise taxes so much that government revenue will be less than it otherwise would be under current tax rates?

I just think this is an interesting thing to consider. We have a huge deficit and debt to pay down. We are in the midst of a GLOBAL economic downturn. What should we do about taxes?

So far he announced a tax hike from 36% to 39% on businesses making over $250K/year... Where that is on the Laffer curve, I don't know.

[boutons_]

"It also looks like Obama and his Democratic Congress will raise taxes."

Liar.

[doobs]

"It also looks like Obama and his Democratic Congress will raise taxes."

Liar.

?

Anyway, the purpose of this thread is to point out that higher taxes do not necessarily mean higher revenue.

Higher capital gains taxes--which Obama supports as well--generally results in fewer realization events and less tax revenue. The Laffer curve is just a useful visual tool for understanding that good tax policy is a tricky proposition.

If it were me, I would tinker with spending first because for the government it's easier to control the amount spent than the amount taken in.

[Drachen]

The thing about government spending (as long as it is put in the right places), is that for every dollar received in taxes, $1 will be spent which will increase GDP by $1. If we were to lower taxes, then for every $1 saved in taxes by the consumer, there is likely only about .80 going to GDP due to savings rate. Even though most people will likely spend all of what they save on their tax savings, the rich will likely not spend all of the greater amount of their tax savings which will cancel out some of those in the lower classes. Another difference here is that people will most likely spend their money on end user consumables (clothes, food, gas, etc). The government on the other hand can spend each dollar on something and get more than $1 value out of it (research, etc). I dont think that this is the model that we need to have full time, but during an economic downturn, it seems that it would be useful. Once the economy has reversed direction, the government could stop some of its spending programs, and use that money to pay down the debt that it accumulates during the downturn. I realize a few things, first this is ideal, and unfortunately it doesn't take into account human stupidity (lets spend exponentially more even during boom years, etc). Secondly, I didnt write this as eloquently as I possibly could because I about to start working and didnt have the time. Let me know if it is not understandable.

P.S. the 20% savings rate may be different in actuality, I am just using it to show the point

[doobs]

The thing about government spending (as long as it is put in the right places), is that for every dollar received in taxes, $1 will be spent which will increase GDP by $1. If we were to lower taxes, then for every $1 saved in taxes by the consumer, there is likely only about .80 going to GDP due to savings rate. Even though most people will likely spend all of what they save on their tax savings, the rich will likely not spend all of the greater amount of their tax savings which will cancel out some of those in the lower classes. Another difference here is that people will most likely spend their money on end user consumables (clothes, food, gas, etc). The government on the other hand can spend each dollar on something and get more than $1 value out of it (research, etc). I dont think that this is the model that we need to have full time, but during an economic downturn, it seems that it would be useful. Once the economy has reversed direction, the government could stop some of its spending programs, and use that money to pay down the debt that it accumulates during the downturn. I realize a few things, first this is ideal, and unfortunately it doesn't take into account human stupidity (lets spend exponentially more even during boom years, etc). Secondly, I didnt write this as eloquently as I possibly could because I about to start working and didnt have the time. Let me know if it is not understandable.

P.S. the 20% savings rate may be different in actuality, I am just using it to show the point

Well, I think this is beside the point, really. I'm talking about maximizing government revenues through taxation.

Personally--having worked in government--I have a hard time believing that the government is better at spending, eh, "investing" our money than we are. It seems to me that government spending is by its very nature wasteful and thus a limited but necessary evil. I trust universities and industry to spend more efficiently on research than the government, for instance.

[Drachen]

Well, I think this is beside the point, really. I'm talking about maximizing government revenues through taxation.

Personally--having worked in government--I have a hard time believing that the government is better at spending, eh, "investing" our money than we are. It seems to me that government spending is by its very nature wasteful and thus a limited but necessary evil. I trust universities and industry to spend more efficiently on research than the government, for instance.

Yeah, you are right, I didn't answer the damned question, and it pisses me off when people do that to me (or to other threads where I am interested in the opinions on the question). I think the answer of if we are at the pinnacle of the laffer curve or not, or where the tax hike for the top tier will push us along the laffer curve is "I dont know." I am not an economist, or social psychologist, etc. so I dont have access to the necessary data, and even if I did I probably wouldn't understand it. I can only draw upon the classes I have taken in the past, and my opinion. I guess if you want an answer, my opinion is that it won't hurt tax revenues to increase the taxes in that specific bracket (sp?). I think giving a little more money to the vast majority of Americans, especially those who are actually going to spend it, could be the way to respark the engine of the economy. I dont doubt that microeconomically some areas may suffer (yachting, spa treatments, etc.), but the macroeconomy should benefit by giving those money who will spend it. The stronger the macroeconomy the better the tax revenues. As to your point about research, I agree and disagree. If we have a truely cohesive plan of investment and a clear goal, the government is able to affect research in a very positive way (see manhattan project, while the outcome was negative, the actual organization of and knowledge gleaned from it were very valueable). I also think that Universities should play a major role as well, but which University has the spending power that the US Govt. has. I dont know if it should be a manhattan project, or if the US Govt should offer a lot of grant money, but I can see it both ways.

[101A]

The thing about government spending (as long as it is put in the right places), is that for every dollar received in taxes, $1 will be spent which will increase GDP by $1. If we were to lower taxes, then for every $1 saved in taxes by the consumer, there is likely only about .80 going to GDP due to savings rate. Even though most people will likely spend all of what they save on their tax savings, the rich will likely not spend all of the greater amount of their tax savings which will cancel out some of those in the lower classes. Another difference here is that people will most likely spend their money on end user consumables (clothes, food, gas, etc). The government on the other hand can spend each dollar on something and get more than $1 value out of it (research, etc). I dont think that this is the model that we need to have full time, but during an economic downturn, it seems that it would be useful. Once the economy has reversed direction, the government could stop some of its spending programs, and use that money to pay down the debt that it accumulates during the downturn. I realize a few things, first this is ideal, and unfortunately it doesn't take into account human stupidity (lets spend exponentially more even during boom years, etc). Secondly, I didnt write this as eloquently as I possibly could because I about to start working and didnt have the time. Let me know if it is not understandable.

P.S. the 20% savings rate may be different in actuality, I am just using it to show the point

Big problem with your theory is that it fails to take into account that the money supply, and wealth, is not fixed. The govt. for all its ability to succesfully distribute money, does not create wealth; private industry does that. A person who owns a factory that turns raw materials into cars, which are worth FAR MORE than the material he/she acquired to build the cars - could BURN their profits; but there would still be a positive economic effect on society. Profit is simply the carrot that encourages that person to do what they do, and create wealth - making the pie bigger for all of us.

[boutons_]

You're lying about HUSSEIN raising taxes.

"the purpose of this thread is to point out that higher taxes do not necessarily mean higher revenue."

another HUGE LIE from the right is that tax cuts pay for themselves and stimulate the economy.

Tell how the record/increasing federal deficit is being offset by taxcuts.

Tell how dubya's huge taxcuts in 2001, and later, stimulated the economy. eg, the $800B cuts in estate tax.

[Drachen]

Big problem with your theory is that it fails to take into account that the money supply, and wealth, is not fixed. The govt. for all its ability to succesfully distribute money, does not create wealth; private industry does that. A person who owns a factory that turns raw materials into cars, which are worth FAR MORE than the material he/she acquired to build the cars - could BURN their profits; but there would still be a positive economic effect on society. Profit is simply the carrot that encourages that person to do what they do, and create wealth - making the pie bigger for all of us.

In the example I used (research) is creating intellectual property not creating wealth? That property could either be licensed to companies hoping to exploit this new knowledge, or could be set free in the public domain. Either way the results of this asset are making the pie bigger. Maybe I don't understand what you are saying, but even something as basic as creating a more efficient transportation system seems that it would create wealth (although indirectly). Could you please further explain (as I said, I fully admit that I am not an economist, I have opinions and learn as I go).

[doobs]

You're lying about HUSSEIN raising taxes.

"the purpose of this thread is to point out that higher taxes do not necessarily mean higher revenue."

another HUGE LIE from the right is that tax cuts pay for themselves and stimulate the economy.

Tell how the record/increasing federal deficit is being offset by taxcuts.

Tell how dubya's huge taxcuts in 2001, and later, stimulated the economy. eg, the $800B cuts in estate tax.

What's wrong with you? I'm trying to have a civil discussion, and you're calling me a liar. Real mature.

Is this guy always such a jerk?

[boutons_]

I say your lie is that HUSSEIN will raise taxes.

Waiting for your proof.

[Drachen]

I say your lie is that HUSSEIN will raise taxes.

Waiting for your proof.

Full on Barack supporter here but he said that taxes will go up for those making over 250k (by way of allowing the expiration of the Bush tax cuts). This seems like raising taxes to me.

[doobs]

Anyway, moving on . . .


In the example I used (research) is creating intellectual property not creating wealth? That property could either be licensed to companies hoping to exploit this new knowledge, or could be set free in the public domain. Either way the results of this asset are making the pie bigger. Maybe I don't understand what you are saying, but even something as basic as creating a more efficient transportation system seems that it would create wealth (although indirectly). Could you please further explain (as I said, I fully admit that I am not an economist, I have opinions and learn as I go).

I think a compelling argument can be made that everything you mentioned--intellectual property, efficient transportation system--are far more efficiently pursued in the private sector. In fact, pretty much EVERYTHING is more efficiently pursued in the private sector. We tolerate (or should only tolerate) government waste and inefficiency in those areas in which the government provides essential public goods that the private sector cannot provide: national defense; enforcement of legal obligations and contracts through the courts; police and fire departments; essential roads (though even with most roads a compelling case can be made for privatization); and not much else.

If the things you mentioned actually created wealth, don't you think there would be a market for those things? In other words, don't you think some enterprising individuals would exploit that opportunity to make some serious money?

[KenMcCoy]

I think there could be another 5-10% or so in taxes before the gov't actually started seeing diminishing returns. I think that the rate during the depression was at 50-60% before businesses just started saying "screw it, I'll park my money somewhere until the tax rate comes back down"...this was in '36 or '37 I believe.

[boutons_]

Tax authorities around the world try to hit the maximum tax rate where it's high enough to bring in revenue but not so high as to encourage non-compliance and tax evasion.

HUSSEIN is going raise taxes like 4% on like 15% at the top end, bringing the rate for that bracket to about where it was under Poppy Bush, while lowering the taxes on the bottom 85%. The Repugs claim this tax raise is communism and the end of the USA. And somebody wants to have a "civil" discusssion about taxes? :lol

[doobs]

Tax authorities around the world try to hit the maximum tax rate where it's high enough to bring in revenue but not so high as to encourage non-compliance and tax evasion.

HUSSEIN is going raise taxes like 4% on like 15% at the top end, bringing the rate for that bracket to about where it was under Poppy Bush, while lowering the taxes on the bottom 85%. The Repugs claim this tax raise is communism and the end of the USA. And somebody wants to have a "civil" discusssion about taxes? :lol

So . . . he IS going to raises taxes, then? So . . . why'd you call me a liar? Are you a liar? And what's wrong with trying to have a civil discussion about it? Did I say "communism" or the "end of the USA"?

It's OK, I forgive you. Now leave.

[Drachen]

Anyway, moving on . . .



I think a compelling argument can be made that everything you mentioned--intellectual property, efficient transportation system--are far more efficiently pursued in the private sector. In fact, pretty much EVERYTHING is more efficiently pursued in the private sector. We tolerate (or should only tolerate) government waste and inefficiency in those areas in which the government provides essential public goods that the private sector cannot provide: national defense; enforcement of legal obligations and contracts through the courts; police and fire departments; essential roads (though even with most roads a compelling case can be made for privatization); and not much else.

If the things you mentioned actually created wealth, don't you think there would be a market for those things? In other words, don't you think some enterprising individuals would exploit that opportunity to make some serious money?

Oh, no, I absolutely believe just about every word of your post, though I think that the only thing that is left out of it (as to the research part) is the fact that no individual or corporation has the monetary buying power of the US government. I think that in certain cases if left to the private sector that the goals would eventually be reached, but if these goals had governmental support, they could be realized much sooner. This would create wealth sooner, which would grow the amount of wealth created exponentially. I am talking about the time value of money, specifically $1 created today is worth far more than $1 created 4 years from now because that dollar could be reinvested over the next 4 years creating more wealth. Even if that dollar isn't reinvested in research and is only put in a savings account, we now have interest that we don't have on the 2012 dollar (which has diminished buying power when compared to the 2008 dollar due to inflation).

[LnGrrrR]

What's wrong with you? I'm trying to have a civil discussion, and you're calling me a liar. Real mature.

Is this guy always such a jerk?

*Shrug* Got me, I'm new. :)

[boutons_]

"he IS going to raises taxes"

yes, but you left out, dishonestly, how he is going to raise taxes a tiny amount on a tiny, high-end portion of the revenue scale, while leaving out, dishonestly, that he is going to LOWER taxes over the huge majority of the scale.

[doobs]

Oh, no, I absolutely believe just about every word of your post, though I think that the only thing that is left out of it (as to the research part) is the fact that no individual or corporation has the monetary buying power of the US government. I think that in certain cases if left to the private sector that the goals would eventually be reached, but if these goals had governmental support, they could be realized much sooner. This would create wealth sooner, which would grow the amount of wealth created exponentially. I am talking about the time value of money, specifically $1 created today is worth far more than $1 created 4 years from now because that dollar could be reinvested over the next 4 years creating more wealth. Even if that dollar isn't reinvested in research and is only put in a savings account, we now have interest that we don't have on the 2012 dollar (which has diminished buying power when compared to the 2008 dollar due to inflation).

I see. Public-private partnership. As much as I would prefer private-private partnership, your point is well taken. Some people--like you--cite the Manhattan project as an example of government spending that yielded dividends in the private sector. I agree with that assessment--however, the purpose of the Manhattan project was to promote national defense and to win the war. You could also say that our military's huge R & D budget serves much the same purpose. Heck, the internet is derived largely from government research. Some people say NASA is an example of government spending that yields dividends in the private sector, but I don't know.

[Warlord23]

Interesting discussion.

While I agree with the premise that the private sector generally does a more efficient job than the government in pursuing opportunities and creating wealth, people generally forget that government involvement is crucial to provide the jumpstart.

History bears this out. The Pentagon system's research into military, space and computer technologies was the precursor to the private sector entering these areas, innovating upon initial development (done by the government), and making marketable products and services. See, private industry loves to take a good model and make money out of it, but it is far less willing to invest money in research that will prove that the aforementioned area is indeed worth pursuing.

The Internet that we use today is nothing but the evolution of the ARPANET developed by the US Deptt of Defense. Microprocessor-based applications were originally developed to solve space/military problems such as space flight and missile guidance systems. The fact that a plethora of products from cell phones to cars contain microprocessors is a tribute to the initial investment. Also, most of the standards that have been adopted in the computing and internet worlds are a result of academic research.

The point I am trying to make is that private capital loves not only the idea but a proven, tested practical application of the idea that can be used to make money. However they have not been as eager to invest in proving and testing whether a theoretical idea is financially feasible. They usually let government and academia handle that part.

So let us not complement private enterprise too much. They have long fed off of government initiative, and have basically specialized in running the last lap of the race, while expecting government to run the first few laps.

[Drachen]

I see. Public-private partnership. As much as I would prefer private-private partnership, your point is well taken. Some people--like you--cite the Manhattan project as an example of government spending that yielded dividends in the private sector. I agree with that assessment--however, the purpose of the Manhattan project was to promote national defense and to win the war. You could also say that our military's huge R & D budget serves much the same purpose. Heck, the internet is derived largely from government research. Some people say NASA is an example of government spending that yields dividends in the private sector, but I don't know.

If you want a more current example of what the government could do perhaps they could externally increase funding for research at Universities, companies, etc. that are researching energy producing technology. Most specifically those that do not require fossil fuels. They could assist in the funding of energy delivery infrastructure (whatever that shakes out to mean).
As far as nasa is concerned I think that this is one of the only examples that we have that our government supports basic science which I believe to be extremely important. We do know that due to NASA private industry has benefited. I am assuming your question is: do the benefits out weigh the costs?

[Drachen]

Interesting discussion.

While I agree with the premise that the private sector generally does a more efficient job than the government in pursuing opportunities and creating wealth, people generally forget that government involvement is crucial to provide the jumpstart.

History bears this out. The Pentagon system's research into military, space and computer technologies was the precursor to the private sector entering these areas, innovating upon initial development (done by the government), and making marketable products and services. See, private industry loves to take a good model and make money out of it, but it is far less willing to invest money in research that will prove that the aforementioned area is indeed worth pursuing.

The Internet that we use today is nothing but the evolution of the ARPANET developed by the US Deptt of Defense. Microprocessor-based applications were originally developed to solve space/military problems such as space flight and missile guidance systems. The fact that a plethora of products from cell phones to cars contain microprocessors is a tribute to the initial investment. Also, most of the standards that have been adopted in the computing and internet worlds are a result of academic research.

The point I am trying to make is that private capital loves not only the idea but a proven, tested practical application of the idea that can be used to make money. However they have not been as eager to invest in proving and testing whether a theoretical idea is financially feasible. They usually let government and academia handle that part.

So let us not complement private enterprise too much. They have long fed off of government initiative, and have basically specialized in running the last lap of the race, while expecting government to run the first few laps.
good point!

[doobs]

So, if I may bring this back to the original point . . . I suppose the reason I posted the Laffer curve is that I think the best way to address our budgetary problems is to reduce spending where possible. I think we can all agree that the government is a necessary evil that must be funded. But I think we can all agree that there is room to cut spending. One thing that troubles me, however, is the notion that you can just raise taxes to make up for budgetary problems or to "invest" in our economy. I believe the Laffer curve demonstrates, at the very least, the lack of certainty that goes along with such a strategy.

I REALLY wish taxes weren't an election issue. I've noticed, on both sides, pathetic appeals to both class warfare and to various -isms. Why can't we just stop bellyaching about taxes, and start with the serious, and achievable, objective of cutting spending?

Anyway, thanks for the valuable insights, all. Well, all of you except one.

[Drachen]

Yes you are right, we can trim some of the fat. The question is: Can we do enough fat trimming to counter both rising debt, and lowering tax revenues (due to economic downturn). I don't know. I do hear what you are saying, though, I think it would be nice if we could find some way to keep taxes constant and borrow to get ourselves out of bad times, then pay back with the surpluses in good times. It seems too easy, so it probably is.

[Wild Cobra]

?

Anyway, the purpose of this thread is to point out that higher taxes do not necessarily mean higher revenue.

Higher capital gains taxes--which Obama supports as well--generally results in fewer realization events and less tax revenue. The Laffer curve is just a useful visual tool for understanding that good tax policy is a tricky proposition.

If it were me, I would tinker with spending first because for the government it's easier to control the amount spent than the amount taken in.
Well, I tried to explain the Laffer Curve a few time to people here. The liberals just don't seem to understand.

Considering the revenue increased under the Bush Tax Cuts, increases will no doubt, take us the wrong direction. I don't know if farther cuts will help. I knew taxes were too high before, but it's even harder to figure out since we use a progressive rate instead of a flat tax. Personally, I think the lower rates should have no farther cuts, and the higher rates should be cut. Of course, I will now be accused of wanting to cut taxes only for the rich. So be it. Like I said, liberals just don't understand. They are always starting the class warfare issue too, then blaming it on conservatives.

wiki: Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve)

The Laffer Curve: Past, Present, and Future
by Arthur B. Laffer (http://www.heritage.org/Research/Taxes/bg1765.cfm)

The Logic of the Laffer Curve (http://logicizer.blogtownhall.com/default.aspx?mode=post&g=c5ecb3cf-2712-4f5a-ad89-7ae03da99280)

[RandomGuy]

So far he announced a tax hike from 36% to 39% on businesses making over $250K/year... Where that is on the Laffer curve, I don't know.

Neither does anyone else, and that includes economists. No one really knows.

[Wild Cobra]

So . . . he IS going to raises taxes, then? So . . . why'd you call me a liar? Are you a liar? And what's wrong with trying to have a civil discussion about it? Did I say "communism" or the "end of the USA"?

It's OK, I forgive you. Now leave.
Just ignore dweebs like Boutons, Clambake, and a few others. They are total idiots and only engage in pissing contests.

[BradLohaus]

Raising taxes on the top 5% in the near future is a bad idea; raising taxes on the top 15% would be a horrible idea. I hate to break to everyone, but a person who makes 250K a year is not a rich person anymore; they are upper middle class. Raising taxes on the middle class during bad times is never good.

Think about someone with $10 million in real wealth - now you are talking about a rich person... and that's the very bottom. They are a serf compared to someone with 9 digits of real wealth, and then of course you have the billionaires... tax them.

A short term, sharply progressive tax on the <1% (more like <0.1%, or even smaller) that is redistrubuted directly and progressively to the bottom 95% or so is the best way to go.

Will this cause a decrease in investment? Yes. Will it cause unemployment to rise, probably rather sharply? Yes. Will it make a recession even worse for a time? Yes. But the medicine must be taken, so take it now and drink it down fast. Taking the excess savings from the very, very top to increase the purchasing power of the bottom 95% is the best thing the government can do to help.

I stress short term, and the fact that this very rarely needs to be done, like somewhere around every 50-100 years. I also stress that this will never, ever happen in reality because the very, very top own the government and the major banks and the international corporations.

That is why the label "wealthy" is put on the upper middle calss; it is so they can share in the burden of a problem that they are not the cause of - the extreme top is the cause, not anyone in the upper middle class, or even the lower upper class. And yes, it is a conspiracy.

[ElNono]

Well, I tried to explain the Laffer Curve a few time to people here. The liberals just don't seem to understand.

Considering the revenue increased under the Bush Tax Cuts, increases will no doubt, take us the wrong direction. I don't know if farther cuts will help. I knew taxes were too high before, but it's even harder to figure out since we use a progressive rate instead of a flat tax. Personally, I think the lower rates should have no farther cuts, and the higher rates should be cut. Of course, I will now be accused of wanting to cut taxes only for the rich. So be it. Like I said, liberals just don't understand. They are always starting the class warfare issue too, then blaming it on conservatives.

wiki: Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve)

The Laffer Curve: Past, Present, and Future
by Arthur B. Laffer (http://www.heritage.org/Research/Taxes/bg1765.cfm)

The Logic of the Laffer Curve (http://logicizer.blogtownhall.com/default.aspx?mode=post&g=c5ecb3cf-2712-4f5a-ad89-7ae03da99280)

You should read what you link:

The Laffer-curve is central to supply side economics, as it provides an argument for why lowering taxation may actually increase tax revenues. Many economists have questioned the utility of the Laffer Curve in public discourse. According to Nobel prize laureate James Tobin, "[t]he 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981."

[ElNono]

Let me add that trickle down economics did not work and the past 8 years should be a textbook example of that. The real powerful private enterprise is only concerned on making more money, not what happens to people, or even their stockholders. That kind of greed is what needs to be regulated so it doesn't happen again. Nobody can tell us where the efficient point in Laffer-curve is. We don't even know if we're on the left side or right side of that efficient point. Based on that, it's kind of stupid to presume to know which way we need to go.

[Tully365]

What's wrong with you? I'm trying to have a civil discussion, and you're calling me a liar. Real mature.

Is this guy always such a jerk?

Yes. Don't let it bother you. I've been here for 5 months and I've never seen him be civil in a single post, or ever express even a hint of doubt concerning whether or not he his opinions are 100% infallible.

[Wild Cobra]

You should read what you link:

The Laffer-curve is central to supply side economics, as it provides an argument for why lowering taxation may actually increase tax revenues. Many economists have questioned the utility of the Laffer Curve in public discourse. According to Nobel prize laureate James Tobin, "[t]he 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981."
So it's not a one-sided argument, especially from wiki. Your point? Besides, did you see the source: Tobin, J. (Summer 1992). Voodoo Curse. Harvard International Review, 14, p10, 4p, 1bw. That is the printed opinion of one person. So what. James Tobin said cuts don't work. He may simply disagree with where we are on the curve, believeing we need higher taxes rather than lower. Besides, what was the full context in 1992? Tax rates were different, and the top marginal rate was increased from 28%. If he disagrees with the theory, I say he's an idiot.

Consider this article too:

You Can't Soak the Rich (http://online.wsj.com/article/SB121124460502305693.html)

There are tested models. We know from simplicity that 0% taxation yeild nothing and 100% taxation yeieds high revenues once, but then nobody produces since all is taken. The Laffer Curve as a theory has no credible deniers. The problem lies in determining the optimum point. If you read on the subject, you also see the curve is unlikely symetrical. I persomally think it would more resemble a 'black body radiation' curve in proportional shape than any symetrical curve:

http://i181.photobucket.com/albums/x262/Wild_Cobra/blackbody200k.png

[ElNono]

So it's not a one-sided argument, especially from wiki. Your point? Besides, did you see the source: Tobin, J. (Summer 1992). Voodoo Curse. Harvard International Review, 14, p10, 4p, 1bw. That is the printed opinion of one person. So what. James Tobin said cuts don't work. He may simply disagree with where we are on the curve, believeing we need higher taxes rather than lower. Besides, what was the full context in 1992? Tax rates were different, and the top marginal rate was increased from 28%. If he disagrees with the theory, I say he's an idiot.


Tobin is the one with the Nobel Prize, not Laffer.



Consider this article too:

You Can't Soak the Rich (http://online.wsj.com/article/SB121124460502305693.html)


That theory has been rebutted here:
LINK (http://www.capitalgainsandgames.com/blog/andrew-samwick/329/beyond-awful-wall-street-journal)




There are tested models. We know from simplicity that 0% taxation yeild nothing and 100% taxation yeieds high revenues once, but then nobody produces since all is taken. The Laffer Curve as a theory has no credible deniers. The problem lies in determining the optimum point. If you read on the subject, you also see the curve is unlikely symetrical. I persomally think it would more resemble a 'black body radiation' curve in proportional shape than any symetrical curve:

http://i181.photobucket.com/albums/x262/Wild_Cobra/blackbody200k.png

I'd like to see empirical evidence not just a hunch. And don't bother, I know there's none. Other economists have suggested the optimum point to be at 65%. My opinion is that the point exists only at a given time and depends on other factors, such as the current local economic health and global economic health. You also need to take into account that the elasticity between work and taxes is dynamic, thus this point would be a moving target within certain parameters. To further complicate the matter, Laffer defended his theory by using as example a 36% flat tax-rate in Russia. As you know, we have a progressive tax system, with people moving from different brackets on a yearly basis, so it gets even more complicated to try to pinpoint where this point really is at any given time.

Anyways, I appreciate the topic was brought up. It was fun to do some reading on the subject.

[boutons_]

"a tax hike from 36% to 39% on businesses making over $250K/year"


Right Change Is Wrong

October 24, 2008

A conservative group misleads voters mightily on Obama's tax plans for small businesses.

Summary

A conservative group called RightChange.com has spent $3 million running ads that largely criticize Obama and his tax plans. They're false:

Two ads say Obama would tax "small businesses" at a rate of "62 percent." He wouldn't. That number is an inflated estimate of the very top tax rate, and it doesn't represent what Obama has proposed.


That false figure includes an increased Social Security tax rate that Obama doesn't support, plus the state income tax rate paid by people making more than a million dollars a year in California.


One ad implies that regular folks just trying to make it as entrepreneurs would be hit with such a rate. But even if this estimate were correct – and it's not – it would affect the wealthiest taxpayers and only 1 percent of those who could generously be considered small-business owners.Analysis

RightChange.com (http://rightchange.com/), a 527 group out of North Carolina, is largely bankrolled by its president, Fred Eshelman, the CEO of a pharmaceutical research firm, who has contributed $2.7 million (http://www.opensecrets.org/527s/527cmtedetail_donors.php?ein=263024433&cycle=2008) of the $3.8 million the group has raised this year. According to OpenSecrets.org, Eshelman has also contributed (http://www.opensecrets.org/indivs/search.php?name=Eshelman&state=NC&zip=&employ=&cand=&c2008=Y&sort=N&capcode=26vz3&submit=Submit) $2,300 to Sen. John McCain's campaign. Two of the other three members of its board of directors are GOP state legislators in North Carolina. RightChange.com has spent just over $3 million (http://www.opensecrets.org/527s/527cmtedetail.php?cycle=2008&ein=263024433) so far.

http://www.factcheck.org/elections-2008/right_change_is_wrong.html

[LnGrrrR]

Raising taxes on the top 5% in the near future is a bad idea; raising taxes on the top 15% would be a horrible idea. I hate to break to everyone, but a person who makes 250K a year is not a rich person anymore; they are upper middle class. Raising taxes on the middle class during bad times is never good.


Ok, what defines middle class? Because to me, 250K a year is rich. I live relatively comfortably on around 40-45K a year (go USAF!), renting with a wife and no kids, though I can't afford to put away alot.

[boutons_]

$250K/person is not middle class.

Median household for family of 4 is about $50K, and that's been flat/stagnant since dubya got into office.

[BradLohaus]

Whatever you want to call a person who makes $250K a year, the point is that it is not their excess savings that is the cause of the problem, therefor we do not need to raise their taxes. The excess savings of the super wealthy are the real problem. How much total savings does a 250K per year person have? A few million, tops? This isn't 50+ years ago; a millionaire doesn't mean anything close to what it used to. The people who are worth 20M, 50M, 100s of M and billions - they literally have 10s and 100s of million, and even billions of dollars of savings... each.

THAT money right there is the problem - they can't find a return for it anymore because there is excess capacity everywhere in the economy: too many houses, too many stores selling too much stuff.... the purchasing power of the lower classes can't buy anymore without debt. The government and the Fed aren't letting the asset prices come down to reflect the real supply and demand; and it isn't for the guy making 250K.

That is why the housing bubble was created by Greenspan's 1% fed funds rate in the first place; to scrape the bottom of the barrel of credit worthiness to artifcially create demand and supply in a segment of the money market that didn't really exist and couldn't have ever existed without the Fed rigging the market - for the return on savings/investments of the super rich, of course.

If you tax only the super rich with a sharply progressive tax you will bring down asset prices for everybody - including the guy making 250K... so there go his excess savings in the process; no need to tax him further, the problem has been solved.

[BradLohaus]

And as for the shape of the Laffer curve today, it doesn't look like the curve in the first post, that's for sure... just look at the income distribution stats.

Bottom 95% = 40% of wealth
Middle 2-5% = 20% of wealth
Top 1% = 40% of wealth

And not only that, inside of the top 1% the wealth distribution is even more unequal. Taxes should be low for everyone, until you get inside the top 1%, 0.1%, 0.01%... where they should be sharply progressive.

Of course we are in a very special case; having a permanent tax structure like that would be a horrible disaster. Savings and investment would flee the country. But when you have a problem of excess savings for the super wealthy, it's the best tax structure. The rate of consumption and savings in the economy will normalize (there are no total savings today...despite the excess savings of the super wealthy...the level of debt is that high). They will normalize at a lower level, but that is a good thing in the long run. Then the tax rates can be brought more in line with the standard shape of the Laffer curve, and the economy will grow again. And guess what? This will never happen.

[doobs]

http://i181.photobucket.com/albums/x262/Wild_Cobra/blackbody200k.png

The Laffer curve is undeniably useful. And as you said, the problem lies in the shape of the curve. The shape you posted is favored by "supply siders." Of course, proponents of higher taxes envision a curve in which government revenues only begin to decline much farther to the right (i.e., closer to 100%).

It's all about incentives and productivity. I think EVERYONE can agree that at an effective rate of taxation of 100% government revenues will be zero. But the thing is, the Laffer curve is also useful for discussing marginal rates. The effect of higher taxes on your personal business decisions still matters at all marginal rates.

Imagine three tax brackets: 10% for everything up to $20,000, 25% for everything between $20,000 and $100,000, and 50% for everything above $100,000. If you're making $100,000, you're paying $22,000 in taxes ($2,000 + $20,000). In other words, your effective rate of taxation is 22%, so you'll take home 78% of what you made. Now, if you decided you wanted to make some more money, though, let's say you'll have to work harder and for longer hours. But you'll get diminishing returns on your blood, sweat, and tears, since you'll be taking home only 50% of any extra money you make. Why not just call it a day and spend time with your family, right?

Now, I understand that not every high income earner is affected by higher marginal rates due to their lot in life. You know, the already very rich or the white-collar professionals who command high salaries that place them in the top bracket. But what about the entrepreneurial small businessman? Ambitious, hard working people are not immune to high marginal rates.

But it's important to remember that the purpose of the Laffer curve is to identify the point at which government revenues are maximized. So it's stupid that some people just dismiss it as a supply-siders gimmick, because the Laffer curve acknowledges that at some point low taxes result in less government revenue.

[ElNono]

But it's important to remember that the purpose of the Laffer curve is to identify the point at which government revenues are maximized.

The Laffer curve is a theory. There's no way to find what the optimal point is, thus there's no way to know if you're on the left side or right side of the optimal point.



So it's stupid that some people just dismiss it as a supply-siders gimmick, because the Laffer curve acknowledges that at some point low taxes result in less government revenue.

The theory does not offer a way to determine the ideal point, thus it's pretty much useless... I don't necessarily think it has to do with supply-side economics, just economics in general...

[101A]

And as for the shape of the Laffer curve today, it doesn't look like the curve in the first post, that's for sure... just look at the income distribution stats.

Bottom 95% = 40% of wealth
Middle 2-5% = 20% of wealth
Top 1% = 40% of wealth

And not only that, inside of the top 1% the wealth distribution is even more unequal. Taxes should be low for everyone, until you get inside the top 1%, 0.1%, 0.01%... where they should be sharply progressive.

Of course we are in a very special case; having a permanent tax structure like that would be a horrible disaster. Savings and investment would flee the country. But when you have a problem of excess savings for the super wealthy, it's the best tax structure. The rate of consumption and savings in the economy will normalize (there are no total savings today...despite the excess savings of the super wealthy...the level of debt is that high). They will normalize at a lower level, but that is a good thing in the long run. Then the tax rates can be brought more in line with the standard shape of the Laffer curve, and the economy will grow again. And guess what? This will never happen.

Should we have a progressive "wealth" tax, instead of an income tax?

[doobs]

The Laffer curve is a theory. There's no way to find what the optimal point is, thus there's no way to know if you're on the left side or right side of the optimal point.



The theory does not offer a way to determine the ideal point, thus it's pretty much useless... I don't necessarily think it has to do with supply-side economics, just economics in general...

No, it doesn't identify the optimal point, but it helps keep people grounded when discussing tax policy. Taxes should NEVER go above the theoretical optimal tax rate, no matter what. They can go below, for sure, but they should never go above. Too bad all discussion this election season of tax policy has been in the language of class warfare. Making the "rich pay their fair share" (whatever that means) or "spreading the wealth around" shouldn't be our primary considerations when managing a massive and problematic federal budget. That's all.

[ElNono]

No, it doesn't identify the optimal point, but it helps keep people grounded when discussing tax policy. Taxes should NEVER go above the theoretical optimal tax rate, no matter what. They can go below, for sure, but they should never go above. Too bad all discussion this election season of tax policy has been in the language of class warfare. Making the "rich pay their fair share" (whatever that means) or "spreading the wealth around" shouldn't be our primary considerations when managing a massive and problematic federal budget. That's all.

How do you know if you're below or above the optimal tax rate, when you don't know what the optimal tax rate is? See how what you just said makes no sense?

[doobs]

How do you know if you're below or above the optimal tax rate, when you don't know what the optimal tax rate is? See how what you just said makes no sense?

You're missing my point. I'm saying that too much discussion of tax policy has been focused on beating up on the rich or playing the redistribution game. I just think that's stupid. The point of taxes is to raise revenue, not manipulate the economy or spread the wealth. The Laffer curve is just a reminder. So what I said makes sense. I acknowledge that the optimal point isn't defined, but that doesn't change what I'm saying at all.

[ElNono]

You're missing my point. I'm saying that too much discussion of tax policy has been focused on beating up on the rich or playing the redistribution game. I just think that's stupid. The point of taxes is to raise revenue, not manipulate the economy or spread the wealth. The Laffer curve is just a reminder. So what I said makes sense. I acknowledge that the optimal point isn't defined, but that doesn't change what I'm saying at all.

How can you determine that by increasing taxes we're not going to increase revenue? The Laffer curve actually supports this view if we happen to be on the left side of the optimal point. Obviously, we don't know what side we're on, so we'll have to try. And the current tax system is implicitly a redistribution of wealth, so they're tightly coupled together...

[BradLohaus]

Should we have a progressive "wealth" tax, instead of an income tax?

In theory: yes, exactly; that would be better because it goes directly at the heart of the problem - excess savings, or an over-accumulation of wealth at the very top - not the rate of income itself.

But the problem is liquidity. If you have a one time, every 75 years or so, wealth tax on the super wealthy then they would have to come up with an extremely huge amount of money very quickly. That would have all kinds of destabalizing effects on asset prices; they would fall through the floor...much farther than actual real market value.

They would have to be allowed to make their tax payments over a few years... which is basically the same thing as the income tax, just at different rates. I suppose you could target the payers by their wealth level instead of their income.

And remember, this all really goes back to the structure of the monetary and financial systems. And also remember that we just gave Wall Street $700 billion so that they could just hoard it. Just in case anybody thinks that I'm turning socialist...the socialism that I'm talking about is only really necessary because the game is rigged from the get go; fix that and you won't need to do this.

[ElNono]

In theory: yes, exactly; that would be better because it goes directly at the heart of the problem - excess savings, or an over-accumulation of wealth at the very top - not the rate of income itself.

But the problem is liquidity. If you have a one time, every 75 years or so, wealth tax on the super wealthy then they would have to come up with an extremely huge amount of money very quickly. That would have all kinds of destabalizing effects on asset prices; they would fall through the floor...much farther than actual real market value.

They would have to be allowed to make their tax payments over a few years... which is basically the same thing as the income tax, just at different rates. I suppose you could target the payers by their wealth level instead of their income.

Theory is nice. What I wonder is how do you expect to tax this 1% of super wealthy, when they basically have been avoiding paying taxes altogether by sending the money to tax shelters overseas, and also have the ability to influence the representatives that have to enact such tax law?

[byrontx]

doobs, the instate highway system was built and maintained with taxes. The way it facilitates the flow of commerce is certainly in excess of its cost. Government is not some evil thing that is out there to take your money. Government is when we act together for the collective good. If the US were 300 million people all scrapping it out for only our individual needs, only banding together for a common defense, the reality is we would not have much to show for ourselves. It is when we act together that we score our greatest achievements. There a balance between gov revenue and taxes. Clinton did a great job of finding that balance and I expect Obama will, too.

[only1wwff]

Taxes are and always will be used for social control...when we want people to buy houses we give them big tax breaks for the interest...

The Laffer Curve seemed like a moving target when I first learned about it because it's a tipping point at which people decide they can't afford things...retail or big ticket...and trying to gauge mood is like herding cats.

[BradLohaus]

Theory is nice. What I wonder is how do you expect to tax this 1% of super wealthy, when they basically have been avoiding paying taxes altogether by sending the money to tax shelters overseas, and also have the ability to influence the representatives that have to enact such tax law?

That's why I keep saying that it will never happen.


We don't pay taxes. Only the little people pay taxes.