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.
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.
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
The Laffer Curve: Past, Present, and Future
by Arthur B. Laffer
The Logic of the Laffer Curve
Last edited by Wild Cobra; 10-28-2008 at 04:48 PM.
Neither does anyone else, and that includes economists. No one really knows.
Just ignore dweebs like Boutons, Clambake, and a few others. They are total idiots and only engage in pissing contests.
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.
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."
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.
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.
Last edited by Tully365; 10-28-2008 at 05:21 PM.
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
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:
Tobin is the one with the Nobel Prize, not Laffer.
That theory has been rebutted here:
LINK
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.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:
Anyways, I appreciate the topic was brought up. It was fun to do some reading on the subject.
"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:
Analysis
- 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.
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 of the $3.8 million the group has raised this year. According to OpenSecrets.org, Eshelman has also contributed $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 so far.
http://www.factcheck.org/elections-2008/right_change_is_wrong.html
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.
$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.
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.
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.
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.
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...
Should we have a progressive "wealth" tax, instead of an income tax?
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?
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...
In theory: yes, exactly; that would be better because it goes directly at the heart of the problem - excess savings, or an over-ac ulation 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.
Last edited by BradLohaus; 10-28-2008 at 09:53 PM.
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?
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