Posted on 11/25/2008 11:21:48 AM PST by TheFreeRight
“Cutting taxes increases economic growth, which in turn increases government revenue.”
I have heard that phrase more times than I can count from more Republicans than I even remember.
It has been the central theme with which the Republicans have built their reputation, and basically the only thing that they have done in Washington that has matched up with their rhetoric.
There’s a problem, though. And I want you to keep in mind when I say this, that I am a libertarian-Republican who would just as well like to see the income tax abolished. I repeat, I hate taxes, and if it were up to me I would lower them as far as possible - so if you somehow take this article to mean I am advocating tax raising, or increasingly progressive taxation or anything of the kind, please take a Valium and come back to read the article again later when your hysteria has gone away. We need to talk seriously about public policy if the Republican party is ever going to climb out of its hole.
Now, here’s the secret. It doesn’t work like that.
Oh, mind you, the economic growth argument is certainly true. You allow people to keep more of their own money, and you will in fact see a growth in consumer spending, which will lead to growth in business, and so on and so forth.
But, then we come to that tricky part about “growing government revenue”. This, sadly, is not actually true - and if the Republican party wants to govern well when it eventually gets back into power (notice I said govern well, not “keep power”) they need to understand this, so they don’t repeat the same foolish mistakes they made in the 2000s.
(Excerpt) Read more at politicalcapital.info ...
The secret of the laffer curve is no one knows where the maximum point is but everyone likes to pretend they do.
You can extrapolate this to apply to all of economics.
I was going to attack the headline, but it is good - because of the off chance it will induce a lefty to read it. Instead of getting echo-chamber, they will get what they are trying to avoid reading.
Anyone fuming over the headline alone - read the entire article.
>>>The secret of the laffer curve is no one knows where the maximum point is but everyone likes to pretend they do.
Yes, determining what is the optimal rate, especially when you have a progressive tax system, isn;t obvious. Clinton passed the largest tax increase in US history and revenues went up. Bush passed his tax cuts and revenues went up.
Hey Mr. “Libertarian-Republican” - I have an idea.
How about we REDUCE the size of government and thereby reduce government spending. Then, the government will not need as much revenue and the “Laffer Curve” gets smaller, with “t” itself shifting to the left. Then taxes can be reduced until the new, lesser “t” is hit.
Got that? REDUCE government spending by reducing the size of the government!
THAT used to be part of the Republican economic plan also, didn’t it?
Without regulating spending to revenue, there is NO tax rate that would be enough.
See: You can’t soak the ‘rich’. WSJ.
(Hauser’s Law)
I really believe that an increase in taxation reduces my freedoms. (Especially my freedom to decide to whom to give my charitable donations. less income=less charity. I don’t get any warm feelings when giving to the government.)
EXACTLY...
And this is why Republicans who have basically leaned on the “tax cuts increase government revenue” argument are either mental, or lazy.
At the point we are at, I think we have to at least assume that we are on the left side of the curve. Hell, maybe we’re still on the right side of it, but don’t you think we should go about our budget preparation as though we were on the left of it?
Cutting taxes is not, and can not be, the end all be all of the Republican economic agenda, because the logic we use to justify them in a world of deficits is simply not enough - its only half the solution.
We have to get serious about spending cuts, entitlement reform and all the other things that will decrease the amount of spending at the federal level.
If we aren’t prepared to do that, then we can’t cut taxes. If we do and don’t balance the budget by cutting spending, then we are only passing along a defacto tax increase on our kids to pay for the insane debt we are incurring. Either way, we’re screwing ourselves with taxes, or screwing our kids with them.
Cutting taxes without cutting taxes is the cowards way out.
The Laffer curve was a hockey-stick graph prank.
Just like the ones the global warmers use.
If the logic were true, taxes should be cut to 1% and we will all get rich!
AS for the “optimal” tax rate, the Laffer curve in no way considers it, it just assumes deficit spending is good.
Remember “we will grow out of the deficit?” That was Laffer-curve-like witch doctor stuff.
Exactly.
The Laffer Curve is a Bell Curve.
Where did you get that? The Laffer curve just says that at 0% tax the government will get no revenue because 0% times the tax base is $0. Similarly a 100% tax rate will give zero revenue because no one will work as the complete slave of the government. Well, maybe some would consider fewer whippings as a tax break and work to get that. Somewhere in between there is a maximum point. If we are higher than that point, then cutting the rate will increase tax revenue. If we are at a lower tax rate than that maximum, then cutting taxes will reduce tax revenue.
No one knows for certain what that point is and how the short range value of it (should I work overtime this weekend to get more cash even if I pay half in taxes or just goof off?) compares to the long range (should I start a plumbing business or just be happy soldering pipes for my current wage?). It is even possible to have a tax rate above the long term peak point but below the short term one, so cutting taxes will cut revenue for a few years but build more business which will pay even more taxes in five or ten years.
My biggest problem with the Laffer curve is that it implied that maximizing tax revenue was some type of ideal rather than maximizing the after tax wealth of the people.
You don’t know what the Laffer Curve is, do you? Hint: It is a “curve”. Hint 2: It is not monotonic.
Tax cuts must be accompanied by spending cuts. Otherwise, we don’t reap the benefits.
Um, WayneS... perhaps you missed the following parts of the article???
“So what does all this mean? Should we raise taxes so we can get near that magic “t” line and optimize our tax revenue?
No. Of course not - that is absurd. In fact, I’d love to see taxes whacked down further, by a lot.”
“Why get your hands dirty cutting school lunch programs et all when you honestly believe your revenue stream will be better if you cut taxes anyway?
Its not. We can’t just cut taxes and wash our hands of things. It doesn’t work like that at this level anymore - not on the left side of the curve.”
“We should want to drive that Laffer Curve as far left as possible so that as many people can keep as much of their own money as possible.
But, by ignoring the actual effect of cutting taxes, it has left Republicans everywhere with the assumption that they won’t have to get their hands dirty with that nasty business of cutting government spending.”
“The budget has to be balanced. We can no longer spend like this - its simply Chinese monopoly money at this point, and we have to start to retire the debt.
We’ll never get there by cutting taxes, and then retiring to the study for a smoke and a congratulatory foot massage. We have to get elbow deep in the messy work of taking the red pen to the federal monster. We have got to cut taxes and also cut spending, to get our budget back in balance.
Cutting taxes and running away from the hard work is an ultimate act of political cowardice, and is one of the major reasons why George W. Bush’s presidency has been a disappointment.”
“We all know it isn’t true, not its time to be adults, be honest with ourselves about the reality of public policy, and push a fiscally conservative agenda that understands that reality and makes it work practically for the American people. Hack the tax code down as far as you possibly can, just understand what you’ll be doing to the budget, and plan your spending accordingly.
Cut it.”
The idea that somehow the article wasn’t calling for a massive cut in the size of government is foolish. It is, in fact, the driving thesis of the article.
It isn’t arguing that we’re to the left of the optimal “t” on the curve so we should stop cutting taxes - its an argument that says that the Republican rhetoric about tax cuts growing government revenues is at this point a joke, and relying on it being true and selling yourself on the idea that you don’t NEED to cut the size of government, because revenues will go up, has lead to our current deficit spending problem.
The article calls for small government conservative leaders to stop being cowards, and actually do the dirty work of cutting government if they want to cut taxes.
Everyone wants to cut taxes - so do I. But we can’t cut them unless we slash spending too, because in the end, all it will do if we do NOT do that is increase our debt, which will lead to a future tax increase, thus pretty much destroying the economy sometime in the future.
So, if we want tax cuts, dump the stupid rhetoric about it increasing revenues... that was true with 70% top rates, but it is a lot less true today. So lets be honest with both ourselves and the voters that our tax cuts are going to need to be used in concert with spending cuts.
If we don’t have the courage to actually cut spending, then cutting taxes is insanity. Hello 11 trillion dollars of debt.
Never smoked pot in my life, thanks. Nor am I gay. Nor do I perform abortions on demand (pro-life actually). Thanks though.
Perhaps I should read the WHOLE article before posting.
(cue sheepish grin)
I think its the REGULAR Republicans who’ve been smoking something lately, isn’t it?
There are also Libertarian Democrats.
Libertarian arguments all resolve to "I want to smoke pot."
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