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WSJ: Real Tax Cuts Have Curves -- George Bush proves Art Laffer right -- again.
Wall Street Journal ^ | June 13, 2005 | STEPHEN MOORE

Posted on 06/13/2005 5:44:35 AM PDT by OESY

As legend has it the famous Laffer Curve was first drawn by economist Arthur Laffer in 1974 on a cocktail napkin during a small dinner meeting... attended by the late Wall Street Journal editor Robert Bartley and such high-powered policy makers as Dick Cheney and Donald Rumsfeld. The Laffer Curve helped launch the Reaganomics Revolution here at home and a frenzy of tax rate cutting around the globe....

The theory is really one of the simplest concepts in economics. Yet its logic continues to elude the class-warfare lobby whose disbelief is unburdened by the multiple real-life examples which validate its conclusions. The idea is that lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and thereby will often lead to more tax revenue collections for the government rather than less....

Last week the Congressional Budget Office released its latest report on tax revenue collections. The numbers are an eye-popping vindication of the Laffer Curve and the Bush tax cut's real economic value. Federal tax revenues have surged in the first eight months of this fiscal year by $187 billion. This represents a 15.4% rise in federal tax receipts over 2004. Individual and corporate income tax receipts have exploded like a cap let off a geyser, up 30% in the two years since the tax cut. Once again, tax rate cuts have created a virtuous chain reaction of higher economic growth, more jobs, higher corporate profits, and finally more tax receipts.

This Laffer Curve effect has also created a revenue windfall for states and cities. As the economic expansion has plowed forward, and in some regions of the country accelerated, state tax receipts have climbed 7.5% this year already.... New York City... finds itself more than $3 billion IN SURPLUS....

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Editorial; Government; News/Current Events; Politics/Elections
KEYWORDS: bartley; cheney; laffer; laffercurve; reaganomics; rumsfeld; stephenmoore; taxes

1 posted on 06/13/2005 5:44:36 AM PDT by OESY
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To: OESY
I think if people would "sell" this concept in the below terms, more folks might understand it.

Let's say a company is selling sodas for $1.50 and making $1.25 profit per can. Then I come in as the new CEO and order prices lowered to $1.00 per can. Now, our profit margin will go down, but what happens to our sales volume? It goes up, and once it goes up enough our total profit will exceed the total profit the company would have achieved by keeping prices the same.

Just consider taxes "prices."

2 posted on 06/13/2005 5:56:39 AM PDT by Coop (In memory of a true hero - Pat Tillman)
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To: OESY

We are still far on the high side of the optimal tax rate.


3 posted on 06/13/2005 5:56:42 AM PDT by Blood of Tyrants (G-d is not a Republican. But Satan is definitely a Democrat.)
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To: Blood of Tyrants

And we'll stay there as long as we elect Rupublican geldings to Congress.


4 posted on 06/13/2005 6:04:00 AM PDT by Eric in the Ozarks
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To: OESY

BUMP


5 posted on 06/13/2005 6:05:35 AM PDT by bubman
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To: OESY

bookmark ping.

looks very interesting. I'm reading Unlimited Wealth by Paul Zane Pilzer and he has a great section on how supply side worked in the Reagan admin. The problem was government spent more than extra tax dollars that were generated by the cuts....


6 posted on 06/13/2005 6:06:25 AM PDT by traviskicks (http://www.neoperspectives.com/charterschoolsexplained.htm)
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To: OESY
The numbers are an eye-popping vindication of the Laffer Curve and the Bush tax cut's real economic value. Federal tax revenues have surged in the first eight months of this fiscal year by $187 billion. This represents a 15.4% rise in federal tax receipts over 2004. Individual and corporate income tax receipts have exploded like a cap let off a geyser, up 30% in the two years since the tax cut.

The basic premise of the Laffer Curve is correct, but the numbers posted here represent a disingenuous argument in favor of lower tax rates. This is because they don't take two critical points into account: 1) the impact on gross tax receipts of the ever-increasing number of filers who are subject to the alternative minimum tax (who can't take advantage of the lower income tax rates), and 2) the "positive" impact of massive deficit spending on both corporate and individual income tax receipts.

7 posted on 06/13/2005 6:08:50 AM PDT by Alberta's Child (I ain't got a dime, but what I got is mine. I ain't rich, but lord I'm free.)
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To: Coop

Coop - that's a great analogy that people will understand. However, it assumes that the demand for sodas is elastic enough to increase volume to a point that the increased sales offset the decrease in price.


8 posted on 06/13/2005 6:10:54 AM PDT by Rammer
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To: OESY

I once heard a Demorat admit on television that even if it could be proven that lower taxes equated to more revenue, Demorats still wouldn't support the idea. It all hinges on their belief that it's wrong for some in our society to do better financially than others; with progressive taxes used as punishment.


9 posted on 06/13/2005 6:13:03 AM PDT by Mariposaman
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To: Eric in the Ozarks

Suuure we just need more RATS in Congress. Just which party do YOU think has been cutting taxes? And which party has fought them kicking and screaming all the way?

Or were you quoting DU's oh so clever names for Republicans?


10 posted on 06/13/2005 6:14:32 AM PDT by justshutupandtakeit (Public Enemy #1, the RATmedia.)
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To: OESY
Bartley once authored a brilliant expose of the positive effects of the Reagan tax cuts. We should find the report excerpts and flood Dem disinformation sites with it.
11 posted on 06/13/2005 6:19:19 AM PDT by patriot_wes (papal infallibility - a proud tradition since 1869)
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To: traviskicks
The interesting development here was that the hacks in the MSM stopped ridiculing it as "Reaganomics" when it began to work. Then they condemned the 80's as "The Decade of Greed" but quickly did an about face when the prosperity continued under Clinton -- that is, until his bubble burst. They then looked to the incoming Bush administration to blame for the fallout.
12 posted on 06/13/2005 6:19:33 AM PDT by OESY
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To: Alberta's Child

AMT filers have not gone up 30% the last two years. If you are referring to deficit stimulation of the economy increasing tax revenues the impact would be lagged and not affecting the economy quickly enough to increase taxes so quickly. Besides there is a theoretic problem even if it were. i.e. a deficit which increases revenue is self liquidating which I don't think anyone believes is the case in reality.


13 posted on 06/13/2005 6:19:34 AM PDT by justshutupandtakeit (Public Enemy #1, the RATmedia.)
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To: OESY

The Laffer curve should be pasted on the ceiling above every child's bed.. and their parent's beds as well.


14 posted on 06/13/2005 6:20:19 AM PDT by ran15
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To: OESY

They just reported the federal budget numbers for this month, and it is a DEFICIT! of over $35 billion, for just one month!


15 posted on 06/13/2005 6:22:57 AM PDT by SandyB
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To: justshutupandtakeit

They are in the jockey's position but can't ride. What else would you call em ?


16 posted on 06/13/2005 6:27:27 AM PDT by Eric in the Ozarks
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To: justshutupandtakeit

I think he may have been referring to the RINO's.

Those who want to claim the Republican label, yet the Democrat love for taxes and tax abuse of citizens.

Paul


17 posted on 06/13/2005 6:29:35 AM PDT by spacewarp (Visit the American Patriot Party and stay a while. http://www.patriotparty.us)
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To: justshutupandtakeit

I'll have to do some research to see how the revenue breaks down for "standard" income tax filers vs. AMT. One of the bizarre side effects of the reductions in income tax rates is that many people suddenly found themselves paying the AMT simply because their reduced income tax rates dropped them below the AMT threshold.


18 posted on 06/13/2005 7:17:04 AM PDT by Alberta's Child (I ain't got a dime, but what I got is mine. I ain't rich, but lord I'm free.)
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To: OESY
The theory is really one of the simplest concepts in economics. Yet its logic continues to elude the class-warfare lobby

Too true.

19 posted on 06/13/2005 9:07:01 AM PDT by T. Buzzard Trueblood ("I'm not very dignified." - Howard Dean)
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To: OESY

"Yet its logic continues to elude the class-warfare lobby whose disbelief is unburdened by the multiple real-life examples which validate its conclusions."

WA gov Christine Fraudoire and the demoncRATS controlling the House and Senate are just several suffering from loss of logic.


20 posted on 06/13/2005 12:54:57 PM PDT by lilylangtree (Veni, Vidi, Vici)
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To: SandyB
They just reported the federal budget numbers for this month, and it is a DEFICIT! of over $35 billion, for just one month!

Who just reported this?

21 posted on 06/13/2005 1:01:52 PM PDT by MEGoody (Ye shall know the truth, and the truth shall make you free.)
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To: Rammer
However, it assumes that the demand for sodas is elastic enough to increase volume to a point that the increased sales offset the decrease in price.

Indeed it does. But my response is that stores wouldn't reduce prices if they didn't get some benefit (increase volume, faster turnover, or at least increased shopper traffic that will hopefully purchase other non-reduced merchandise).

22 posted on 06/14/2005 8:12:05 PM PDT by Coop (In memory of a true hero - Pat Tillman)
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To: Coop

You sir, are absolutely correct. Good point, and good analogy.


23 posted on 06/15/2005 5:43:56 AM PDT by Rammer
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To: OESY

bookmark


24 posted on 06/16/2005 7:27:19 PM PDT by Sam Cree (Democrats are herd animals)
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To: OESY

bookmark too.


25 posted on 06/18/2005 9:18:29 PM PDT by chaosagent (It's all right to be crazy. Just don't let it drive you nuts.)
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To: Alberta's Child; SandyB; patriot_wes; OESY; ran15
The basic premise of the Laffer Curve is correct, but the numbers posted here represent a disingenuous argument in favor of lower tax rates. This is because they don't take two critical points into account: 1) the impact on gross tax receipts of the ever-increasing number of filers who are subject to the alternative minimum tax (who can't take advantage of the lower income tax rates), and 2) the "positive" impact of massive deficit spending on both corporate and individual income tax receipts.

I agree. The basic premise that revenues approach zero as the tax rate approaches the extremes (zero and 100 percent) is correct. Of course, it's very doubtful that the relationship is a nice, symmetrical curve as pictured above. In addition, there are many other factors that affect revenues. Finally, every credible study that I've seen suggests that tax rates are on the low side of that rate that would bring in the highest revenues. For example, in the article, Moore states:

In the 1980s, President Ronald Reagan chopped the highest personal income tax rate from the confiscatory 70% rate that he inherited when he entered office to 28% when he left office and the resulting economic burst caused federal tax receipts to almost precisely double: from $517 billion to $1,032 billion.

What Moore doesn't mention is that revenues have likewise doubled (or better) during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION! They went up 502.4% during the 40's, 134.5% during the 50's, 108.5% during the 60's, and 168.2% during the 70's. At 96.2 percent, they nearly doubled in the 90s as well. Hence, claiming that the Reagan tax cuts caused the doubling of revenues is like a rooster claiming credit for the dawn.

Furthermore, the receipts from individual income taxes (the only receipts directly affected by the tax cuts) went up only 91.3 percent during the 80's. Meanwhile, receipts from Social Insurance, which is directly affected by the FICA tax rate, went up 140.8 percent. This large increase was largely due to the fact that the FICA tax rate went up 25% from 6.13 to 7.65 percent of payroll. Hence, the claim that the doubling of TOTAL revenues proves the effectiveness of tax cuts is including revenues which resulted from a tax hike to prove the effectiveness of a tax cut. This seems like the height of hypocrisy. For a further discussion of Reagan tax cuts, see that analysis at http://home.att.net/~rdavis2/taxcuts.html.

Regarding the Bush tax cuts, the following graph shows the 3-month trailing averages for receipts, outlays, and deficits since 1998:

The numbers and sources can be seen at http://home.att.net/~rdavis2/mts.html. As can be seen, revenues from individual income tax receipts dropped sharply following the 2001 tax cut. Oddly, Moore and all other supply-siders appear to have lost all memory of this tax cut. Revenues do appear to have started a recovery in late 2003 or early 2004. To what degree this recovery is due to the 2003 dividend tax cut and to what degree it is just the normal recovery from a recession is debatable. In any event, this says absolutely nothing about the merit in cutting the marginal tax rate.

The fact that we are below the tax rate that will bring in maximum revenues is NOT an argument for raising taxes. However, we need to get away from these free-lunch schemes that are rampant in the world of politics.

26 posted on 06/19/2005 9:51:11 PM PDT by remember
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To: OESY
Related article here: "US reaps rewards of tax cuts but public finances face grim future."
27 posted on 06/20/2005 10:00:45 AM PDT by Tern
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To: remember
What Moore doesn't mention is that revenues have likewise doubled (or better) during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION!

Thank you for that. I also read somewhere that 22 millions jobs were created in the much-maligned 1970s, which is actually more than in the celebrated 1980s.

28 posted on 06/21/2005 6:13:55 AM PDT by Skylab
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To: Skylab
What Moore doesn't mention is that revenues have likewise doubled (or better) during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION!

Thank you for that. I also read somewhere that 22 millions jobs were created in the much-maligned 1970s, which is actually more than in the celebrated 1980s.

You're correct that more jobs were created during the much-maligned 1970s than during 1980s. The following graph shows the number of people employed and in the labor force since 1950:

The graph shows that, except for recessions, the number of jobs has closely followed the size of the labor force which itself has increased at a fairly steady rate. The purple line shows the 4-year trailing average of the annual percent growth in total employed. As can be seen, it was noticeably higher in the 1970s than it was during most of the 1980s.

The numbers and sources can be found at http://home.att.net/~rdavis2/employ1.html. Looking at the actual numbers, the increase in jobs was 20.625 million (99.303 - 78.678) during the 70s and 19.49 million (118.793 - 99.303) during the 80s. These numbers come from the so-called household survey. Looking at the payroll survey, the increase jobs was 19.624 million (90.8 - 7.1176) during the 70s and 18.344 (109.144 - 90.8) during the 80s. Hence, by either survey, there were more than a million more jobs created during the 70s than during the 80s.

The numbers are no better if you look at Presidential terms of office. Following are the jobs created under every president since Roosevelt's last term:

TOTAL NONFARM EMPLOYMENT BY PRESIDENTIAL TERM (in thousands)

                          Total            No. of  Monthly
President     Mo  Year  nonfarm   Change   Months  Average
-----------  ---  ----  -------  -------  -------  -------
Roosevelt    Jan  1941    34480     7423       48    154.6
Truman       Jan  1945    41903     2772       48     57.8
  "          Jan  1949    44675     5470       48    114.0
Eisenhower   Jan  1953    50145     2743       48     57.1
  "          Jan  1957    52888      795       48     16.6
Kennedy      Jan  1961    53683     5900       48    122.9
Johnson      Jan  1965    59583     9855       48    205.3
Nixon        Jan  1969    69438     6182       48    128.8
Nixon/Ford   Jan  1973    75620     5072       48    105.7
Carter       Jan  1977    80692    10339       48    215.4
Reagan       Jan  1981    91031     5322       48    110.9
  "          Jan  1985    96353    10780       48    224.6
G.H. Bush    Jan  1989   107133     2592       48     54.0
Clinton      Jan  1993   109725    11507       48    239.7
  "          Jan  1997   121232    11222       48    233.8
G.W. Bush    Jan  2001   132454      893       52     17.2
             May  2005   133347

Total from Kennedy to Clinton      78771      480    164.1
Total from Kennedy to G.W. Bush    79664      532    149.7

Source: Bureau of Labor Statistics series at http://data.bls.gov/cgi-bin/surveymost?ce

Looking at their entire 4 or 8-year terms, the highest growth in jobs occurred under Clinton, Carter, Johnson, and Reagan, in that order. This is true even if the end of Kennedy's term which Johnson served out is included.

29 posted on 06/22/2005 12:46:46 AM PDT by remember
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To: OESY

If we could combine republican tax cuts with conservative spending cuts, our economy would boom so loudly that liberals would never hear the end of it.


30 posted on 07/29/2005 5:45:59 AM PDT by Maelstrom (To prevent misinterpretation or abuse of the Constitution:The Bill of Rights limits government power)
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To: remember

The fact is, if you're able to separate out the issue of taxes and revenues, conservatives are correct and taxes should be decreased.

Everything you've brought up here to challenge the issue is very heavily impacted by other factors to the extent that your graphs tell us *nothing* about the impact of tax cuts or tax increases on the economy.

It's easy to lie with statistics.

It's more difficult to identify the lies in statistics, but not impossible.

That said, Bush is a fink for refusing to cut spending, and I'm extremely unhappy with his peformance in domestic economics. If he was attempting to achieve a "new tone" by given Democrats what they wanted economically here at home, hopefully, by now, he's understood that they are going to hate him no matter what he does because of those 3 characters after his name and title (R).


31 posted on 07/29/2005 5:50:40 AM PDT by Maelstrom (To prevent misinterpretation or abuse of the Constitution:The Bill of Rights limits government power)
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To: Maelstrom
Everything you've brought up here to challenge the issue is very heavily impacted by other factors to the extent that your graphs tell us *nothing* about the impact of tax cuts or tax increases on the economy.

The issue addressed by the lead article in this thread is the impact of tax cuts on revenues. And, according to the administration's own budget documents, the tax cuts have led to LOWER revenues. For example Table 7 in the 2005 Mid-Session Review breaks down the increase of over $2 trillion in the deficit since the 2002 Budget. It states that 49 percent of this swing was due to reestimates, 29 percent was due to tax relief, and the remaining 22 percent was due to the war, homeland, and other spending.

Then, in Table S-7 of the just-released 2006 Mid-Session Review, the administration projects that extending the marginal individual income tax rate reductions from 2011 to 2015 will cost about half a trillion dollars and repeal of the estate tax for those years will cost about a quarter of a trillion dollars.

Every budget document and credible economic study that I have ever seen states that tax cuts of any significance lead to lower revenues, at least in the short and medium term (the very long term is difficult, if not impossible, to measure). If you have ever seen a budget document or credible economic study that says otherwise, please post it.

32 posted on 07/31/2005 3:20:22 AM PDT by remember
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