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 ...
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."
We are still far on the high side of the optimal tax rate.
And we'll stay there as long as we elect Rupublican geldings to Congress.
BUMP
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....
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.
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.
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.
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?
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.
The Laffer curve should be pasted on the ceiling above every child's bed.. and their parent's beds as well.
They just reported the federal budget numbers for this month, and it is a DEFICIT! of over $35 billion, for just one month!
They are in the jockey's position but can't ride. What else would you call em ?
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
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.
Too true.
"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.
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