Laffer Curve Works Again

HUMAN EVENTS ^ | Dec 28, 2005 | Jerry Bowyer

[george76]

Ronald Reagan once said an economist is someone who sees something that works in practice and wonders if it would work in theory.

So why is it that when confronted with a concept that works in both practice and theory, so many people refuse to believe it?

The Laffer Curve, popularized by economist Arthur Laffer, says the government can maximize tax revenue by setting the tax rate at ...

The logic is obvious on the ends of the spectrum: if the tax rate is 0%, the government collects no money.

If it is 100%, people have no reason to earn, and the government still collects no money.

Federal tax receipts for October and November (the first two months of fiscal 2006) were $288 billion. This is up from the first two months of fiscal 2005 ...

Despite cutting tax rates in May 2003, tax receipts for this two-month period have risen for three consecutive years.

We were on the wrong side of the curve (and may still be):

Tax rates were too high.

[muir_redwoods]

"When the economy is good, the tax rate should slowly increase until the economy starts to slow down at which point it should start to slowly drop."

This is only true if your objective is to maximize returns to the government, a hideous idea in any context. The government should be put on a strict money diet and deprived of all but truly essential funds. Giving money to the government is like giving whiskey and car keys to a 15 year-old

[george76]

Do you mean like this ?

[george76]

You are correct.

The Laffer Curve is the first of many steps to try to explain to the DUmmies that higher tax RATES do not automatically mean higher Revenue.

If we can get some of the DUmmies to understand that lower RATES often mean higher REVENUE, then we can move to the second step.

[Chuck_101]

Yup...what's the trick to it???

[marblehead17]

ping

[george76]

Is this the other one ?

[Ghost of Philip Marlowe]

It would be impossible to adjust tax rates and the revenue taken from them based upon fluctuations in the health of the economy in a timely manner. It would wind up with an endless wave of strength and weakness from one industry to the next and would be very unstable.

Also, do we really want the government that involved in determining what is a healthy economy and at what point they want to turn it around? That would put elected officials in the position of controlling a dial that they will ultimately use at re-election time.

[Chuck_101]

Yes...

So from now on, I guess I'll just write to you, and YOU can post the illustrations...'cause I can't figger it out!

[Ghost of Philip Marlowe]

So we raise our tariffs on imports and reduce our income tax. Who pays that tariff? The American consumers when they purchase an import. And then what do the nations we export to do? They raise tariffs on our exports. We sell less. Their economy slows. Our economy slows. Then our government raises our income tax to compensate...but increases it when the economy is poor.

As Thomas Sowell says, you're in a boat and the guy at the front of the boat shoots a hole in his end -- raising tariffs is like trying to fix the sinking boat by shooting a hole in your end of the boat.

[george76]

Start with

<img src="

then the picture location http...(that can be found by right clicking with your mouse and then copying the properties...starting with http)

then with "...

Then finish with the reverse of <

to close the image source.

[dalereed]

"When the economy is going nuts, raise taxes...not a lot, but enough to slow it down and increase revenues like the dickens"

Eliminate ll the illegal and unconstitutional social services, SS, Medicare/medicade, food stamps, hud, etc., the government needs less money not more.

[george76]

Sure, any time.

[Chuck_101]

Thanks...I really appreciate it...

and...

HAPPY NEW YEAR!!!!

[Right Wing Assault]

That Laffer curve (without numbers) makes it look as if the best tax rate is 50%!

[docbnj]

"Practically speaking, the tax rate should vary and not be a fixed value, but here is how it should work."

Perhaps you meant to say, "impractically speaking.." Politics would never act so precisely, so this idea is utterly IMPRACTICAL.

Furthermore, it is wrong. The function of tax rates is not to regulate the economy. It is to provide resources for legitimate government functions: defense and justice.

One of our problems is that tax money is used for all sorts of transfer payments, breaking the nexus between provider and spender, and thereby irrationalizing the deployment of resources. Government expenditures often make certain problems worse, as in the field of education, where government control has diluted what is taught, and has acted to drive up college expenses. It has encouraged a whole industry engaged in keeping young people out of the word of adult responsibility. Much of our "spoiled child" culture is driven by this system.

Anyway, the Laffer curve does work. It is a mixed blessing, though, if it gives the government more money.

[george76]

Happy New Year

Here is a site to look at when you have some spare time.

http://www.htmlgoodies.com/tutorials/getting_started/article.php/3479311#center

[DakotaGator]

If we can get some of the DUmmies to understand that lower RATES often mean higher REVENUE, then we can move to the second step.

Sigh. That's a mighty big "if". DUmmies operate on faith in their religion, socialism/communism; not on reason.

Your second step is a nice vision. Probably all we can do is keep trying to implement positive change and drag the rest, kicking and screaming, into prosperity.

[William Tell]

Chuck_101 said: "The Laffer Curve establishes that there is an optimal tax rate, which can be discovered through trial and error, and once discovered, should be adopted permanently."

Our nation's Founders would be outraged that we are discussing as "optimal" that tax rate which is so high that further increases in the rate lead to reduced government revenue. Only the tremendous productivity of technology has allowed this situation to occur. But it puts government in control of a proportion of expenditures which is unhealthy for a free people.

[george76]

“Government is like a baby: An alimentary canal with a big appetite at one end and no sense of responsibility at the other.”

— Ronald Reagan

[HardStarboard]

>>>Gimme a 12-15% flat rate, and I'll be satisfied.<<<

Russia's flat tax rate is 13%.

If spent wisely and with intelligent priorities and fiscal restraint, 13% should be about the right number for the U.S.

do I think I'll see it in my lifetime....no.