Free Republic
Browse · Search
News/Activism
Topics · Post Article

To: Sherman Logan
I have seen numerous people sneer at the Laffer Curve. I have never heard one of them attempt to demonstrate why it is not true. Of course, one can claim that we are presently on the left side of the curve. If so, cutting rates will indeed result in a decrease in revenue. I’ve also never seen any logical explanation of how to determine where we are on the curve.

The problem is, it's not a static curve.

See, let's say that in theory, present revenues could be maximized with a 30% Tax. Well, that's true enough for today; but what if a 25% Tax would result in higher GDP growth over time (ceteris paribus, it would), thus resulting in a larger GDP and a larger total haul of tax revenues over ten years time? But then you could make the same argument for a 20% tax -- even greater GDP growth than with a 25% Tax, thus resulting in an even larger haul of tax revenues over ten years time?

Since one can theoretically forecast higher GDP future growth for each percentage point of lower taxation, there's virtually no limit to just "how low you can go" with long-term forecasts of higher revenues from lower tax rates -- at least until you get down to such a low level of tax rates that the basic functions of Government break down, creating disorder in the economy.

Since there's no way (IMHO) to "scientifically" forecast just exactly what Tax Rate would be the "optimal" revenue-generating Laffer Tax over ten years, or twenty years, or a hundred years -- I say we throw pragmatic econometric forecasting out the window, and just go back to the Bible.

Specifically, 1 Samuel 8:17 -- ANY Government Taxation over and above the 10% which God requires for His Tithe, is Biblically defined as Tyranny. (Which government should be cut back down to size; or in extreme circumstances, "it is the Right of the People to alter or to abolish it".)

Look, it even makes a handy tagline:

"Taxation over Ten is Tyranny!"

54 posted on 03/14/2010 11:10:10 AM PDT by Christian_Capitalist (Taxation over 10% is Tyranny -- 1 Samuel 8:17)
[ Post Reply | Private Reply | To 48 | View Replies ]


To: Christian_Capitalist
what if a 25% Tax would result in higher GDP growth over time (ceteris paribus, it would), thus resulting in a larger GDP and a larger total haul of tax revenues over ten years time? But then you could make the same argument for a 20% tax -- even greater GDP growth than with a 25% Tax, thus resulting in an even larger haul of tax revenues over ten years time?

I think you're falling into a fallacy here. A 5% decrease in tax rates will indeed create more economic activity, but not necessarily enough more to create more revenue.

At some point diminishing returns kicks in. I think that's what the LC is trying to show. There is an optimum tax rate. For revenue generation, not necessarily for economic activity. In fact, I think it is fair to assume the optimum rate for revenue is always higher than the optimum rate for economic growth.

58 posted on 03/14/2010 11:21:07 AM PDT by Sherman Logan ( .)
[ Post Reply | Private Reply | To 54 | View Replies ]

Free Republic
Browse · Search
News/Activism
Topics · Post Article


FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson