Hate the Laffer Curve? Try Woodhill's Curve

RealClearMarkets ^ | 09/15/2010 | Louis Woodhill

[SeekAndFind]

Liberals don't like the Laffer Curve. If you have any doubts, Google "‘Laffer Curve' +discredited" and peruse the 13,400 hits you get. Well, if Liberals hate the Laffer Curve (and they do), they are really going to hate the Woodhill Curve.

Professor Laffer originally stated his principle as follows: "For any tax, there are always two tax rates (a high one and a low one) that will produce the same revenue." The example he cited was that tax rates of zero and 100% would both bring in the same amount of revenue-namely, zero.

The Woodhill Curve extends the concept of the Laffer Curve in two ways:

1) It takes into account the element of time-the fact that the future matters; and,

2) It focuses on the impact of tax changes on total Federal revenues rather than on the revenue generated by an individual tax.

The principle behind the Woodhill Curve can be stated as follows: "There are an infinite number of combinations of "tax take" (Federal revenues as a percent of GDP) and average annual real economic growth rate that will yield the same present value (PV) of future Federal revenues." While the shape of the Laffer Curve is a matter for speculation, it is possible to quantify the shape of the Woodhill Curve. As it happens, the results of the calculations are very bad news for liberal tax hikers, but very good news for supply-side tax cutters.

Financially, it is the PV of Federal revenues that really matters, not just tax revenues in the current year. This is why the Social Security Trustees use PV as their ultimate measure of the long-term financial condition of Social Security.

[DManA]

No No we need to make a collective decision on this.

(just kidding)

everyone has their own value

[kosciusko51]

I agree that you are both right that the lib elite know what they are doing, but it is not their stated intent. My guess is that they also know that cutting taxes would stimulate the economy.

However, the lib rank and file are too ignorant to know that their leaders are lying to them about the Laffer curve. Also, the lib R&F believe that the policies of the lib elite will actually generate the consequences promised to them.

[E. Pluribus Unum]

The way I explain the Laffer curve is to ask the Liberal what tax revenue would be at a 100% tax rate.

Some of them actually believe that people would continue to work even if ALL of their paycheck went to the government.

[SeekAndFind]

RE: Some of them actually believe that people would continue to work even if ALL of their paycheck went to the government.

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They will, but under a DIFFERENT FORM of Government. See : Castro, Fidel.

[SeekAndFind]

RE: so where's the curve?

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Unfortunately, Woodhill didn't show it in this article.

But here's the original Laffer Curve for those who want a review:



Here's another version :

\

If the tax rate is 0%, we get zero revenue. If the tax rate is 100%, we also get zero revenue, or near to it, because no one will work. In the middle somewhere is a maximum, labeled "Equilibrium Point" in the diagram. Perhaps it's skewed more than the figures above shows, but it's in there somewhere.

[Paladin2]

Upon furthur review, including the input of a couple of FReepers, going Galt is really a final step once one has fought the statists to a national conclusion. When the time comes to go Galt, it won’t be pretty. We have to fight now and into an indefinite future before heading to the Gulch.

[Thermalseeker]

Also, the lib R&F believe that the policies of the lib elite will actually generate the consequences promised to them.

And what a testimony to the stupidity of the American Liberal that it is! For example, 40 years we've had a so-called "war on poverty". Hundreds of billions of dollars has been spent (flushed) and now, forty years later, we have a slightly higher poverty level than we did in 1965. All welfare really did was create a dependent class, but that was planned, too. They knew full well what they were doing. It was never about helping poor people rise up. It was all about keeping them down and scraping for trinkets from Uncle Sugar in exchange for votes to keep Liberals in power. Witness the demise of the black family/neighborhoods as a prime example.

Liberalism fails every time it's tried, especially for those who it is supposed to "help"......

[Wyatt's Torch]

Liberals hate it because they don’t believe the top point in the curve i.e. 100% tax rate = $0 revenue. They are too stupid to stop working...

[shove_it]

I expected Woodhill to display his "curve" so we could see what he's talking about; he refers to it repeatedly in his article. The great Dr. Art Laffer’s Curve is magnificent in its simplicity.

[arthurus]

The supporters of the curves point out things that are negative about them, namely that reducing rates a certain amount increases revenues to the government. Those curves should be used to figure out how to systematically reduce revenues to the government . Of course we should be working on eliminating all entitlements and most regulation, too. Then our government would not need half of what it spends now.

[Para-Ord.45]

bm

[TopQuark]

" EVERY time we lower tax rates revenues increase"

I agree with you; the above statement is patently false.

[TopQuark]

"painful beyond endurance to think a fellow citizen would deliberately destroy our country"

What's so new? The Russians by their Communist revolution, Italians when they embraced fascism, Germans under the Nazis all enthusiastically destroyed their respective countries, all the while being convinced that they were building a better replacement. What's new?

[Thermalseeker]

"painful beyond endurance to think a fellow citizen would deliberately destroy our country"

What's new?

Nothing. What we are seeing to foster the demise of this country has been building for nearly 150 years. The quote you attribute to me is not mine. Therefore, I can only offer what I know to be true. When you see a post of mine that is preceded by text in italics these are the words of the poster I am commenting to and are put there for clarity and context as to what I am commenting about. Very common practice here on FR.

[TopQuark]

Addressed erroneously, sorry.