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

Skip to comments.

The Common-Sense Case for Dynamic Scoring
Townhall.com ^ | August 20, 2013 | Daniel J. Mitchell

Posted on 08/20/2013 4:31:56 PM PDT by Kaslin

As regular readers know, one of my great challenges in life is trying to educate policy makers about the Laffer Curve, which is simply a way of illustrating that government won’t collect any revenue if tax rates are zero, but also won’t collect much revenue if tax rates are 100 percent.After all, very few people will be willing to earn and report income if the government steals every penny.

In other words, you can’t estimate changes in tax revenues simply by looking at changes in tax rates. You also have to consider changes in taxable income. Only a fool, for instance, would assume that you can double tax revenue by doubling tax rates.

But how do you explain this to the average person? Or, if you want a bigger challenge, how do you get this point across to a politician?

Over the years, I’ve picked up a few teaching examples that seem to be effective. People are always shocked, for example, when I show them the IRS numbers on how rich people paid a lot more tax when Reagan cut the top tax rate from 70 percent to 28 percent.

And they’re also more likely to understand why class-warfare tax policy won’t work when I show them the IRS data on how upper-income taxpayers have considerable control over the timing, level, and composition of their income.

Perhaps my favorite teaching technique, though, is to ask folks to pretend that they’re running a restaurant and to think about what might happen to their sales if they double the price of hamburgers. Would it make sense to assume that they would get twice as much revenue?

Almost everybody understands that hamburger sales would plummet and that they would likely lose revenue.

Well, great minds (or at least wonky minds) think alike, because the Tax Foundation has released a great video on dynamic scoring and they use donuts to make the same point.

The video suggests that it would be a good idea to modernize the revenue-estimating process.

I fully agree. The Joint Committee on Taxation, which is responsible for revenue estimates on Capitol Hill, is notorious for using antiquated and biased methodology.

I elaborate (and use my hamburger example) in this video I narrated for the Center for Freedom and Prosperity.

P.S. The Joint Committee on Taxation also is responsible for producing biased estimates of so-called tax expenditures.

P.P.S. Only 15 percent of CPAs (the folks who see first-hand how taxes impact behavior) agree with the Joint Committee on Taxation’s methodology.


TOPICS: Business/Economy; Culture/Society; Editorial; Government
KEYWORDS:

1 posted on 08/20/2013 4:31:56 PM PDT by Kaslin
[ Post Reply | Private Reply | View Replies]

There is more in the link


2 posted on 08/20/2013 4:33:04 PM PDT by Kaslin (He needed the ignorant to reelect him, and he got them. Now we all have to pay the consequenses)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Kaslin

Get rid of ALL these economic modeling gimmicks and stick to principle.


3 posted on 08/20/2013 4:34:33 PM PDT by DManA
[ Post Reply | Private Reply | To 1 | View Replies]

To: DManA
Get rid of ALL these economic modeling gimmicks and stick to principle.

IMHO, the simple parts of Economics 101 are generally truthful. The more complicated aspects of "economic theory" mainly seem to concern themselves with how to pretend that a favored policy will work when the simple rules would rightly predict that it won't.

4 posted on 08/20/2013 4:43:40 PM PDT by supercat (Renounce Covetousness.)
[ Post Reply | Private Reply | To 3 | View Replies]

To: supercat

Here’s what I believe: I Congress orders the CBO to change their scoring model they will come up with something even worse than they use now.

100% - count on it.

Cut spending, cut regulations, cut the federal bureaucracy and the economy will take care of itself.


5 posted on 08/20/2013 4:47:23 PM PDT by DManA
[ Post Reply | Private Reply | To 4 | View Replies]

To: Kaslin

One problem with all the proposals and articles about the right things to do to turn the economy around:

They all presuppose that is what the administration wants to do.
That Obama really wants the country to strengthen and rebound.

The truth is, that he wants the country to become weaker.
He wants more people dependent on the government.
He wants excuses to cut the military more.
He wants to hold down energy production.
He wants Obamacare to destroy the free market medical system.
He wants more people in busy-work government jobs.
He wants to sap the strength and wealth of the critics and “Bitter Clingers”.

The communists and racists can’t rebuild America into their Brave New World if the country is wealthy, strong and the economy is surging .

They have to bring it down first.

People say “Can’t Obama see that he is doing the wrong things to turn the economy around?”

The answer is yes, he can.


6 posted on 08/20/2013 4:48:19 PM PDT by Iron Munro (To learn who rules over you, simply find out who you are not allowed to criticize - Voltaire)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Kaslin

IMHO, the Laffer curve is somewhat faulty, in that there is probably a point short of the right edge where marginal increases in tax rates would actually increase production and consequently increase revenues. The reason revenues would increase would be that the slaves, no matter how demoralized, would do whatever they have to do to get their take-home pay high enough to avoid starvation. Not exactly a situation anyone but a communist leader would want, but I think that represents Obama’s view of the world. The reason tax increases haven’t led to revenue increases is that people still have too much take-home pay that they don’t really need.


7 posted on 08/20/2013 4:48:28 PM PDT by supercat (Renounce Covetousness.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: supercat

“To every problem there is a neat, simple solution, that is dead wrong.”

Mark Twain.


8 posted on 08/20/2013 4:56:29 PM PDT by donmeaker (Blunderbuss: A short weapon, ... now superceded in civilized countries by more advanced weaponry.)
[ Post Reply | Private Reply | To 4 | View Replies]

To: supercat

Generally the Laffer curve understates the beneficial effect of low taxes.

Why? Because it uses averages to represent margins.


9 posted on 08/20/2013 4:58:47 PM PDT by donmeaker (Blunderbuss: A short weapon, ... now superceded in civilized countries by more advanced weaponry.)
[ Post Reply | Private Reply | To 7 | View Replies]

To: donmeaker

You said the magic word - “margins”.

It’s all about marginal effort and marginal return.

The current gov’t has in place such a regulation-tort-tax-and-redistribution system that neither are attractive to individuals and corporations.


10 posted on 08/20/2013 7:31:10 PM PDT by P.O.E. (Pray for America)
[ Post Reply | Private Reply | To 9 | View Replies]

To: Kaslin

How come the government isn’t held to the same standards they demand of their subjects? Has Jack Lew ever heard of GAAP ( generally accepted accounting principles)? If he were a CEO he would be hauled off to the hooscow for the national debt not rising since May. Government don’t need no stinking accounting.


11 posted on 08/20/2013 7:48:20 PM PDT by Lurkina.n.Learnin (If global warming exists I hope it is strong enough to reverse the Big Government snowball)
[ Post Reply | Private Reply | To 1 | View Replies]

To: DManA; supercat; Iron Munro; Lurkina.n.Learnin; Kaslin

“Get rid of ALL these economic modeling gimmicks and stick to principle.”

And the principle that should determine the nature and size of government should be the following.

1. Human nature compels each one of us to take care of our self interests first and foremost.

2. Politicians and bureaucrats are humans and therefore subject to the need and desire to watch out for their own interests.

3. Therefore it is pure foolishness for the general public to give the politicians and bureaucrats what amounts to unlimited power to reach into our wallets as well as control our lives. They will invariably act in their self interest and will use that power to enrich and empower themselves further at the public’s expense. You will not find a single exception to this in all of human history.

4. This simple undeniable observation should be the preamble of any new constitution and should serve as the justification for establishing a very limited government that should be watched like a hawk and should never be allowed to grow.


12 posted on 08/20/2013 11:11:44 PM PDT by aquila48
[ Post Reply | Private Reply | To 3 | View Replies]

To: aquila48
1. Human nature compels each one of us to take care of our self interests first and foremost.

One of the best ways to predict people's behavior is to examine the incentives they face. If it becomes clear that the rewards for certain types of bad behavior will exceed the consequences, such behavior *will* become a problem unless or until the consequences are made to outweigh the rewards. Even if such behaviors don't seem to be a big problem "yet", addressing them immediately will be much less costly than waiting until the harm becomes apparent.

13 posted on 08/22/2013 3:23:08 PM PDT by supercat (Renounce Covetousness.)
[ Post Reply | Private Reply | To 12 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

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