Ah, but they *might*.  The Laffer Curve is real, the trick is, where we are on the curve is open to debate.

We know, for a mathematical fact, that at 0% taxation of an economy, revenue is zero.  Obviously.

We also know that at 100% it is zero, because at this level there is no economy left to tax.

And we know that at some points between the revenue is not zero.

Ergo, since we know the function is continuous, we know there is an optimal point between zero and a hundred that maximizes revenue.  We just don't where it is, and it is probably a floating point that depends on a zillion other factors.  But mathematically, there must exist a point at which a reduction in taxes creates an increase in revenue.

There have been plenty of occasions where an increase in taxes resulted in a decrease in revenue, or a decrease in taxes led to an increase in revenue.  But these situations are awfully hard to model and predict.

They are also rare, while the Republican model seems to be to take a snapshot of one point in history (when Reagan first came into office) and expect that everything will always react as it did at that moment in time.

Which is, I think, where teh tea Pary comes in- people who grew up on republican slogans but don't remember Reagan coming into office, for whom the ideaology has been reduced to zealotry.

What makes you think the point is rare?  Given that we know in any given tax structure such a point must exist, absent other information we can only assume it is 50% likely that we are currently on either side of it.

Ergo, when someone says, "Revenues will go up if taxes go up", he is only 50% likely to be right.
And when someone says, "Revenues will go up if taxes go down." then he is ALSO 50% likely to be right.

50% does not equal "rare".

We also know of, historically, many low-tax high-growth scenarios.  And vice versa. For example, we know historically that Hoover's massive 1932 tax increase was a disaster, and greatly increased the severity of the depression.  The top marginal rate more than doubled.   "Soak the rich" seemed easy and obvious.  We know in hindsight, this was a terrible mistake.

I don't think anyone other than politicians claim that we're past the point though.  Even conservative economists don't claim that cutting taxes will pay for itself.


But consider out situation:  taxes around 33%, say.  If we lower taxes such that a business gets $1 back, and they put all of that $1 back into their business in order to make more income, they'd have to increase their profits by $3 in order for the government to break even.  If they can turn $1 of investment into $3 of profit, we shouldn't be giving them tax breaks, we should be giving them high interest loans!  Even at 100% APR, they'd still come out ahead!  Granted, the money they spend also goes into the economy and gets taxed elsewhere too, but if every dollar spent leads to a total of three dollars of profit throughout the economy, the government could just take out huge loans, and sprinkle dollar bills all over the country, and still come out ahead.

Now, somewhere over 50% tax rate, I could start to imagine it being possible.  At 67% rate, a business only needs to turn $1 investment into $1.50 worth of profit.  Still an impressive return, but at least in the realm of possibility.

But where ever the turning point is, we're not there.  If we were, it would be perfectly sensible for the government to borrow money from china, and just hand it out to US citizens for free, since it would lead to more money in revenue than was borrowed.  So unless we're willing to accept that as a good policy decision, we have to accept that lower taxes isn't going to pay for itself.  Of course, we could just look at the effects on the deficit of recent tax cuts to see if it works, too.

Again, don't let politicians fool us just because we want what they're saying to be true.  Don't vote for the guy who promises a free lunch just because you'd like one--you'll end up with no lunch, and a liar as a representative.

I say it is rare because the fact is that the curve is not the only incentive to keep taxes low- political pressure tends to favor keeping taxes below the 'optimal return' point. Also the curve is basd on some fairly simplistic measures in assuming that it is the same in both directions- people who hide income because of high taxes (for example) aren't likely to start revealing it when you lower taxes in part due to fear of having the old tax rate applied retroactively to their discovered income. Also teh economic benefits of lowered taxes to growing the economy are likely to lag teh tax cuts by some period of time while expenses do not lag. If it takes 2 years to see the economic benefits of tax cuts to teh point where teh grown economy will make up for them and we have been deficit spending for those two years then we now have the additional expense of the interest on that debt.

That's faulty reasoning.  It's assuming more ignorance than we have. ;)  It's like saying "we know there's an amount of time you can go without eating after which you die.  If we don't know what that time is, it could be anything, so if we pick the amount of time since your last meal, it's just as like to be more or less than that magic number, so there's a 50% chance that you're dead."  You're assuming we know nothing about the situation.  You're also assuming that the maximum of the laffer curve is equally likely to be anywhere between 0% and 100%, which is a faulty assumption, I would argue.


But this is a different question!  Whether or not the tax cuts or raises are good or bad isn't the same as whether or not they pay for themselves.  Even if lower taxes on the rich during the depression might have made good sense policy-wise, it still may have led to lower total revenue.  Even if tax cuts lead to higher growth, they don't necessarily lead to higher revenue.

I'm not saying tax cuts are always bad, just that it's fantasy to assume they'll pay for themselves.

I think you are overlooking something.

If the tax cut generates growth, then then the lowered rate at the increased tax base generates more revenues.

For example, if the economic base is "100" and I tax it at 35% then I get "35".  If I lower taxes to 30%, but this causes the economy to grow to 120, then I get "36".

It's a very real phenomenon, not a fantasy.  It has happened historically.  The only question is, are we in a position for that to happen now?



You are talking about economists here, assuming MORE ignorance is nigh impossible!

Economists are not like scientists.  To use your example of food and starving, if two economists found a hungry person wanting food, the first would say "feed him, feed him, stuff him till he bursts!" and the second would say "oh no no, too much dependence on food is what got him into this situation in the first place!"

Highly educated, professional economists with Harvard credentials look at something and come to opposite conclusions.  Hence, somewhere between 0 and 100 is as accurate as I'm willing to grant them.
This message was last edited by the player at 13:37, Fri 16 July 2010.

Hey, most economists call their unproven ideas theories, so they must be theories, right? And that means it's science and not just mathematics, eh? There may be a few economists that don't, and a lot of people outside the field disagree as well, but they're all commies.

 Hence, we should talk about economics as if everything shown in the mathematical models is completely true and has plenty of evidence for it already. Flawless Logic!
This message was last edited by the GM at 13:51, Fri 16 July 2010.

But the increased growth has to be enough to offset the loss of revenue.  In the example you give here, you increased the economy by 20% to offset a change of 35% to 30% in tax rate.  That's a HUGE growth in the economy, and a fairly modest cut in taxes.

Yes, there does exist a point where raising taxes can lower revenue, but you have to imagine we have no data about anything at all to assume we're just as likely to be on one side of that point as the other.  It's like saying "Maybe if we decrease taxes by 1 penny for everyone, the GDP will quadruple, and all our budget problems will be over.  We don't know if it will or not, so let's say 50% chance it will happen, 50% chance it won't."


Let's look at an example of it happening historically, then.  And tell me why anyone should think we're in that position now.



No, I'm talking about you! ;)  We don't need to ask economists here, we can reason it out without them.  You're telling me we have no idea at all if americans, on average, could be handed $1, and would turn into $4 of taxable income within the year.  I'm telling you, no, we're not even close to that.  We don't need economists to figure it out for us.  You're assuming we're completely in the dark, so that if we cut taxes, it's just as likely to lead to a 0% change in the GDP as it is lead to 400% change.  I'm saying, no, we're not that far in the dark.


Find me highly educated, professional economist with Harvard credentials who thinks the Bush tax cuts paid for themselves.  I can easily find you politicians who will say it, but I think you'll be hard pressed to find a serious economist who will make that claim.

To my knowledge it has happened once in history, and that was under Reagan. It was also under a highly unussual situation- high taxes were pushing teh country towards a depression and economists were reciting the mantra learned durring teh great depression of 'more government spending' which of course kept raising taxes even when it was clear that revenues were not growing is response.

Contrasted to today when we have spent 8 years cutting taxes and revenues have not grown in response. At some point you have to realize that more of the same only leads to faster failure no matter which party you are in.

Care to give me some reliable data, instead of just complaining that I am assuming "none"?




Now that's absurd.  What economist would think the multiplier effect of a tax cut would be THAT high?




Let's look at an example of it happening historically, then.  And tell me why anyone should think we're in that position now.



No, I'm talking about you! ;)  We don't need to ask economists here, we can reason it out without them.  You're telling me we have no idea at all if americans, on average, could be handed $1, and would turn into $4 of taxable income within the year.
</quote>

I didn't say "within a year" you did.  But as for the effect of the multiplier, yes, that's right.  That's what economists believe a multiplier can do.

See Harvard's Greg Mankiw, for example.

or the Romers;

http://www.econ.berkeley.edu/~cromer/RomerDraft307.pdf

We know current tax rates for different things.  If the tax rate is X, and you lower it to X-dX, in order to offset that lost revenue, the taxable income has to grow to offset that if the cut is going to pay for itself.  If the original taxable income is Z, and the new taxable income due to the tax cut is Z+dZ we need the following to be true:

X*Z <= (X-dX)*(Z+dz) = X*Z -dX*Z + X*dz - dX*dz
-->  dX*Z <= (X-dX)*dz
-->  Z/dZ <= (X-dX)/dX
-->  dX/(X-dX) <= dZ/Z

So the change in the tax rate, divided by the new tax rate, has to be less than or equal to the change in the change in the total taxable income divided by the original taxable income.  Let's put some numbers in.

If the tax rate is 35%, and we drop it to 25%, X=.35, and dX=.1.  The left hand side becomes .1/.25=.40.  So the change in the total taxable income has to be 40% of the total taxable income.  Think about that.  Do you really think a 40% growth of the economy is a reasonable expectation?  Play around with the equations, and put in different numbers, and see what you need to do to get it to work.  You don't need "data" to do this, just the back of an envelope and an appreciation of what kinds of economic growth are reasonably possible.





Exactly the point!  You're example involved something absurd too.  What economist would think that the multiplier effect would be high enough that a 5% drop in taxes would lead to a 20% growth in GDP?


Find me one who says it's big enough that the bush tax cuts paid for themselves.


Does he say the Bush tax cuts paid for themselves?  I scanned his webpage, but couldn't see anything indicating that with a quick look.


Skimming this, it seems like these guys say a a 1% change in tax rate leads to a 3% change in GDP (with some level of uncertainty).  Far from the amount we're look at here.

Remember, just because a tax cut grows the economy, that's not the same as saying it pays for itself.  It doesn't just have to grow the economy, but it has to do so a very large amount to offset the cut.

From what I've read, the Reagan cuts didn't pay for themselves.  Even if they helped the economy, they still led to less money being taken in that would have otherwise.  (I have heard some people say that the tax cuts on the rich paid for themselves, but were more than offset by the tax cuts for everyone else).
This message was last edited by the GM at 15:18, Fri 16 July 2010.

Looked into Greg Mankiw a bit more, and found that apparently he wrote a chapter in one of his books debunking the idea that the claim that tax cuts lead to increased revenue.
http://gregmankiw.blogspot.com/2007_12_01_archive.html
(apparently in the first addition of his book, he described people who promoted this idea as "charlatans").

That's a multiplier of 4, the top end of the range the Romers give, so you have answered your own question- it';s the high end of normal.




Far, but in the other direction!

My example was very PESSIMISTIC compared to that.  I threw out a 35 to 30 reduction- 15%, and rewarded the economy with just 20% growth.  By the Romer estimate I could justify  30-60!




But it often does.  Remember, the total government revenue went UP during the Bush years.  Hence, following the Bush tax cuts, revenue increased.  But although we know that the increased revenue resulted from economic growth, we have no clue as to how much of that growth and revenue would have happened without the tax cuts.

So remember, if you claim the Bush tax cuts paid for themselves- or if you claim they DIDN'T- you have no facts to support your claims, just rationalization, ideology, and wishful thinking.  There is no way we can know the answers to that without running a perfect simulation of the economy with the taxes factored out.  And all the simulations are faulty.

This is what Rommer said:


That's not saying 4% is on the high end of normal.

and

and

If we accept the converse (as we're doing for tax increases above), that means lowering taxes to reduce a budget deficit should lead to contractionary effects (ie, not grow the GDP as quickly).

Importantly, I didn't see Rommer claiming that tax cuts pay for themselves--just that they can lead to growth in GDP.


35% to 30% is a reduction in the tax rate of 5%, not 15% (which, I'll admit is awkward because I frame my maths above in terms of percent change of the original, which isn't the way Rommer talked about it).  Rommer's change is a percent of GDP, not original tax rate.  By Rommer's estimate you could justify 15%...leaving you still 5% short of breaking even (and it's worse if you take into acount their 'robustness checks').


Find me an economist who says that, and that'll be something.  But even Bush's economists don't think his cuts paid for themselves (the same can't be said of politicians, unfortunately).  You're telling me we can't know the effect of tax cuts or increases at all, that it's a complete shot in the dark, and we'll never be able to know anything about the effects because the models are imperfect.  I don't buy that.  And economists don't buy that.  The people who want us to buy that are the politicians who get elected by telling us what we want to hear.  Again, I say, don't buy it.  If you want to debate whether tax cuts are a good idea or not, that's fine.  But don't believe the politicians who tell you you can have your cake and eat it too.

according to http://www.factcheck.org/taxes/supply-side_spin.html
the tax cuts led to a revenue decrease that was later offset by tax hikes. Of course they only go as far as 2006, I suspect that a falling dollar might have also contributed to his increase in tax revenues measured by dollar ammount- getting more of something that was worth less...

http://politicalcorrection.org/blog/201007150012

I...

I am at a complete loss for words.

In reply to Falkus (msg #971):

Yeah, I saw that a day or two ago, and it sort of boggles the mind.

So much for the claims that the tea party doesn't have a racist agenda.

In order for the tea party to have a racist agenda it would have to have a coherant agenda. What they have is a political growth medium that is benign to racism.

The very non-rascist tea party movement kicked this guy out.

Wright, Ayers, Jackson and Sharpton were never kicked out of their organizations for inflammatory words or behavior.

So, almost  in the words of Falkus,

So much for the claims that Tea Party Opponents don't have a racist agenda.

Someone wake me when the "tea party" is held to a level of scrutiny even remotely approaching their opponents. Until then, I expect them to draw their share of ideologues.

Oh, yes, but only the OTHER side's crazed ideologues matter.... ours we ignore... right, Democrats?

And Silveroak, your web site does not state what you claim it does.  It has claims, and innuendo, and simple twists of substitution- slipping in a specific answer to a general claim, and vice versa.

It also makes some spectacular blunders which I suspect are more deliberate concealments.  Example, they "refute" McCain's claim that the government cannot be sustained by pointing out that tax receipts at the federal level as a % of economy are in line with history.  BUT, that is not the issue- the issue is, can the DEBT be sustained.  The slight of hand switcheroo there is like claiming you cannot possibly go bankrupt because your salary is in line with what you earned in the past- while ignoring what you actually spent.

The question being addressed was simply whether tax cuts paid for tehmselves in increased revenues from economic growth. When Bush cut taxes revenues dropped, ergo, no. I wasn't trying to claim that the entire article was a perfect and complete analysis of the US economy at the time.

Wow, well done, tea party!  Somewhat ironically, it's exactly what the NAACP was calling on the tea party to do (get rid of racist members, and especially leaders) in the resolution that Mark Williams wrote his "letter" in response to.  Perhaps some good will come of the whole thing in the end.  I did read that Gingrich is considering having tea parties and NAACP chapters hold joint town hall meetings to address their concerns.

Just noticed this thread is reaching it's size limit, so have opened another thread, and will lock this one when I get done posting this.  Please continue discussion in the other thread.
This message was last edited by the GM at 17:29, Sun 18 July 2010.