Historically Neoconservatism will destroy the US military.

[Ned]

Kid, I could use a little help here. Please connect the dots. Kennedy reduced taxes and marginal rates big time. Revenues increased. And, somehow, that is not a good example of the Laffer curve in action?

[Kidlicious]

Originally posted by Ned
Kid, I could use a little help here. Please connect the dots. Kennedy reduced taxes and marginal rates big time. Revenues increased. And, somehow, that is not a good example of the Laffer curve in action?

Laffer predicted that a tax cut would not increase or create a deficit. According to his theory the increase in revenue is instantaneous. Just as when the Fed lowers interest rates, investment increases, when taxes on work and investment are decreased tax revenues increase because people decide to work and invest a substantial amount more. This is different from Keynesian theory which simply predicts that tax cuts and spending increases will create economic growth. Tax cuts always create economic growth. No one argues that. That is not Laffer's theory. Tax cuts do not, however, increase tax revenues instantaneously.

[Ned]

I'm sorry, Kid, I never understood Laffer that way. I am sure Kennedy and Reagan didn't either. I beleive both thought that a reduction in taxes would lead to greater economic growth that would soon generate as much revenue at the lower rates. That is how I understood Kennedy's argument and Reagan's as well.

[Kidlicious]

Originally posted by Ned
I'm sorry, Kid, I never understood Laffer that way. I am sure Kennedy and Reagan didn't either. I beleive both thought that a reduction in taxes would lead to greater economic growth that would soon generate as much revenue at the lower rates. That is how I understood Kennedy's argument and Reagan's as well.

Laffer was working on his BA when Kennedy was president. Reagan just wanted to cut taxes. He didn't really understand, but Laffer was one of his advisors.

[Imran Siddiqui]

According to his theory the increase in revenue is instantaneous.

No it isn't. The Laffer Curve says that there is a certain spot where tax revenues would be maximized (the 'bell' of the bell curve). If you are to the left of that point, then higher taxes will increase revenue, but if you are to the right of that point higher taxes will only cause people to attempt to cheat the system.

The problem is knowing where you are. If you lower taxes on the left hand side, there is DECREASE in revenue. However, if you lower taxes on the right hand side, there is an increase in revenue because fewer people will cheat the system because it is not worth the trouble with lower tax rates.

[Kidlicious]

Originally posted by Imran Siddiqui

According to his theory the increase in revenue is instantaneous.

No it isn't. The Laffer Curve says that there is a certain spot where tax revenues would be maximized (the 'bell' of the bell curve). If you are to the left of that point, then higher taxes will increase revenue, but if you are to the right of that point higher taxes will only cause people to attempt to cheat the system.

The problem is knowing where you are. If you lower taxes on the left hand side, there is DECREASE in revenue. However, if you lower taxes on the right hand side, there is an increase in revenue because fewer people will cheat the system because it is not worth the trouble with lower tax rates.

Oh, and I guess you think it's common for supply-siders to argue that taxes should not be cut, because they aren't too high.

[Imran Siddiqui]

To say that the Laffer Curve says if you cut taxes you increase revenues is intellectually dishonest, because that isn't what it says.

[Kidlicious]

Originally posted by Imran Siddiqui
To say that the Laffer Curve says if you cut taxes you increase revenues is intellectually dishonest, because that isn't what it says.

The fact is that Laffer believes that all current and historical tax policies are on the right side. So easy there bud.

[Fake Boris]

Originally posted by Kidicious
Tax cuts always create economic growth. No one argues that.

I am quite economically illiterate, but let me question that.
Surely there must be a sweet spot where some taxes could be beneficial to economic groth. For example, socialist states who don't tax poorer citizens might encourage foreign invsestments at the expense of consumer goods purchases, because the rich don't need that extra money anyway.
This could be the case of Canada, because they spend a good deal of their savings on US financial markets.

I could also argue that welfare states' employees tend to have salaries higher than they would get in the private sector for a similar work (this does not hold true for higher ranking positions, though). Also, in some countries with an advanced welfare program, working at the minimal wage or slightly better is not worth the trouble.
So some people would not work at all, or others would work at lower wages, thus spending a higher %-age of their revenues on lodging and food.

But then again I am assuming that when you say "tax cuts", you also imply not getting a deficit (thus the need to dismiss public workers). Obviously, tax cuts without regards to spendings would result in artificial growth.
I am not an expert at all, so please correct me if I am wrong.

[Boris Godunov]

Originally posted by Oncle Boris

You do realize we now have to fight to the death.

[Kidlicious]

Originally posted by Oncle Boris
Obviously, tax cuts without regards to spendings would result in artificial growth.
I am not an expert at all, so please correct me if I am wrong.

Obviously, is right. The spending is what creates the growth, not the taxes. So you are right.

[Fake Boris]

Originally posted by Boris Godunov


You do realize we now have to fight to the death.

Then call me Oncle. I'm only a chieftain, after all. No need to worry about me. I'll just deliver the drugs for you and fetch back the money. Real honest, no trouble.

Okaaaaay? pleaaaaase...

[Sprayber]

Fight, fight, fight.




I'm taking Boris "don't take my name" Godunov over the new guy in two rounds.

[Imran Siddiqui]

The fact is that Laffer believes that all current and historical tax policies are on the right side.

Not really. He just believed that current US taxes were on the right side.

[Ned]

Originally posted by Kidicious


Obviously, is right. The spending is what creates the growth, not the taxes. So you are right.

Just to make it simple, if one has a tax rate of zero, one gets no revenue. If the tax rate is 100%, one gets no revenue because the private economy is dead. As the rates move from the extremes, up from zero or down from 100%, revenues increase. There is a point where the tax revenues are maximized between the two extremes.

This point has NOTHING to do with spending, although, of course, taxing without spending acts to ****** the economy by itself.

Now the reason for this is that tax rates (as opposed to tax revenues) influence private behavior. As the rates change, the behavior changes. But the effects of the behavior change are not instantaneous. Some effects might not be seen for years, just as the changes in the Fed's interest rates have effects many quarters out. So, a drop in the rates when taxes are too "high" causes an immediate drop in revenues followed by behavior changes that bring revenues back up.

However, all tax rate decreases boost the economy so that over time the tax revenues are restored to their former level.

It must be interesting to see which of the two effects we saw with Kennedy and Reagan? I think with the Kennedy cuts, we clearly saw the Laffer effect in action as revenues as a percentage of the economy went UP within a short time after the tax rate cuts.