Historically Neoconservatism will destroy the US military.

[Kidlicious]

Originally posted by Ned


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.

Right.

Originally posted by Ned
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.

No. Laffer assumed that people would immediately take advantage of the lower tax rates and maximize their imcome. Pretty much all economists believe that people do that. Unfortunately, many posters here do not.

Originally posted by Ned
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.

Just because revenues went up, does not mean that they did so primarily because people were working and investing more. Tax cuts also give people more money to spend on consumer goods which creates economic growth. The Kennedy tax cuts were designed to boost consumer spending, because they cut more taxes for those with relatively less income. The supply-siders want a more flat tax to encourage more saving. The two are really opposed.

[Ned]

Kid, I would like you to link to an article written by Laffer and not by one of his critics to support your claims. What you say simply does not make any sense because human behavior is involved. It takes time to switch activities from tax shelters to more productive uses. The switch cannot be instantaneous and I really doubt that Laffer ever said what contend he said.

[Kidlicious]

Originally posted by Ned
Kid, I would like you to link to an article written by Laffer and not by one of his critics to support your claims. What you say simply does not make any sense because human behavior is involved. It takes time to switch activities from tax shelters to more productive uses. The switch cannot be instantaneous and I really doubt that Laffer ever said what contend he said.

When you look at the Laffer Curve you don't see any time factor, so why are you reading that factor into it?

edit: read the quote from the article that shawnmmcc posted on page 2.

[Az]

Originally posted by Oncle Boris


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...

/me looks at Oncle's registration date.

decided to come back to apolyton after a couple of years?
If you'll stay, you'll never leave.

[Kidlicious]

He might as well just change his name.

[Ned]

The implications of the Laffer curve that tax rates affect behavior and revenue are that the tax rates have the most impact on those who have discretionary income - the so-called wealthy. This would suggest that reducing upper-income rates (or increasing them depending on which side of the curve one is on) should be the primary focus of supply-side economics. Thus, a proper tax policy would set the basic tax rate on the lower and middle class to achieve most of the required tax revenues. The rest would be taxed from the wealthy employing the Laffer curve to maximize tax revenue from them.

[Kidlicious]

Originally posted by Ned
The implications of the Laffer curve that tax rates affect behavior and revenue are that the tax rates have the most impact on those who have discretionary income - the so-called wealthy. This would suggest that reducing upper-income rates (or increasing them depending on which side of the curve one is on) should be the primary focus of supply-side economics. Thus, a proper tax policy would set the basic tax rate on the lower and middle class to achieve most of the required tax revenues. The rest would be taxed from the wealthy employing the Laffer curve to maximize tax revenue from them.

I think you're right. That's why cutting taxes for the middle and lower income tax payers is Keynesian. Kennedy did both. Still, I don't believe that supply-side stimulus creates much economic growth. So I contribute the growth to the cut in taxes for the lower income groups and the increase in spending.

[Adam Smith]

Originally posted by Ned
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 is the basic proof that the Laffer Curve exists. Laffer went on to claim that the US economy was on the far side of the curve, i.e., that a $1 decrease in taxes would ultimately generate more than $1 in government revenue, so that the tax cut would pay for itself. There has never been any evidence to support this assertion. Best recent evidence I am aware of says that a $1 cut in taxes would ultimately genreate about 20 cents in government revenue, leaving 80 percent of the resulting deficit uncovered.

[JohnT]

Of course they were rejected because no one was going to cut SS and Medicare.

Actually, Reagan had no plans to decrease taxes or spending on SS or Medicare and is in fact the author of the largest payroll tax increase in history up to that time. His 1981 SS reform increase the combined SS/Medicare tax rates increased about 25% - from 12.26% in 1980 to 15.02% in 1989. During the same period the top wage for paying SS taxes almost doubled, from $25,900 in 1980 to $48,000 in 1989.

http://www.taxpolicycenter.org/taxfacts/payroll/..%5Ctables%5CPayroll%5CPDF%5Cssrate_historical.PDF

[Ned]

Originally posted by Adam Smith
This is the basic proof that the Laffer Curve exists. Laffer went on to claim that the US economy was on the far side of the curve, i.e., that a $1 decrease in taxes would ultimately generate more than $1 in government revenue, so that the tax cut would pay for itself. There has never been any evidence to support this assertion. Best recent evidence I am aware of says that a $1 cut in taxes would ultimately genreate about 20 cents in government revenue, leaving 80 percent of the resulting deficit uncovered.

Adam, I think we should focus only at the very highest marginal rate and only with incomes that have significant discretionary income. Otherwise, one would expect approximately a 1 to 1 relationship between tax rate increases or decreases and revenue effects. If the data did not isolate the 1 to 1 data from the high margin data, the calculation would not be valid.

[Kidlicious]

The thing about supply-side tax cuts is that they don't lower interest rates, and therefore can not increase investment unless people do what they aren't suppose to do with the increase in income, that is spend it. The savings are absorbed through the deficit process. That is, the govt sells bonds which absorbs the savings.

There is only economic growth when the tax cuts are spent, not saved. Then interest rates increase.

[Sava]

wow Boris... you are right, Ghengis Farb is the worst BAMer since Fez...

btw, the neo-con faction is basically foreign policy oriented... they do have a domestic agenda, but it's the same as traditional conservatives... starve government programs, kill them, then turn the country into 19th Century America. It's called regression... making things worse, like they were before.

Good thread BTW

[Ned]

Originally posted by Sava
wow Boris... you are right, Ghengis Farb is the worst BAMer since Fez...

btw, the neo-con faction is basically foreign policy oriented... they do have a domestic agenda, but it's the same as traditional conservatives... starve government programs, kill them, then turn the country into 19th Century America. It's called regression... making things worse, like they were before.

Good thread BTW

Sava, by your measure, Bush is no conservative domestically. Bush has expanded government programs, subsidies and trade protections as fast or faster than virtually all Democrat administrations to the dismay of true "19th Century Neanderthals," like Trent Lott.

Since the Republicans are now the majority party, it might be in your interests to see Bush remain president rather than some other 19th Century type from the party's troglydyte wing.

[Ned]

Originally posted by Kidicious
The thing about supply-side tax cuts is that they don't lower interest rates, and therefore can not increase investment unless people do what they aren't suppose to do with the increase in income, that is spend it. The savings are absorbed through the deficit process. That is, the govt sells bonds which absorbs the savings.

There is only economic growth when the tax cuts are spent, not saved. Then interest rates increase.

Interesting point.

Do you think interest rates are independent of the rate of inflation?

[Kidlicious]

Originally posted by Ned


Interesting point.

Do you think interest rates are independent of the rate of inflation?

No