GOP's official report says tax cuts for the rich just don't do much of anything to help the economy.

[Dinner]

It's interesting reading. Of course, the GOP is now trying to bury their own study because they don't like the results.

http://tv.msnbc.com/2012/11/01/pressured-by-gop-agency-pulls-report-finding-tax-cuts-for-rich-dont-boost-growth/

[-Jrabbit]

While it appears likely that it was GOP pressure that led to the "unpublishing" of this report, the fact is:

At issue is a study released in September by the Congressional Research Service, which serves as Congress’s in-house nonpartisan policy research arm.

So... thread title fail.

However, it is also true that this non-partisan report essentially shows something approximating a zero correlation between lower tax rates for high earners and economic growth. Which is the important point.

So... you also buried the lead.

[Hauldren Collider]

This feels relevant again...http://nyudri.org/2012/08/12/rigorou...lympic-medals/

[Dinner]

Ahh, for the umpteenth millionth time a study shows us what every economist in the world has been saying for decades and HC's response is... IT MUST ALL BE FAKE!

[Hauldren Collider]

I didn't say it was fake. I said its conclusion was meaningless. And it is, for the exact same reason that claiming Olympic participation does not result in Olympic medals, based on a rigorous study of Peruvian and Ecuadorian Olympic teams.

[giblets]

So in your analogy we're Peru wrt the top marginal tax rate?

[Hauldren Collider]

The analogy is that there are too many factors affecting the economy that simply doing a historical analysis will not actually establish any meaningful cause and effect. Simple logic demonstrates that Peru increases its odds of winning olympic medals through participation, but they also need to have a good team. If they didn't compete, it would obviously affect their ability to attain olympic medals, but would historically not end up changing the ultimate number of medals achieved because their team really sucks.

[giblets]

I think the point your link was making is that if you cherrypick the right historical data you can show whatever you want. Of course, if you think the top marginal tax rate simply doesn't have a large enough effect for it to show up in historical data which is filled with noise, that sounds credible.

[Hauldren Collider]

Both are true. There are plenty of examples in other countries (mostly former Soviet states) where cutting top income rates had a drastic, very obvious effect on the economy. By ignoring them, you are committing the same fallacy as only looking at Peru to see if Olympic participation affects medal wins.

Like the participation = medal wins statement, the extreme ends of the Laffer curve are basically truisms. If you take 100% of earnings in taxes, no one will be stupid enough to work. If you take nothing, you'll get nothing. In the former case, it's blatantly obvious that a tax cut will help the economy. The question is whether at our CURRENT rate a cut will help the economy.

[giblets]

The Republicans in Congress appear to think it's an article of faith that cutting current rates will help the economy.

[Hauldren Collider]

What they are suggesting is cutting the upper marginal rate and making up for that with removing loopholes. Tax compliance represents a fairly significant deadweight loss to the economy, so a policy that maintains the same level of taxation while reducing the costs of tax compliance will inevitably help the economy on the margin. This is just obvious.

If I understand correctly, there is a level at which cutting taxes is bad for the economy, as high public debt is a drag on the economy. However, taxes themselves always introduce some deadweight loss (some more than others).

[giblets]

If they don't make it harder to insert the loopholes again then I doubt that any effort at tax reform would bear much fruit in the long run. You would have to make some significant change to the way the government operates like a line-item veto. Or a ceiling on the number of words in the tax code, maybe.

[Hauldren Collider]

If they don't make it harder to insert the loopholes again then I doubt that any effort at tax reform would bear much fruit in the long run. You would have to make some significant change to the way the government operates like a line-item veto. Or a ceiling on the number of words in the tax code, maybe.

I agree with this assessment. Reagan wiped out most of the earmark-type loopholes during his presidency and since then they've been added back in at a rate of more than one per day, if memory serves. At some level we need more discipline with the tax code. I think the solution is to use a tax scheme that is more visible to voters and also harder to insert loopholes for by its nature. A payroll tax like FICA would work nicely, in my opinion. The problem there is that FICA is a flat tax, so I believe we would need rebates to make it progressive.

[Jaguar]

A payroll tax like FICA would work nicely, in my opinion.

Yes, payroll taxes are the simplest and best taxes. However, you usually don't want to collect all of your tax revenue at a single point - it makes black market transactions too tempting.

So you would be better off finding two other taxes that are economically identical. Fortunately, such alternatives exist: one is a sales tax, and the other is a tax on certain classes of business transaction.

Then you can split the burden equally between these three to minimize the black market.

The problem there is that FICA is a flat tax, so I believe we would need rebates to make it progressive.

Yes, we want to make the system progressive. We can do this by reducing or eliminating the taxes for poorer individuals.

If we're trying to make this tax reform revenue neutral, we probably want it to raise about 25% of GDP before the exemptions for poorer individuals. That should be 8.3% for each of our three taxes, but when you appropriately account for the compounding, you'll need 9%, 9%, and 9%.

Incidentally, this tax plan is much more intellectually serious than anything proposed by any actual elected official.

[Herman Cain]

If we're trying to make this tax reform revenue neutral, we probably want it to raise about 25% of GDP before the exemptions for poorer individuals. That should be 8.3% for each of our three taxes, but when you appropriately account for the compounding, you'll need 9%, 9%, and 9%.

Incidentally, this tax plan is much more intellectually serious than anything proposed by any actual elected official.

QFMFT. I could not agree with this more.