Psych.

Is anyone else getting rolly eyes from all the people acting as if it were impossible to be on the left side of the laffer curve?






I don't see how the data supports the claim. Revenues increased after the tax cuts, but does that mean tax cuts caused increased revenue? I notice that my birth in 1982 also had a profound impact on the economy

It looks fairly clear that they never caught up with the trend line.

[Edited on July 23, 2010 at 2:22 PM. Reason : ]

7/23/2010 2:21:43 PM

i think it's pronounced 'sike'

7/23/2010 2:29:22 PM

Psyche

7/23/2010 2:30:18 PM

7/23/2010 2:32:26 PM

^^^ There are two schools of thought on the issue.

^^ but not three.

7/23/2010 2:42:48 PM

I've always been confused why so-called fiscal conservatives love spouting this theory.

I give it more credence than most.

But why do people, who ostensibly want smaller government, argue for something by saying, "Hey! It increases government revenue!" ?

Why not just lower taxes so much that government revenue actually goes down?

[Edited on July 23, 2010 at 2:52 PM. Reason : h]

7/23/2010 2:51:11 PM

The point is not that tax cuts pay for themselves, but that tax cuts don't cost you as much as the math would suggest, and tax increases don't raise as much as the math suggests, either.

7/23/2010 2:57:36 PM

That's an entirely reasonable and provable point.

And it's almost never argued that way. Both sides treat it as if that were not the case.

7/23/2010 3:05:11 PM

I hate to break it to you, folks--it's not just Republicans that support this:

Will Democrats Extend All the Bush Tax Cuts?
July 23, 2010

Quote :

"Republicans want to extend the cuts for high-earners, and they have cast the administration's position as advocating a massive tax increase that will hurt small businesses. And in a bit of good news for the GOP, in recent days three Senate Democrats have come forward to say that they too want to extend the Bush tax cuts for high-earning Americans. Sen. Evan Bayh (D-Ind.) said last week that raising the tax rate on that group 'runs the risk of dampening consumer demand at a time when that is critical to recovery,' while Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said rates should not go up until the economy improves. Sen, Ben Nelson (D-N.D.), meanwhile, said he also wants to extend all the Bush tax cuts, arguing 'it probably is too soon to cut spending or raise taxes.' In addition, at least six House Democrats also oppose letting the Bush tax cuts for high-earning Americans expire."

http://www.cbsnews.com/8301-503544_162-20011515-503544.html

7/23/2010 3:17:30 PM

^^exactly; it's much easier to spout "TAX CUTS INCREASE REVENUE!!1" than to note that because taxes per se slow economic growth, tax increases raise less revenue that it would seem at first glance, and after a certain point (which I heard is over 80% for the simple case of a flat income tax and no other taxes) this secondary effect swamps the primary effect so that further tax increases are counterproductive...which the Democrats know very well and that's why we haven't even had a top marginal rate near that high since Kennedy: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

7/23/2010 3:38:16 PM

Boone this is the second thread you've made on supply-siders.

i dont stay very informed, but has there been some huge resurgence in supply-side doctrine that I am not aware of? Or is this pint up anger from the late Bush administration?

[Edited on July 23, 2010 at 3:58 PM. Reason : ``]

7/23/2010 3:57:45 PM

BUUUUUUUUUUUSSSSSHHHHHHH



...just kidding. No, there's been a big push for supply-side economics, given Obama's "they'll give tax breaks to billionaires, but filibuster unemployment benefits" spiel.

7/23/2010 4:33:20 PM

economic criticism has been coming from the crazy to the classic now, I'm sure supply side probably fits in one of those two, maybe both.

7/23/2010 6:10:22 PM

beware the tax tsunami

http://www.investors.com/NewsAndAnalysis/Article/541131/201007211841/The-Tax-Tsunami-On-The-Horizon.aspx

surely it will help shorten the recession

7/25/2010 1:55:52 PM

There's not a single rule on what tax cuts/increases do in the short terms. Historically, sometimes they do one, sometimes they do the other.

7/25/2010 3:26:19 PM

^I don't disagree with that. I do think that taxes can very easily have a negative economic impact, though. It takes money away from individuals who could choose to either save, invest, or consume. It takes money away from businesses that could hire new employees or purchase new capital. Both of those things are bad; we should aim to have the lowest tax rate possible, for maximum savings and investment.

That's just the practical side of it, though. As long as a percentage of my tax money is going towards unconstitutional institutions/programs/projects, and shooting Arabs in the head, I'll continue railing against taxes. I don't want to help kill people. I don't want to help the government do illegal things. I'm tired of being forced to fund this tyrannical police state, and if there was a way I could avoid doing it without being sent to jail or shot, I would.

7/25/2010 5:03:08 PM

^^ The only stimulative effect tax increases can possibly have is if a reasonable tax increase puts to rest fears of far larger increases.

Given today's tax climate, it might seem reasonable to believe a small tax increase might be stimulative in this respect.

[Edited on July 25, 2010 at 7:13 PM. Reason : .,.]

7/25/2010 7:12:46 PM

The second graph is so full shit. Bc surely if we didnt cut taxes the 70-80 trend would have held. This recession and 9/11 wouldnt have affected revenue on bit. lol.

7/26/2010 11:59:45 AM

^^ tax increases on their own would not have a stimulative impact. But an increase in fiscal spending funded by a tax increase could.

7/26/2010 1:02:42 PM

Tax hikes for the rich: Can the economy afford them?
Jul 26, 2010

Quote :

"Since households and governments are tapped out, nothing should be allowed to impede the chances for business spending, which is the best hope for generating future economic growth, according to Douglas Holtz-Eakin, a former Congressional Budget Office director who now runs a Republican think tank. Holtz-Eakin believes that imposing higher taxes on those in the upper-income brackets would be bad for many job-creating small businesses, which often pay taxes under the individual income tax code. He calculates that an increase in the top rate could reduce small business hiring by 18%."

http://money.cnn.com/2010/07/26/news/economy/Bush_tax_cuts/

[Edited on July 26, 2010 at 2:13 PM. Reason : .]

7/26/2010 2:12:40 PM

Quote :

"^^ tax increases on their own would not have a stimulative impact. But an increase in fiscal spending funded by a tax increase could."

Not the mechanism I was getting at. And what you just said is untrue much of the time. If you tax a dollar that would have otherwise been spent, then you have done nothing but shift demand from private spenders to Congress. The only two mechanisms I know of for government spending to be stimulative is, 1., if it shocks the populous into believing the recession is over and so the people go forth and end the recession, or, 2., if the money is borrowed from an accommodating Federal Reserve's printing press of fresh cash.

Taxation by itself cannot be stimulative, at best a break even, because higher taxes are a reduction of expected future income, so people will try to save even more than you collected through the tax for Congress to spend.

7/26/2010 4:18:23 PM

^

Quote :

"f you tax a dollar that would have otherwise been spent"

An assumption that does not always hold true, at least not over the short term. I could choose to simply hold onto my money (as opposed to investing it or spending it). If the government taxes that money away from me and spends it, then that would have a stimulative effect.

I don't see that on your list.

NCSU's own Mike McElroy has a chapter discussing the stimulative effect of tax-funded fiscal spending.

http://legacy.ncsu.edu/classes/ec348001/G_Chpt5.pdf

[Edited on July 26, 2010 at 5:18 PM. Reason : ``]

7/26/2010 5:18:14 PM

While that may be possible, I don't find it probable. After-all, if someone is saving their money, taxing that savings away should cause them to save even more, to replace the cushion of safety that was taxed away. As I said in my post. As such, I don't find tax&spend stimulation plausible, hence why I didn't include it in my list and then told you why.

The reason is obvious. We are both assuming everyone else acts the same way we do. When I have my savings eaten up, either by taxes or a car accident, I spend less elsewhere to make up the hole in my savings. You clearly do the opposite, perhaps even spending more in the face of a loss of savings, now that you see bankruptcy is inevitable, I'm sure I don't know.

[Edited on July 26, 2010 at 5:56 PM. Reason : .,.]

7/26/2010 5:52:45 PM

Quote :

"The reason is obvious. We are both assuming everyone else acts the same way we do. When I have my savings eaten up, either by taxes or a car accident, I spend less elsewhere to make up the hole in my savings."

I thought you understood MPC. You should know that marginal propensity to save goes down as income goes down.

7/26/2010 10:59:35 PM

LoneSnark,

Obviously. Thats why poor people save more than rich people. The less disposable income you have, the more of it you are going to save.

....wait a minute...

Anyways, I think the scenario I mentioned is more probable than using taxes to trick people into spending more money by making them think the recession is over, which somehow made your list. Indeed, textbook Keynesian models (like the one i linked to) rely on the assumption that people keep some portion of their income in money balances.

Note: Ricardian Equivalence arguments do not apply here. We are not talking about people saving more in expectation of higher taxes to pay down debt accumulated from deficit spending. Indeed, there is no deficit spending involved. The fiscal stimulus was financed with a tax increase. Just thought I would throw that out there.

[Edited on July 26, 2010 at 11:39 PM. Reason : ``]

7/26/2010 11:33:38 PM

But they do need to save more to pay the now higher taxes. Keep in mind, while the savings rate has increased to 3.5%, that is still not much of a margin. We could tax away every saved cent, and it would only cut the deficit by a fraction and land every one of us in bankruptcy court sooner or later.

^^ Interesting. So, at current savings rates of 3.5% of income, if I increase your tax burden, say, 5% of income, your new savings rate is and remains -1.5% until bankruptcy? Only a communist could apply such mechanical behavior to a human being.

And you are both missing an important fact; no one is socking their cash into their sock drawer. Yes, the rich have a higher propensity to save, but every penny goes into an investment of some sort and right back into circulation. So, even if you were right and no one adjusts their behavior when taxed, every dollar taxed is one less dollar on deposit at the local bank. Remind me again which institutions are responsible for most money creation?

[Edited on July 27, 2010 at 2:39 AM. Reason : .,.]

7/27/2010 2:28:23 AM

Quote :

"And you are both missing an important fact; no one is socking their cash into their sock drawer. Yes, the rich have a higher propensity to save, but every penny goes into an investment of some sort and right back into circulation. So, even if you were right and no one adjusts their behavior when taxed, every dollar taxed is one less dollar on deposit at the local bank. Remind me again which institutions are responsible for most money creation?"

You were the one making the argument that taxing more causes more savings and implying that this was bad, not anyone else. I wasn't even trying to state that saving was bad or saving was good, merely pointing out that lower income does not mean more saving. You're right, money does always go somewhere, but you're forgetting that it goes somewhere even when the government takes it.

7/27/2010 8:35:20 AM

I don't cry at night over the threat and fear of 250k+ income owners having to pay more taxes. I will never make that much, so I don't give a fuck. True, that it is sometimes unfair but whatever. Where I do have a PROBLEM and agree with hard-core conservatives is that the current tax code lets to many people off the hook. With numbers ranging from 40% to 50% of american households oweing NOTHING in federal taxes or even with a negative effective federal rate; is rediculous. The tax code should be fixed so that diseffected families and those with legitimate needs are those paying a 0% income tax. Otherwise even a paltry 10% tax rate after exemptions (which should be decreased), would make the tax code more fair.

Having more children than that prudent, reasonable, or within your income capabilities should not be a get out of tax free card. Not to mention all the other excessive deductions and credits one can get for other things.

[Edited on July 27, 2010 at 10:28 AM. Reason : a]

7/27/2010 10:24:25 AM

^^ Socks said tax+spend could be stimulative. That is the argument taking place, he said yes, I said most of the time not.

^ I see it as efficiency maximizing for most Americans not to pay any taxes. What I object to are tax loopholes that allow some politically connected rich to pay no taxes at all, despite high incomes. I think we should go back to the first income tax form which didn't allow for any deductions beyond dependents.

[Edited on July 27, 2010 at 10:34 AM. Reason : .,.]

7/27/2010 10:30:55 AM

LoneSnark,

I can't think of a logical mechanism for how an increase in taxes would effect a person's money balances. For example lets suppose a new fiscal stimulus is paid for with a temp income tax increase. Why would I increase the amount of my savings held in the form of money to pay for it??? Even if you think people would save more to pay for it, why would they systematically keep those savings as money (as opposed to keeping it in a savings account or in short-term bonds)??

Besides, I don't know about you, but most people pay their taxes gradually through out the year (as opposed to saving it up for tax day). Specifically, their employers withhold some portion of their paycheck, which they then pass along to the government. Logistically, its easier that way. That way the government doesn't get flooded with cash every April, which it then has to manage for the entire fiscal year.

Maybe you can elaborate a little more.

PS* The definition of money is typically not restricted to physical cash. Specifically, it usually includes cash held in on demand accounts like a checking account. This is because banks can not rely on this money for making loans because people come in frequently to add or withdraw money (hence the name "on demand"). This is also why you usually get low or no interest on your checking account. So even if people aren't stuffing their money into sock drawers that doesn't mean they are not attempting to hold more money.

[Edited on July 27, 2010 at 10:54 AM. Reason : ``]

7/27/2010 10:41:39 AM

Ran across this:

8/3/2010 5:34:55 PM

Boone I LOVE your graph. It basically proves we have a spending problem.

So with or without these tax cuts we are either 200 or 300% over GDP. I guess all that crazy talk of entitlements actually mattered.

8/3/2010 6:33:55 PM

LOL

nice.

8/3/2010 9:17:22 PM