Laffer Doesn't Know if Bush Tax Cuts Pay for Themselves

Discussion in 'Economy' started by Toro, Dec 15, 2007.

  1. Toro
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    Toro Diamond Member

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    ...when he was asked directly. However, he implies that they don't.

    And he praises Clinton.

    http://www.time.com/time/magazine/article/0,9171,1692027,00.html

    For the good of the country, Republicans have to be dissuaded of this ridiculous idea that at current marginal rates, cutting taxes decreases the budget deficit.
     
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  2. ☭proletarian☭
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    ☭proletarian☭ Guest

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    How did this thread get zero replies?

    My first question when people bring up the laffer curve is how he determined where to plot his points.
     
  3. Toro
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    Toro Diamond Member

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    He didn't know. It was just a theory.

    Since then, there is some empirical evidence that some countries and industries can generate higher tax revenues with lower taxes. For example, in countries where tax evasion is widespread, lowering taxes, granting amnesties and increasing penalties has increased tax revenues. Cutting corporate taxes sometimes leads to higher revenues, especially for industries with a high level of risk, i.e. mining and oil drilling. But Laffer presented his idea as that, an idea. He could not plot the graph.

    There is little evidence that, perhaps except on the margin, tax policy in the US effects economic growth. This is GDP per capita from 1870 to 2006. Except for the Great Depression, growth has been pretty constant. Even during this Great Recession, the blip on this graph will be small.

    [​IMG]

    Tell me where great changes in tax policy has made much of a difference?
     
  4. ☭proletarian☭
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    How much of the increase in GDP is due to population increase and technological advance?
     
  5. Paulie
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    Paulie Platinum Member

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    Not that I'm necessarily asking this because I wholeheartedly support the idea of the laffer curve, but do you really think that GDP alone, is a sufficient indicator of whether or not an entire economic theory is viable?

    I know you well enough to know that even you question the validity of statistics, which GDP is...just another statistic that can be realized through skewed means.

    That would be like concluding whether a monetary policy theory is viable or not based on just CPI.
     
    Last edited: Mar 4, 2010
  6. antagon
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    antagon The Man

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    the curve validates the theory that sale pricing works to improve sales volume, as applied to taxes. if ya take other factors of price reduction under consideration, the effect shouldn't be expected to sustain itself. Prole makes the most obvious point about the laffer wand used to plot the curve in the first place.

    sales managers included?
     
  7. CrusaderFrank
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    CrusaderFrank Diamond Member

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    Stupidest chart I've ever seen in my life. It's like taking a a side view of the Earth and saying, "See, Everest and K-2 don't look so bad from 8 million miles away."
     
  8. editec
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    editec Mr. Forgot-it-All

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    I am entirely convinced that the Laffer curve is exactly right at two points:

    1. 100% Taxtion results in zero revenues

    2. 0% taxation results in zero revenues.

    Everything in between is subject to issues of the economy having little to nothing to do with taxation.

    Logically, one must assume that the closer the initial tax rate is to either extreme, the more likely that the laffer curve EFFECT will have some unknowable validity.

    But if we cannot even compare historical changes that actually occured to create a Laffer curve that has any predictive value, what good is it, really?

    Why not, editec? you ask.

    Good question!

    Because the economy is never the same from one day to the next.

    So while a tax decrease could, in some circumstances, have a wonderfully positive effect on tax revenues in one economy, it might have no effect in another.

    This is a theory that DOES make sense, logically.

    But it doesn't appear to me to have any practical application in the real world.

    Like I said in the other thread about the laffer Curve theory, if it had validity, we would ALWAYS be able to predict with high accuracy what the effect on revenues would be with every change in tax rate.

    We cannot do that.

    Ergo, while the theory has legs, those legs can't carry us anywhere.

    Stick that in your pipes and smoke it, Austrian School of economics diciples.
     
    Last edited: Mar 4, 2010
  9. eagleseven
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    eagleseven Quod Erat Demonstrandum

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    The problem with calculating Laffer's real curve is that it assumes all taxes have a consistent effect upon the economy. How do you judge the impact of a 1% change in taxes, when those changes are focused upon capital gains? Or tarrifs? Or the poor? Or the rich? Or producers? Or consumers? Or on regulated industries? Or on unregulated industries?

    His curve is too oversimplified to do anything but explain a principle. The principle is sound, but incredibly challenging to apply, for the above reason.
     
  10. editec
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    editec Mr. Forgot-it-All

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    Exactly, Eagle.

    Not all taxes are equal and certainly they don't effect every taxpayer in the same way, either.


    Add to that problem, the obvious fact that the economy is a constantly changing state of being, and the Laffer curve, (while theoretically right, I think) is worthless as a tool for establishing what the tax rates ought to be.

    Now if we could keep the economy exactly the same EXCEPT for the corporate tax rates, we could devise a LAFFER curve that would be something useful.

    But today's economy won't be the same as tomorrow's economy.

    This is another reason that economics is a DISMAL science.
     

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