Toro
Diamond Member
- Thread starter
- #21
And you know this how? Not being dick, but you know how us righties are, we kinda like to see some evidnece.
Why do you assume that they don't? Factors are tested to account for multiplier affects on the economy. Econometrics isolates differing factors to empirically test the affects of different policies. One could turn around and ask a similar question to you, i.e. why should we assume that tax cuts have any affect on the economy at all? How do you know they have a positive affect? Or do just take that on blind faith? Of course, the answer is exactly the same. We can empirically test the data to isolate the affects of the tax cuts.
If you want some evidence, look at the empirical research done by George Bush's own chair of economic advisers on tax cuts, Greg Mankiw, in the post above. He estimates that for every $1 in income tax cuts, the government loses 83 cents in revenues.
And I did phrase it wrong. My mistake. Some of the variables are linear. Some are not. But, like Mankiw concluded, there is not a 1 for 1 trade-off.
After spending some time researching, I am persuaded that income tax cuts do not come close to paying for themselves by means of economic growth, in terms of revenue. I saw the reference to 83 cents, but I also saw the loss in capital taxes is about 50%, so it does depend on what kind of tax cut you have. Those numbers come from a study that is pretty wonky, I looked at it but wasn't completely sure what it said.
However, I am not yet convinced that the increase in economic growth does not yield some reductions in gov't spending due to higher employment numbers. Less money going out in unemployment checks, foodstamps, and in healthcare payments. And it may well be that the economic improvement has positive results that do not show up on the gov'ts balance sheet. That's subjective on my part, there's no data to back it up, but I believe an employed person will consume less gov't resources over somebody who doesn't have a job. And what about the next generation that doesn't grow up in a household that has been dependent on the gov't? I'm thinking it's money well spent instead of more gov't spending where the gov't decides who the winners and losers are for political reasons.
It depends on the taxes, and it depends on the level. For example, some capital gains taxes do increase revenues when cut. There is a fair amount of evidence that cutting corporate income taxes raised revenues. Same with cutting royalties on mining and other natural resources. Also, there is evidence that cutting taxes in emerging countries with high levels of tax evasion increases revenues when accompanied by a crackdown on evasion. In the UK, Thatcher eliminated a raft of expropriationary taxes, such as the 98% tax on "unearned income" which lead to higher revenues from those sources. I'm also willing to say that Reagan lowering the highest marginal income tax rate from 70% - which is egregious and abusive - had at least some positive affect. My point of contention is with those who say cutting taxes always leads to an increase in revenues. That drives me nuts.
There is certainly an efficiency argument for cutting taxes. In Mankiw's study, for example, a $1 decrease in income taxes decreases revenues by 83 cents, meaning tax cuts have a net positive marginal affect. Likewise, raising income taxes by $1 will only lead to an increase of 83 cents in government revenue, meaning there is a deadweight loss in the economy to raising taxes.