The Laffer Curve Bends at an 80% Rate of Income Tax

[Toro]

The study is of professional soccer players. They are hardly representative of the general economy.

They are representative of high earners. High earners are never representative of the general economy.

Not only are they representative of high earners, they are generally more mobile than high earners in most professions, and are more motivated because they only earn that money in a short period of time.

They are not representative of high earners.

They are representative of professional athletes.

They are not representative of high earners only in that they are more mobile and motivated and thus more sensitive to tax rates than other high earning professions. A top footballer can pick up and move to another country to ply his trade tomorrow. A doctor or a lawyer cannot just pick up and start practicing in another country next week. Plus, they have more incentive to move, given that a professional athlete has a career of maybe 10 years compared to a lawyer or a doctor, who can work for several decades. Thus, they are an even better representative of sensitivity to income tax rates than most other professions.

But if you can make an argument otherwise, I'd like to hear it.

 

[Toro]

It's junk science. It uses disparate rates from disparate countries.

Explain why it is "junk science."

You should understand that using comparative income tax rates in different countries is critical in the analysis.

It renders it bogus, since there are other variations in those countries that can't be controlled.

Well, its good to know that you don't believe in economics.

 

[Revere]

The Laffer curve doesn't predict when people will move out of a country over tax rates. It attempts to predict the tax rate at which earners will stop earning more income for all reasons.

So the shitty little pseudo study would have to prove athletes stopped making more money when the tax rate hit 80%.

 

[boedicca]

They are representative of high earners. High earners are never representative of the general economy.

Not only are they representative of high earners, they are generally more mobile than high earners in most professions, and are more motivated because they only earn that money in a short period of time.

They are not representative of high earners.

They are representative of professional athletes.

They are high earners; they are not representative of all high earners.

Eg,

They are both. They earn substantial income in a relatively short time frame.

As statistically valid study would have samples across a variety of professions. This study is representative of professional athletes, at most - and only those who can have lucrative careers in an international sense.

 

[boedicca]

They are representative of high earners. High earners are never representative of the general economy.

Not only are they representative of high earners, they are generally more mobile than high earners in most professions, and are more motivated because they only earn that money in a short period of time.

They are not representative of high earners.

They are representative of professional athletes.

They are not representative of high earners only in that they are more mobile and motivated and thus more sensitive to tax rates than other high earning professions. A top footballer can pick up and move to another country to ply his trade tomorrow. A doctor or a lawyer cannot just pick up and start practicing in another country next week. Plus, they have more incentive to move, given that a professional athlete has a career of maybe 10 years compared to a lawyer or a doctor, who can work for several decades. Thus, they are an even better representative of sensitivity to income tax rates than most other professions.

But if you can make an argument otherwise, I'd like to hear it.

A doctor or a lawyer can decide to work less in response to high taxation.

The only choice is not moving out of the country.

Athletes are not a better test. You can try to spin it all you want; but it's clear you got caught spinning a study of an eeensy portion of the labor force into being representative of the whole.

It's nonsense.

 

[william the wie]

Explain why it is "junk science."

You should understand that using comparative income tax rates in different countries is critical in the analysis.

It renders it bogus, since there are other variations in those countries that can't be controlled.

Well, its good to know that you don't believe in economics.

Using 2-dimensional graphs to explain n-dimensional taxes: VAT, property, national healthcare, old age pensions and other taxes; is kind of dubious and misleading.

 

[KissMy]

Most people do not realize the percent of, or add up all the taxes they pay every year from their earnings. Medicare, SS, Federal, State, County, City, Healthcare, License, Sales Tax, Real-estate Tax, Personal Property Tax, Automobile Tax, Phone Taxes, Gas Tax, Utility Tax's, Permit Fees, Mandatory Unemployment Insurance, Mandatory Auto Insurance, Mandatory Healthcare Insurance, Sin Taxes. Not to mention Government Fines & Penalties or Bank/Credit/Debit Exchange Fees or interest if you are in debt.

The average American worker is paying well over 70% of their earnings out to someone who spends it for them & they don't even realize it.

California has the highest aggregate state tax rate in the nation combining income, property, gasoline & sales taxes. Yet California has the nations largest debt/deficit problem by a magnitude multiple times that of the next worst state.

In sharp contrast Texas has one of the lowest aggregate state tax rate in the nation combining income, property, gasoline & sales taxes. Yet Texas has the nations lowest debt/deficit problem by a mile compared to the next worst state.

This proves that raising taxes does not decrease debts/deficits & that the Laffer curve has merit. It is obvious that California is on the downward slope of the Laffer curve & Texas is on the upward slope of the Laffer curve. Soon most of western world will be on the downward side of the Laffer curve.

 

[Toro]

It renders it bogus, since there are other variations in those countries that can't be controlled.

Well, its good to know that you don't believe in economics.

Using 2-dimensional graphs to explain n-dimensional taxes: VAT, property, national healthcare, old age pensions and other taxes; is kind of dubious and misleading.

Not in the context of the Laffer Curve as it applies to income taxes. The Laffer Curve as applied to income taxes is a two-dimensional theorem.

 

[Trajan]

 

[boedicca]

This is much better and more relevant evidence that the Laffer Curve is valid.

If high taxes did not create a disincentive for economic behavior, high rates would result in a higher share of GDP being collected in taxes.

 

[Toro]

A doctor or a lawyer can decide to work less in response to high taxation.

The only choice is not moving out of the country.

Moving out of a country is withdrawing from the labour market entirely. A doctor may work 10% less but the athlete has the option of working 100% less. The elasticity of labour is higher for a professional footballer.

Athletes are not a better test. You can try to spin it all you want; but it's clear you got caught spinning a study of an eeensy portion of the labor force into being representative of the whole.

It's nonsense.

It is a representative sample commonly used in economics testing.

 

[Greenbeard]

Yet Texas has the nations lowest debt/deficit problem by a mile compared to the next worst state.

What?!

 

[boedicca]

A doctor or a lawyer can decide to work less in response to high taxation.

The only choice is not moving out of the country.

Moving out of a country is withdrawing from the labour market entirely. A doctor may work 10% less but the athlete has the option of working 100% less. The elasticity of labour is higher for a professional footballer.

Athletes are not a better test. You can try to spin it all you want; but it's clear you got caught spinning a study of an eeensy portion of the labor force into being representative of the whole.

It's nonsense.

It is a representative sample commonly used in economics testing.

No it's not. It's skewed for a unique labor segment.

Here's the real statistically valid result:

This is much better and more relevant evidence that the Laffer Curve is valid.

If high taxes did not create a disincentive for economic behavior, high rates would result in a higher share of GDP being collected in taxes.

 

[KissMy]

Yet Texas has the nations lowest debt/deficit problem by a mile compared to the next worst state.

What?!

Meredith Whitney has done the most in depth analysis of the states debt ratings. The full rankings:

Worst states

1. California
2. New Jersey, Illinois, Ohio (tie)
3. Michigan
4. Georgia
5. New York
6. Florida

Best states

1. Texas
2. Virginia
3. Washington
4. North Carolina

[ame="http://www.youtube.com/watch?v=-sbk_Zlt9bI&feature=related"]States Could Be the Next Systemic Risk in Financial Markets - Meredith Whitney[/ame]
[ame="http://www.youtube.com/watch?v=FOpjfYWhbP8"]Meredith Whitney Interview on State Finances[/ame]

 

[Toro]

This is much better and more relevant evidence that the Laffer Curve is valid.

If high taxes did not create a disincentive for economic behavior, high rates would result in a higher share of GDP being collected in taxes.

False causality. It is not empiricism, and it is not evidence. You can turn it around and conclude that high marginal tax rates have no effect on the economy since economic growth has been fairly constant no matter what the marginal tax rate.

An economist would isolate the variables to determine the causes of growth and the actual rate of tax, not the nominal marginal rate of tax, which is what your graph is showing.

I believe Arthur Laffer never actually ran an empirical test for his own theory. As I understand it, he just made the observation that it would bend at some point. Subsequently, there have been several studies - like the one in the OP - concluding that the maximizing rate is much higher.

http://www.usmessageboard.com/economy/51527-tax-cuts-dont-pay-for-themselves-gop-economists.html

 

[boedicca]

If high tax rates did not suppress economic activity, higher rates would increase tax receipts as a share of GDP.

It's simple math, bub.

 

[Toro]

No it's not. It's skewed for a unique labor segment.

Here's the real statistically valid result:

That is not a statistically valid result. A statistically valid study isolates variables to test which are robust. It does not automatically accept correlation as causation. That is anti-science.

So post any empirical study, or any reference to any study, that concludes lower income tax rates in this country generate enough economic growth to offset the lost tax revenues. Just one. Any one. I have seen such studies for corporate tax rates, for resource royalty rates, and for income taxes in countries with a high level of tax evasion, but I have never seen one for US income tax rates. All the ones I have seen imply or conclude that that rate is high.

 

[Toro]

If high tax rates did not suppress economic activity, higher rates would increase tax receipts as a share of GDP.

It's simple math, bub.

The OP and my argument is not about higher taxes not suppressing economic activity. Nobody is arguing that higher taxes doesn't suppress economic growth. This is about the level of taxation where economic activity declines such that the government gets less revenues. This is about the inflection point on the Laffer Curve. The Laffer Curve measures government revenues as a function of the rate of taxation. It does not measure economic activity relative to the rate of taxation.

The OP makes it clear

What’s more - of course - revenue maximization is not the only criteria here. The authors find that higher taxes do reduce the quality of a country’s football league by driving out some of its top players.

In the measurement of GDP, all else being equal, lower quality means a decline in economic activity. Higher taxes will probably cause the economy to slow or even contract. And I agree with that. But that does not always mean that government revenues will fall.

If for example, taxes go from 30% to 60% of the economy, and the economy falls by 20%, then the government will still have more revenue than it had before, since 60% of 80% (48% of the pre-taxation level) is more than 30% of 100%. The inflection on Laffer Curve attempts to find that point where the tax rate damages the economy such that government revenues decline. In this example, if that were 60%, then the economy would have to decline at least 50% (50% of 60% is 30%).

 

[CrusaderFrank]

That's great! We just need to have Pele form his own nation of soccer players!

Second thing, why don't Democrats grow a nut sack and run on an 80, 90% income tax?

These economists, wrong out in the trillions column, will clearly be in the running for the Krugman Chair for "Most Fundamentally wrong economist on the planet"

 

[loosecannon]

These economists, wrong out in the trillions column, will clearly be in the running for the Krugman Chair for "Most Fundamentally wrong economist on the planet"

....right behind Laffer and his congregation of extremist fanatics.