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

[boedicca]

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.

It's statistically valid as it represents the Entire U.S. GDP and federal tax receipts.

If, as the statist whackjobs claim, behavior is not affected by tax rates, then as rates increase with the same level of GDP, total tax receipts should increase. The EMPIRICAL DATA shows that this has not occurred.

 

[loosecannon]

But aggregate federal tax receipts are not personal income taxes.

You are comparing apples to oranges.

And edited to add after reviewing your chart the chart displays total federal revenue which is an even broader category of federal inputs.

 

[boedicca]

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.

Uh. Dood.

Every time the government raises taxes, they say it will raise revenue.

It doesn't.

 

[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.

It's statistically valid as it represents the Entire U.S. GDP and federal tax receipts.

If, as the statist whackjobs claim, behavior is not affected by tax rates, then as rates increase with the same level of GDP, total tax receipts should increase. The EMPIRICAL DATA shows that this has not occurred.

It is no more statistically valid as the data set showing GDP rising along with rising tax rates and rising spending. By your logic then, rising government spending and rising taxes means rising GDP, which must be good for the economy.

Look at that. Rising government spending while the economy has grown. This graph, by your logic, proves it is true.

This is not, of course, statistical analysis. Statistical analysis attempts to demonstrate causality. It doesn't just point at two data sets and says "See!" You haven't demonstrated causality.

 

[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.

Uh. Dood.

Every time the government raises taxes, they say it will raise revenue.

It doesn't.

Prove it.

After all, you are the one making the claim.

Walk the talk.

Post me one study, just one, that backs up your claim.

 

[boedicca]

I have proven it. When the feds jacked up tax rates, the share of revenue as a percent of GDP did not increase. I don't need a study - we can see that the the ratio of tax receipts did not increase.

Or, at least those of us with active synapses and the ability to think logically can see it.

And if you really need proof that politicians think they will gain more revenue by jacking up taxes, just listen to the nonsense that Taxing The Evul Rich Who Make More Than $250K costs the government $700B over 10 years. In reality, they will gain nothing for jacking up the tax rates. Economic growth will be lower, and tax receipts will hover around their trend line.

 

[Toro]

I have proven it. When the feds jacked up tax rates, the share of revenue as a percent of GDP did not increase. I don't need a study - we can see that the the ratio of tax receipts did not increase.

Or, at least those of us with active synapses and the ability to think logically can see it.

You haven't proven anything. All you've shown is that you don't have a whiff about econometrics and statistical analysis.

You can change my mind. If you can show me empirical evidence, I'll agree with you. I'd be happy to. But you seem to be parroting ideological lines.

 

[boedicca]

Wrong again, boyo.

You tried to use an elite group of athletes in the only real international sport to make broad sweeping claims about how taxes affect those with higher incomes. The tax receipt data show that what you claim is complete and utter nonsense.

 

[Baruch Menachem]

Soccer players would have a high index of Laffer curve bending. They are playing a game in front of an audience they would pay to have them watch it. Same issue with movie actors.

For soccer players and other sports stars, as well as movie people and the like, I would think the laffer curve wouldn't start to curve down until 99 3/4%
As far as acting goes, there are people who have real jobs just so they can act in stock theater. They pay to do the job.

There are lots of income and substitution effects with every job. Higher paying jobs would have a higher laffer curve bend back than a lower paying job. They are more fun, they are things the person doing them really likes doing. Some folks just can't retire, they need the adrenaline rush of doing the thing. Barbara Streisand has retired at least five times.

Now for middle income folks, lets say a guy who owns a chain of Laundromats, you raise his taxes a bit, he might close down some of the marginal stores that raise his income level too high. There is no positive to fixing balky laundry machines. His net income sinks, or rises slowly, he can cut back to where the game is still worth the candle.

 

[Care4all]

Soccer players would have a high index of Laffer curve bending. They are playing a game in front of an audience they would pay to have them watch it. Same issue with movie actors.

For soccer players and other sports stars, as well as movie people and the like, I would think the laffer curve wouldn't start to curve down until 99 3/4%
As far as acting goes, there are people who have real jobs just so they can act in stock theater. They pay to do the job.

There are lots of income and substitution effects with every job. Higher paying jobs would have a higher laffer curve bend back than a lower paying job. They are more fun, they are things the person doing them really likes doing. Some folks just can't retire, they need the adrenaline rush of doing the thing. Barbara Streisand has retired at least five times.

Now for middle income folks, lets say a guy who owns a chain of Laundromats, you raise his taxes a bit, he might close down some of the marginal stores that raise his income level too high. There is no positive to fixing balky laundry machines. His net income sinks, or rises slowly, he can cut back to where the game is still worth the candle.

And if he closes some of his stores down, someone else will come in and open a business to meet the demand....

what a great country with great opportunity!

(besides, if he has marginal stores that are not making a profit for him....he is paying NO income TAXES for that store's volume in the first place! no???)

care

 

[Toro]

Wrong again, boyo.

You tried to use an elite group of athletes in the only real international sport to make broad sweeping claims about how taxes affect those with higher incomes. The tax receipt data show that what you claim is complete and utter nonsense.

Sorry. Only partisan ideologues impervious to empirical methodology still believe this. It is not taken seriously by anyone outside this blinkered group.

1) The Council of Economic Advisers' Report to the President, 2003: "Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity."

2) The chair of CEA from 2003-2005, Greg Mankiw: "Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don't find that conclusion credible for most tax hikes, and I doubt Mr. Paulson does either."

3) He's right! Hank Paulson, Bush's last Treasury Secretary, doesn't: "As a general rule, I don't believe that tax cuts pay for themselves."

4) That opinion was shared by Andrew Samwick, Chief Economist on Council of Economic Advisers, 2003-2004: "No thoughtful person believes that this possible offset [the Bush tax cuts] more than compensated for the first effect for these tax cuts. Not a single one."...

5) ... and Edward Lazear, chair of the Council of Economic Advisers in 2007: "I certainly would not claim that tax cuts pay for themselves."

Hey Mitch McConnell, Bush Economists Said Tax Cuts Did Grow the Deficit - Derek Thompson - Business - The Atlantic

N. Gregory Mankiw, another former Council of Economic Advisers head in the Bush White House, concluded in 2005 that cuts on capital gains taxes could generate enough extra growth to recoup half the lost revenue in the long run; cutting taxes on wages could recover just 17 percent of the costs. An analysis conducted by the Congressional Budget Office under the direction of Douglas Holtz-Eakin, who had been an economic adviser in the Bush White House, found that, under the rosiest of scenarios, a 10 percent reduction in the personal income tax rate would generate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five.

Mr. Giuliani and the Tax Fairy - washingtonpost.com

 

[Baruch Menachem]

Marginal in terms of his personal cost benefit line. If he has to work 60 hours for 10 stores and the lowest ranking one is making a return of 5% while the rest are making returns of 7%, he can cut down to 54 hours with 9 stores and have better returns on the money.

A store making only 5% margin isn't worth opening for the new guy either. He has the same complication. A store takes time, exertion, and at the end of it, was the small change worth the effort.

Lower tax rates mean he keeps open. Higher tax rates close the store totally, as who wants the aggravation for a low returning store. The new guys has the same tax issue.

 

[Toro]

Marginal in terms of his personal cost benefit line. If he has to work 60 hours for 10 stores and the lowest ranking one is making a return of 5% while the rest are making returns of 7%, he can cut down to 54 hours with 9 stores and have better returns on the money.

A store making only 5% margin isn't worth opening for the new guy either. He has the same complication. A store takes time, exertion, and at the end of it, was the small change worth the effort.

Lower tax rates mean he keeps open. Higher tax rates close the store totally, as who wants the aggravation for a low returning store. The new guys has the same tax issue.

Right. What matters in this discussion is the inflection of the Laffer Curve. So in your example, if 4% is his cost of capital and the government adds a 2% tax, then the cost of capital rises to 6% and he closes down the marginal store but the six remain open. The proprietor earns less profit, but the government rakes in another 12%. The economy is harmed because a business has shut but the government has increased its tax revenues. Economists would say that is a sub-optimal outcome because output has declined, but we are still on the left hand side of the Laffer Curve. If, however, the government raises the tax by 4% instead of 2%, the cost of capital is now above the return on equity at 8%. At this rate, the proprietor will shut down all his stores because it is unprofitable to be in business, and the government collects nothing from any store. This is on the right hand side of the Laffer Curve.

 

[Baruch Menachem]

I don't think we are here yet.

Government gets less revenues because he closes the store and he has lower income. It is hard to know with this discussion, but there is not much likely hood he is going to keep working to make a higher tax payment.

Besides, economic terms, the state is worse off even if it did get more taxes. There is less national production. As we work along the curve, up to the top, we will get more and more of this dropping out.

 

[loosecannon]

sure, but the critical question is at what rate of personal tax do revenues decline.

No solid evidence exists to prove that revenues are lower as a % of GDP when the nominal personal income tax rate is 90% vs 30%. Because GDP and revenues climbed regardless of tax rate changes over a 50 year period.

 

[Trajan]

I have proven it. When the feds jacked up tax rates, the share of revenue as a percent of GDP did not increase. I don't need a study - we can see that the the ratio of tax receipts did not increase.

Or, at least those of us with active synapses and the ability to think logically can see it.

You haven't proven anything. All you've shown is that you don't have a whiff about econometrics and statistical analysis.

You can change my mind. If you can show me empirical evidence, I'll agree with you. I'd be happy to. But you seem to be parroting ideological lines.

I am confused, if fed revenue rises, that is the historical what 18.5% or 19% is larger in collected dollars and 3 out of say 4 times this event occurred after a tax decrease, this in and of itself means nothing because no one has broken it down to bite size chunks statistically? The apparent cause and effect is not valid because.... it has not been explained thoroughly enough?

 

[Toro]

I don't think we are here yet.

Government gets less revenues because he closes the store and he has lower income. It is hard to know with this discussion, but there is not much likely hood he is going to keep working to make a higher tax payment.

Besides, economic terms, the state is worse off even if it did get more taxes. There is less national production. As we work along the curve, up to the top, we will get more and more of this dropping out.

Sure, I don't disagree. Generally, higher taxes and higher spending is a drag on growth. But this is a thread on the inflection point of the Laffer Curve, not the tax rate which generates the optimal amount of economic growth. That's a very different discussion. On the Laffer Curve, you can have declining economic output and rising tax revenues.

There have been several papers referred to in this thread concluding that we are on the left hand side of Laffer Curve for income tax rates. I have never, ever seen anything concluding we are on the right hand side. So if there is something, please show me.

 

[Toro]

I have proven it. When the feds jacked up tax rates, the share of revenue as a percent of GDP did not increase. I don't need a study - we can see that the the ratio of tax receipts did not increase.

Or, at least those of us with active synapses and the ability to think logically can see it.

You haven't proven anything. All you've shown is that you don't have a whiff about econometrics and statistical analysis.

You can change my mind. If you can show me empirical evidence, I'll agree with you. I'd be happy to. But you seem to be parroting ideological lines.

I am confused, if fed revenue rises, that is the historical what 18.5% or 19% is larger in collected dollars and 3 out of say 4 times this event occurred after a tax decrease, this in and of itself means nothing because no one has broken it down to bite size chunks statistically? The apparent cause and effect is not valid because.... it has not been explained thoroughly enough?

You use econometric analysis to isolate the variables that cause economic growth. Government revenue rises because the economy rises. Is that because of the changes in the level of interest rates or credit spreads or the level of inventories or increased demand from abroad or tax policy or government spending or an increase in technology growth or ... ?

Econometric analysis attempts to isolate the variables which affect economic growth. Boedicca thinks all you have to do is look at marginal tax rates and government revenues and voila! there's your answer. But that's not a serious answer. You have to regress a number of variables that affects economic growth to understand what is really driving growth, and thus government revenues.

This is what economists do. Through dynamic modeling, macro-economists try to answer that question above. And the empirical economic evidence is that US income tax cuts do not generate enough economic growth and thus government revenues to offset the loss of tax revenues from the tax cuts. There is plenty of evidence that there is a marginal relationship between a given unit of GDP and tax rates. In other words, changes in the tax code will not have an equally linear offset in GDP. For example, Mankiw estimates that every $1 cut in income taxes decreases revenues by 83 cents, not $1, implying that there is a marginal benefit to the economy by cutting taxes. But the absolute amount of revenues collected by the government still declines, which means we are on the left hand side of the Laffer Curve.

 

[Trajan]

yes I understand that, and the next questions begs to be asked; so why then after what, say 60 years as you said there has not been a study, model data set generated for the US that either proves or disproves the issue?


and, so let me ask you a question; do you think they should allow the cuts to expire?

 

[william the wie]

I think the wrong metrics are being discussed. The highest GDP growth multiplier is X-M followed by delta Net National Investment. So the question should be what tax policies result in the highest growth of governmental revenues not what the marginal Laffer curve is for different monetary income sources.