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

[Toro]

Please tell me if you're talking about the standard Laffer model--

--becuase if you are then you have to not only quantify the taxation rates implied by "suppressing the market price of labour by dictating wages", but also quantify the resultant implied revenue that results if we move "productivity away from the labourer to the government".

Sure we all know it can be done, but the big question is whether we can do it without laughing hysterically.

Say you're a doctor and a doctor is worth $500,000. If the government taxes you at 90% or the government has socialized medicine and will not pay you more than $50,000 a year (tax free!) the effects are the same.

Right, crappy socialized medicine either way

Thanks for the diversionary observation Frank.

 

[william the wie]

...it applies. Whether it is in taxation or extracting value by suppressing the market price of labour by dictating wages, both are a transfer of labour productivity away from the labourer to the government...

Please tell me if you're talking about the standard Laffer model--

--becuase if you are then you have to not only quantify the taxation rates implied by "suppressing the market price of labour by dictating wages", but also quantify the resultant implied revenue that results if we move "productivity away from the labourer to the government".

Sure we all know it can be done, but the big question is whether we can do it without laughing hysterically.

My problem with the Laffer curve are the assumptions that:

A) Non-criminal code regulation can be ignored. A great deal of regulation exists to prevent the clogging of the courts with civil and criminal proceedings but a lot of it exists simply to produce revenue like much of the traffic code and therefore functions as a tax.

B) Other taxes can be ignored. This too is an absurdity.

 

[KissMy]

If tax praising liberals dodge low 6.25% taxes, how do you expect to get a business or rich person to pay a 80% tax rate?

Sen. John Kerry skips town on sails tax

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multi-million-dollar yacht by mooring her in Newport, R.I

 

[Toro]

If tax praising liberals dodge low 6.25% taxes, how do you expect to get a business or rich person to pay a 80% tax rate?

Sen. John Kerry skips town on sails tax

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multi-million-dollar yacht by mooring her in Newport, R.I

I don't think anyone here is saying we should have an 80% tax rate. Lower taxes and lower spending is usually better IMHO. But this is about the level of tax rates were there is a revenue decline.

 

[KissMy]

If tax praising liberals dodge low 6.25% taxes, how do you expect to get a business or rich person to pay a 80% tax rate?

Sen. John Kerry skips town on sails tax

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multi-million-dollar yacht by mooring her in Newport, R.I

I don't think anyone here is saying we should have an 80% tax rate. Lower taxes and lower spending is usually better IMHO. But this is about the level of tax rates were there is a revenue decline.

By John Kerry dodging that small 6% tax he saved $438k on just a sale boat purchase. That is enough to employ 8 people at $55k just to figure out how to save 6% on a boat.

Can you imagine the army of people Oprah Winfrey could employ just to keep the tax man away with 80% of her $315 million annual income?

The average military soldier makes $15,600 a year. Oprah could hire an army of 16,154 soldiers to keep the tax man away from the $252 million of taxes she would have to pay every year.

This is why governments choose to print money instead if fighting the rich.

 

[CrusaderFrank]

Well, remember this is from a school of economics that credits FDR with the economic growth that occurred immediately after the Fed stopped strangling the US economy to death

 

[expat_panama]

...have to not only quantify the taxation rates implied by "suppressing the market price of labour by dictating wages", but also quantify the resultant implied revenue that results if we move "productivity away from the labourer to the government"...

Say you're a doctor and a doctor is worth $500,000. If the government taxes you at 90% or the government has socialized medicine and will not pay you more than $50,000 a year (tax free!) the effects are the same.

The model works with rate/revenue changes, so we need to say the rate change is say, 10% to 90%. If the Doctor quits his practice or moves then revenue falls to zero and we say we're on the right side of the Laffer curve. Easy to quantify. Now lets say we have a government paying $50,000 that can not only set the labor price but also prevent either leaving or finding other work. We have no serious way to compute the changes with implied tax rates and implied revenue.

 

[Toro]

...have to not only quantify the taxation rates implied by "suppressing the market price of labour by dictating wages", but also quantify the resultant implied revenue that results if we move "productivity away from the labourer to the government"...

Say you're a doctor and a doctor is worth $500,000. If the government taxes you at 90% or the government has socialized medicine and will not pay you more than $50,000 a year (tax free!) the effects are the same.

The model works with rate/revenue changes, so we need to say the rate change is say, 10% to 90%. If the Doctor quits his practice or moves then revenue falls to zero and we say we're on the right side of the Laffer curve. Easy to quantify. Now lets say we have a government paying $50,000 that can not only set the labor price but also prevent either leaving or finding other work. We have no serious way to compute the changes with implied tax rates and implied revenue.

The Laffer Curve measures the absolute levels of government income as well as marginal changes along the curve The Laffer Curve in the example says that the amount of tax revenue is the same at 10% as it is at 90%. To extrapolate, if the total income for doctors in an economy is $90 when the tax rate is 10%, the equivalent tax revenues at a 90% rate means income of $10, an $80 decline. In a communist society, where the government captured 80%-90% of the economic activity, the differences in GDP were not as great as the Laffer Curve implies. The GDP of East Germany was a third to half that of West Germany, and approximated the levels of poorer countries in Western Europe such as Portugal, Spain and Greece.

 

[expat_panama]

...In a communist society, where the government captured 80%-90% of the economic activity, the differences in GDP were not as great as the Laffer Curve implies. The GDP of East Germany was a third to half that of West Germany, and approximated the levels of poorer countries in Western Europe such as Portugal, Spain and Greece.

We can take actual historic values for revenue and rates for US taxes and plot a Laffer curve. Numbers for the USSR would have to be assumed/extrapolated/implied/estimated in a way only NBER would accept.

 

[Quantum Windbag]

...Please show evidence of causality that we are on the right side of the Laffer Curve...

We need to be talking about the same thing. The Laffer model points out that no revenue is raised by either zero tax rates or 100% rates, and that an optimum exists somewhere between:

If we don't accept the Laffer model then we don't believe there's a causal affect. If we do accept the model than we decide that rate changes affect revenue, and that the direction of a change in revenue after a major change in tax rates is all that's needed to show where we are. I'm willing to work with you on checking together how the model corresponds to historical fact.

There are a few flaws with the theory. First, communist governments took everything and generated more than zero. I think it's pretty fair to say that the commies are on the right side of the curve. However, revenue isn't zero either. Second, there is no reason to assume the curve is symmetric. Finally, it assumes that productivity and work are a function only of tax rates. This isn't true.

The argument that I have isn't that there is no Laffer Curve of some affect. There is. What I argue is that many on the right assume that always cutting taxes raises revenues and always raising revenues won't increase revenues, and that there is zero evidence of this. As I linked above, Republican economists don't believe it either. But the rank and file believe it with a religious intensity.

I think you have a misconception about communists and taxes. Communists do not tax all income, if they did no one would be able to buy anything, including food. While I agree that the Laffer Curve is probably flawed, pointing to countries that call themselves communist as proof of that flaw is itself flawed.

 

[Quantum Windbag]

...There are a few flaws with the theory. First, communist governments took everything and generated more than zero...

Models don't have 'flaws' they have limits.

Semantics

Communists don't pay taxes so the Laffer model doesn't apply.

I see what you are getting at but it contradicts your argument. I will post something later demonstrating why.

However, it applies. Whether it is in taxation or extracting value by suppressing the market price of labour by dictating wages, both are a transfer of labour productivity away from the labourer to the government and theoretically should have the same affect on incentives.

They do.

Communist countries always under perform in productivity viv a vis non communist ones.

 

[Toro]

Models don't have 'flaws' they have limits.

Semantics

Communists don't pay taxes so the Laffer model doesn't apply.

I see what you are getting at but it contradicts your argument. I will post something later demonstrating why.

However, it applies. Whether it is in taxation or extracting value by suppressing the market price of labour by dictating wages, both are a transfer of labour productivity away from the labourer to the government and theoretically should have the same affect on incentives.

They do.

Communist countries always under perform in productivity viv a vis non communist ones.

I know. Communist economies suck. But they don't bring in near zero revenues either.

 

[editec]

Tax laws ought to be forged based on need, not ideology.

Every one of us wants the lowst possible taxes and effective -- but not interferring -- governments.

Not one of us, not even the people who pay no FEDERAL income taxes, have any of those things.

The vast majority of us are not getting remotely what we are paying taxes for.

 

[Quantum Windbag]

Semantics

I see what you are getting at but it contradicts your argument. I will post something later demonstrating why.

However, it applies. Whether it is in taxation or extracting value by suppressing the market price of labour by dictating wages, both are a transfer of labour productivity away from the labourer to the government and theoretically should have the same affect on incentives.

They do.

Communist countries always under perform in productivity viv a vis non communist ones.

I know. Communist economies suck. But they don't bring in near zero revenues either.

Nor do they have 100% taxation.