The Woodhill Curve

[skookerasbil]

RealClearMarkets - Hate the Laffer Curve? Try Woodhill's

LOL......and the liberals hated "The Laffer Curve". This is even more bad news for people who think you can grow and economy with government spending. Actually..........this "Woodhill Curve" soundly decimates such concepts.

From the article..............


The principle behind the Woodhill Curve can be stated as follows: "There are an infinite number of combinations of "tax take" (Federal revenues as a percent of GDP) and average annual real economic growth rate that will yield the same present value (PV) of future Federal revenues." While the shape of the Laffer Curve is a matter for speculation, it is possible to quantify the shape of the Woodhill Curve. As it happens, the results of the calculations are very bad news for liberal tax hikers, but very good news for supply-side tax cutters.


Liberals (although probably not Professor Laffer himself) would argue that, in terms of the Laffer Curve, a tax cut only "pays for itself" if the revenues produced by that tax stay constant or rise in the first year. Very few tax cuts can meet this test, and it would never be possible to eliminate any tax completely if this were the criterion.

Under the Woodhill Curve, a tax cut "pays for itself" if the calculated PVIH of Federal revenues after the tax cut is $387.8 trillion or higher. Completely repealing a tax is justified if doing so stimulates enough extra economic growth to compensate for the reduced tax take. As a corollary, tax increases are financially useless if they do not increase the PVIH of Federal revenues.



Liberals want a permanently larger government, and want to raise taxes to pay for it. So, let's look at the point on the Woodhill Curve where the tax take is 22.3%, or 3.0 percentage points higher than the CBO's AFS. The corresponding GDP growth rate for that point is 1.99%. In other words, if this enormous tax increase (by far the largest in U.S. history) reduced long term GDP growth by just 0.12 percentage points, it would leave the government financially no better off (and the rest of the country considerably worse off).









Compelling stuff.............basically lays out in simple terms how laughable liberal economic theory is = more bad news for the k00ks who are still cheering Trickle-Up Poverty Economics while the GDP and empolyment ranks continue to tank!!

 

[loosecannon]

This theorizing is completely irrelevant.

If tax rates were the only thing that determined revenues this would be progress.

But they aren't. They are only one of millions of things that determine revenues and not a very strong driver at that.

Besides, since when was it the goal of republicans to increase taxation revenues? Isn't that a tax hike?

 

[uscitizen]

Economics is still almost a religion.
Damned impossible to prove anything.
But the faithful keep tossing money in the offering plate.

 

[william the wie]

This does sound like a good start but it still ignores monetary policy.

 

[The Rabbi]

This theorizing is completely irrelevant.

If tax rates were the only thing that determined revenues this would be progress.

But they aren't. They are only one of millions of things that determine revenues and not a very strong driver at that.

Besides, since when was it the goal of republicans to increase taxation revenues? Isn't that a tax hike?

Loosebowel just crapped another one.
No, tax revenue is not tax rate. Learn the difference.

The OP is probably right. Increase taxes and you decrease economic activity. IOW, raise the price of something (in this case economic transactions) and you get fewer of them.

 

[william the wie]

There is a trade off of useful government services vs. taxes but any taxes that reduce the income and wealth of the poorest of us is a tax that should not exist.

 

[zzzz]

Our government exists not only to protect us and our rights but to serve us. To achieve this duty they need to tax someone to raise funds to pay for our needs. Therefore taxes are a necessary evil.

That said, this talk of curve this, curve that is all gobbledygook. Common sense dictates that if you take more money from a person in taxes they will spend less! Of course the government wants to take as much as they can without reducing revenues and this is the tightrope they walk. Take too much and revenues drop, take too less and reduce services or print more money. The economists got us in trouble with all their derivatives in the first place where common sense could have prevented this mess we were in. Maybe they should require a class in common sense for each college graduate because there seems to be a lack of it in this country anymore.