Where does the Laffer Curve Bend?

[KissMy]

Where does the Laffer Curve Bend?

At what tax rate do you stop striving your hardest to make the most money you can?

 

[Baruch Menachem]

It helps to think of it as an inverted marginal revenue curve. The bottom of a marginal revenue curve is where marginal revenues meet marginal costs. Where the gains from doing something are less than the costs of doing something, people stop doing it.

 

[Toro]

It never goes to zero.

If it went to zero, then communist societies would have zero revenue, which of course they don't.

 

[Toro]

Paul Krugman explains - in economics - why the rate is very high.

The Laffer Test (Somewhat Wonkish) - Paul Krugman Blog - NYTimes.com

 

[Baruch Menachem]

The cost of being beaten, killed, or worse is part of the marginal cost factored in.

But slave societies always have very low productivity.

 

[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 worker is paying well over 70% of their earnings out to someone who spends it for them & they don't even realize it. The Gold barter trade system is looking very very good to me!

 

[zzzz]

By bending I surmise you mean when does the curve start to decline. This percentage is everchanging due to cost of living rise and fall, wage increases, employment and other factors and therefore is purely a guessing game. And I beleive that in reality a curve would not result but a rollercoaster type diagram would better illustrate the relationship between taxation and revenue. Of course quantifying a rollercoaster diagram is a lot more difficult than a simple curve.

 

[KissMy]

By bending I surmise you mean when does the curve start to decline. This percentage is everchanging due to cost of living rise and fall, wage increases, employment and other factors and therefore is purely a guessing game. And I beleive that in reality a curve would not result but a rollercoaster type diagram would better illustrate the relationship between taxation and revenue. Of course quantifying a rollercoaster diagram is a lot more difficult than a simple curve.

I mean what percent of taxation will cause you personally to produce less tax revenue. By taking a poll of individuals we can get some idea of where the curve really starts to decline. Then we can figure out at what point the US debt, unfunded liabilities & interest surpasses total taxable revenue the government can squeeze out of the people. Then you will truly know the dollar & the country is fucked.

 

[loosecannon]

I mean what percent of taxation will cause you personally to produce less tax revenue. By taking a poll of individuals we can get some idea of where the curve really starts to decline. Then we can figure out at what point the US debt, unfunded liabilities & interest surpasses total taxable revenue the government can squeeze out of the people. Then you will truly know the dollar & the country is fucked.

The Laffer curve, Armey curve and your survey generated results are all hypotheticals. For example in the real world if the economy is growing at a rate of 10%/anum the results will be dramatically different than if the economy is contracting at 10%/anum.

Likewise is YOUR economy contracting or expanding?

And then there is always that factor wherein just because you WANT to work harder and make more money can you?

And how does anybody know that tax rates are the sole causation of tax revenues in any given budget cycle? (they aren't)

These type of hypotheticals have no relationship with the real world. They only have relationships with imaginary worlds.

They are instructive but essentially only as abstracts.

 

[KissMy]

I mean what percent of taxation will cause you personally to produce less tax revenue. By taking a poll of individuals we can get some idea of where the curve really starts to decline. Then we can figure out at what point the US debt, unfunded liabilities & interest surpasses total taxable revenue the government can squeeze out of the people. Then you will truly know the dollar & the country is fucked.

The Laffer curve, Armey curve and your survey generated results are all hypotheticals. For example in the real world if the economy is growing at a rate of 10%/anum the results will be dramatically different than if the economy is contracting at 10%/anum.

Likewise is YOUR economy contracting or expanding?

And then there is always that factor wherein just because you WANT to work harder and make more money can you?

And how does anybody know that tax rates are the sole causation of tax revenues in any given budget cycle? (they aren't)

These type of hypotheticals have no relationship with the real world. They only have relationships with imaginary worlds.

They are instructive but essentially only as abstracts.

Taxes & credit are the main factors governing expansion & contraction of the economy. They are also the main factors governing how much money you can make & taxes you pay.

Ask Japan just how imaginary they think the Laffer Curve is.

 

[blu]

laffer is a joke:

[ame=http://www.youtube.com/watch?v=IU6PamCQ6zw]YouTube - Peter Schiff - (Former Ron Paul Economic Advisor) Versus Art Laffer (Former Ronald McReagan Economic Advisor) - August 28, 2006 - Peter Schiff [Pimp][/ame]

 

[PoliticalChic]

Where does the Laffer Curve Bend?

At what tax rate do you stop striving your hardest to make the most money you can?

One study of the United States between 1959 and 1991 placed the revenue-maximizing tax rate (the point at which another marginal tax rate increase would decrease tax revenue) between 32.67% and 35.21% Hsing, Y. (1996), "Estimating the Laffer curve and policy implications", Journal of Socio-Economics 25 (3): 395–401, doi:10.1016/S1053-5357(96)90013-X, ScienceDirect - Journal of Socio-Economics : Estimating the laffer curve and policy implications*1, retrieved 2009-04-21

 

[boedicca]

The other important aspect is that the Tax Policy needs to incorporate All Taxes. Given the heavy burdens of State & Local Income, Sales, Property, Excise as well as Federal SS, Medicare and excise taxes, we already have a big burden before any Federal Income tax is added.

The economy has demonstrated again and again that the maximum Federal receipts as a % of GDP is 18%-20%. Trying to increase the Federal Takings above that level just slows down economic growth, resulting in even less taxes being paid. Obama's ignorant efforts to increase the size of government to 30% of GDP translate into huge deficit spending - taxes can never be increased to cover it - and an Endless Bummer.

 

[Big Fitz]

The other important aspect is that the Tax Policy needs to incorporate All Taxes. Given the heavy burdens of State & Local Income, Sales, Property, Excise as well as Federal SS, Medicare and excise taxes, we already have a big burden before any Federal Income tax is added.

EXACTLY!!!!!! Income tax is only one part of this equation which most forget because it's the most visible tax to individuals.

 

[loosecannon]

Taxes & credit are the main factors governing expansion & contraction of the economy.

if that was even modestly true why does the Federal Reserve focus almost exclusively on interest rate targets to manage the growth of, or expansion and contraction of, the economy?

There are dozens of factors (if not thousands or millions) that effect the growth of the economy with taxation just being one of many, and not the most significant of the bunch.

 

[loosecannon]

Ask Japan just how imaginary they think the Laffer Curve is.

I am sure they would say nearly irrelevant since Japan spent both of the lost decades trying to counter deflation with low interest rates and the carry trade.

 

[loosecannon]

The other important aspect is that the Tax Policy needs to incorporate All Taxes. Given the heavy burdens of State & Local Income, Sales, Property, Excise as well as Federal SS, Medicare and excise taxes, we already have a big burden before any Federal Income tax is added.

EXACTLY!!!!!! Income tax is only one part of this equation which most forget because it's the most visible tax to individuals.

it is certainly a good point but it still assumes that taxation rates are the main event driving both taxes and revenues.

They aren't. If the economy was growing as fast as China's economy is today 35% or 50% taxation may not slow it down.

But if the economy is crawling along at a steady 3.5% GDP growth/year or worse yet a 1.1% negative GDP growth......well let's put it this way: even if you stimulated the economy of the 1930s with negative taxation that wouldn't necessarily be enough to break the deflationary trap that seized our economy.

What did work was the full employment and the high savings rates of total war.

The "war is good for the economy" folks would surely consider all this emphasis on taxation foolery.

 

[KissMy]

Taxes & credit are the main factors governing expansion & contraction of the economy.

if that was even modestly true why does the Federal Reserve focus almost exclusively on interest rate targets to manage the growth of, or expansion and contraction of, the economy?

There are dozens of factors (if not thousands or millions) that effect the growth of the economy with taxation just being one of many, and not the most significant of the bunch.

There are many things that effect economic growth but they are all weighted differently. The most important are Taxes & Credit quality/access. If you have a 100% tax there will be zero economic activity. A 100% interest rate will not equal zero economic activity. There are people who will barrow money regardless of interest rates because they never intend to pay it back. So if you have no credit quality standards allowing complete access to credit there will be a line of people coming in getting enormous loans & laughing behind the lenders back about how they will never make a payment & they are going to blow all this money on hookers & fast cars. Then these same people will come back & get another enormous loan & repeat. The economic activity will rise rapidly as the value of the dollar drops.

 

[loosecannon]

There are many things that effect economic growth but they are all weighted differently. The most important are Taxes & Credit quality/access. If you have a 100% tax there will be zero economic activity.

100% wrong. All taxes get spent and therefore contribute to the same economy.

You clearly have a 2 dimensional grasp of a 12 dimensional economy.

The Laffer curve has very little to do with the growth of the economy btw. It merely measures tax revenues generated under different tax rates.

What you speak of is another animal entirely: a optimum tax rate curve that co-relates to maximum personal income or gdp.

But again taxes are only one driver of GDP, income or tax revenues.

The Federal Reserve is the federal agency tasked with the specific job of regulating GDP growth and they seldom even bother to consider taxation. Because they consider taxation a miniscule driver of Gdp.

they consider interest rates to be the primary driver of GDP growth/contraction. And lending and money supply, money supply velocity etc.

You have an extremely remedial grasp of economics.

just saying, not trying to bust your chops.

 

[KissMy]

There are many things that effect economic growth but they are all weighted differently. The most important are Taxes & Credit quality/access. If you have a 100% tax there will be zero economic activity.

100% wrong. All taxes get spent and therefore contribute to the same economy.

You clearly have a 2 dimensional grasp of a 12 dimensional economy.

The Laffer curve has very little to do with the growth of the economy btw. It merely measures tax revenues generated under different tax rates.

What you speak of is another animal entirely: a optimum tax rate curve that co-relates to maximum personal income or gdp.

But again taxes are only one driver of GDP, income or tax revenues.

The Federal Reserve is the federal agency tasked with the specific job of regulating GDP growth and they seldom even bother to consider taxation. Because they consider taxation a miniscule driver of Gdp.

they consider interest rates to be the primary driver of GDP growth/contraction. And lending and money supply, money supply velocity etc.

You have an extremely remedial grasp of economics.

just saying, not trying to bust your chops.

You have no concept of economy.

If there is a 100% tax rate there will be no taxes to spend or contribute to the economy because people will not earn or pay taxes if they get nothing in return. They will forage for wild berries or steal to live but government will never collect a dime from them. The only way to get people to work will be to beat them like a slave if they don't. All reward is lost & only punishment remains. Government will not have revenue to hire soldiers to beat the slaves & soldiers who have to pay 100% tax will not beat slaves. There will be no economic activity.

As the subprime lending standards have proven, people with no concept of interest rates, economy, risk or personal accountability will barrow money if you let them & there are no consequences for failing to repay the loan. If there are no lending standards the fed just hands out money for signing loan documents. Interest rates are in no way as powerful as credit standards. If they were the zero percent interest over the past 2 years would have skyrocked the economy & inflation. The fact is that credit lending standards are so tight that loans are not being made.

Like I said before who gives a shit about the many nuance facets of economy if the main ones are out of whack.