People Actually Believe The Laffer Curve

[discocrisco01]

I was reading the local paper and I read that the http://letters.ocregister.com/2011/07/26/u-s-debt-ideology-trumps-practicality/">letter in the local paper

"If the government takes all your money, how much revenue does the government receive? Correct, the answer is again zero. Does the government take in money now? Of course the answer is yes. Thus there is a curve with at least one maximum in it. We may argue about where that maximum is, but I would like to claim with someone paying over 50 percent is on the wrong side of the maximum and the more you raise his taxes, the smaller the government receipts. Don’t confuse the tax rate with the revenue received by the government.

In my case, I am in the 28 percent federal bracket, the 9 percent state bracket, and pay 15 percent in Social Security and Medicare taxes (our flat tax rate, as has been just shown by President Obama.) This is a discouraging 52 percent.

I left a high-paying aerospace job because the high stress was not worth paying the exorbitant taxes. When the tax rate was 90 percent, just about everything was deductible such as my father’s insulin and medical bills. We now have a 7.5 percent exclusion on our medical deductions. I agree we must occasionally raise taxes.

However, which Democrat, when getting his hands on the money, will ever let them go down again? I personally would agree to a flat 2 percent tax increase on everyone. That would let the 50 percent of the people that pay no taxes get some skin in the game. As for a tax raise on the rich – all it will do is decrease the revenue as concluded by Dr. Laffer.

[denverbill]

1. No, freepers still claim Bush's tax cuts actually INCREASED government revenue.

They are really beyond hopeless.

I'm actually surprised they aren't suggesting tax cuts as a means of fixing the deficit. Well, come to think of it, they are suggesting cutting corporate taxes.

[Cresent City Kid]

18. They also think the cuts created jobs

I'd ask them if cutting corporate spending by reducing CEO pay would create jobs, but the question is too convoluted.

[patrice]

2. How many varieties of taxers are there? That one's a flat taxer, right? nt

[Scruffy1]

3. And they always figure taxes wrong. No engineer for sure.

I've seen these letters printed coast to coast. They always take the top rate and multiply times total income. The effective rate is usually under 10% federal.

[CJCRANE]

4. It's like the old canard that only the rich can be job creators.

The more spare cash the middle class has the more stuff and services they can buy.

So when the middles class has a high disposable income you can create your own job, because people are more likely to pay you (for whatever niche service you can provide, whether it's homemade donuts, pet rocks, repairing widgets or whatever).

But if people don't have money in their pockets, that means there's no demand. In that case there's nothing the rich can do to create jobs (and no point in them doing it).

[Nye Bevan]

5. There is indeed a Laffer curve. The debate is about where the maximum revenue point is.

At a 0% tax rate there is obviously no tax revenue.
At a 10% tax rate there is some tax revenue.
At a 60% tax rate there is a lot of tax revenue.
If the tax rate is 100%, however, the revenue will be less than if the tax rate was 60% because most people will not work effectively for free.

So the graph of revenues versus tax rates starts at zero, goes up, and then goes back down again. This is the Laffer curve. The debate is over what tax rate provides the maximum revenue. I think most economists would acknowledge that reversing the Bush tax cuts for high earners (i.e. raising the maximum rate from 36% to 39.6%) would *increase* revenues (in other words, both the 36% and 39.6% points of the Laffer curve are to the left of the maximum revenue point, contrary to the opinion expressed in the letter that you cite).

[reformist2]

7. Chris Matthews said tonight the richest Americans pay taxes at a 19% rate.

Not even Republicans can be so shameless as to argue that revenue will go up if they cut taxes any more.

Or can they???

[Nye Bevan]

8. Is any serious Republican arguing that? Because if so, they are wrong (nt)

[AnnaLee]

6. Well, it does have two "reasonable" data points

the one at zero revenue and the other at zero revenue. But even these are not from real data. The part in the middle? I think a better shape might be the outline of an elephant. Maybe the trunk and tail could be up in a narrow spike. Perhaps a loop at the ears. What's the matter? Don't you like things imaginary?

Even if the curve were correct, no one ever knows where on the curve one currently finds oneself. How can one know that the best direction to the promised land is down from here?

Silly people who cite this curve as though it was something derived from anything real.

[Nye Bevan]

9. The zero revenue at 0% tax is most certainly a real data point.

Because zero percent of anything is zero.

At a 100% tax rate, there would still be *some* revenue- some people would work because they enjoy it, some people would want to keep their jobs in the hope that rates would fall again. But I think it's fair to say that a 100% tax rate would provide less revenue than a 70% tax rate.

[jberryhill]

10. "no one ever knows where on the curve one currently finds oneself"

...and that's the point.

The boundary conditions are trivially true, but amid all of the "Laffer Curve" shenanigans in the past, nobody has ever demonstrated either an empirical or theoretical basis for declaring any ordinate position between 0 or 100 to be a maximum.

They explain the trivial part, and then say, "That's why taxes need to be lower".

Coming from an engineering background, I always just assumed it to be obvious that handwaving is not a serious approach to optimizing anything.

[AnnaLee]

12. Did you ever read Mike Kimel's book "Presimetrics"?

Check it out.

[Cool Logic]

11. Historical records would seem to indicate that revenue from income taxes

increases no matter what the tax rates are.

They dropped after 9-11 and they have dropped since 2008.

[AnnaLee]

14. If those are straight revenue dollars

you would expect them to rise with time from population increase, GDP increase, wage/inflation increase, etc.

[Search and Destroy]

13. Conservatives themselves misinterpret the laffer curve

They think it means you should cut taxes until there are no taxes. It actually says the exact opposite, that cutting taxes too much is just as harmful as raising taxes too much. And instead, there's a "sweet spot" where both government revenue and personal income will go up.

[TheKentuckian]

15. Exactly

[Courtesy Flush]

16. Does he really think he pays 52% in taxes?

My wife and I make a pretty good living once you combine our incomes. We're in the 28% bracket, but after deductions (very few), we pay much less than 8%.

From Wikipedia:

Taxes are most often levied as a percentage, called the tax rate. An important distinction when talking about tax rates is to distinguish between the marginal rate and the effective (average) rate. The effective rate is the total tax paid divided by the total amount the tax is paid on, while the marginal rate is the rate paid on the next dollar of income earned. For example, if income is taxed on a formula of 5% from $0 up to $50,000, 10% from $50,000 to $100,000, and 15% over $100,000, a taxpayer with income of $175,000 would pay a total of $18,750 in taxes.
Tax calculation
(0.05*50,000) + (0.10*50,000) + (0.15*75,000) = 18,750
The "effective rate" would be 10.7%:
18,750/175,000 = 0.107
The "marginal rate" would be 15%.

[katnapped]

19. Progressive taxation is EVUL

And socialist and communist and stuff :sarcasm:

[The Hitman]

17. Any good source of a laffer curve takedown?

I got this assclown who brings it up every time we talk about economics. I was a history major. Sigh.