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Originally posted by Mmmm, Burger (C.J.)
No. I explained this last week. Laffer's curve hypothesized that there is a tax rate, t*, at which revenue is maximized. If the current tax rate is greater than t*, reducing the tax rate will increase revenue, through increased production/earning.
It is applicable regardless of whether there is a deficit--it goes only to revenue, and not to spending.
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The key statement you make that refutes your whole point is "regardless of whether or not there is a deficit". Stating that the deficit does not factor in is making a very strong statement on the deficit. Most economists argue that the deficit should have a strong influence on the equation where Laffer says it does not. In other words, he strongly discounts the effect of crowding out, which is where most economists have a strong disagreement with him.
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Originally posted by Mmmm, Burger (C.J.) You are ascribing far more to Laffer than he himself claimed. "Growing out of the deficit" is a handy mantra that invokes principles of supply-side economics and the laffer curve, but is not, strictly speaking, necessarily supported by either of those approaches.
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Wrong. Laffer proposed this idea to Reagans people. At the time the country was running huge deficits. Laffer argued that we were above the t* and therefore cutting taxes would increase revenue. Other economists argued that the deficit was already crowding out growth and that a tax cut would further increase the deficit, crowding out even more investment, and therefor would not produce the growth needed to balance the budget. The other economists argued that by balancing the budget with tax increases, we would reduce the crowding out caused by the deficit and thereby increase growth. Laffer said that the crowding out was not that big of a deal and would not effect his curve.
His tax cut would cause growth that would increase revenue and therefore would eventually balance the budget which would eventually reduce the deficit. Thereby we would grow our way out of the deficit. That was the basis of his argument.
