Posting Towards Gomorrah

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
Although the data on the correlation between tax cuts and increased tax revenues accross numerous countries and time periods is pretty compelling.

Cite? i can certainly imagine an overall correlation between tax rates and growth that show lower taxes correlated with higher growth, but has anyone empiricall demonstrated the laffer curve, and that we're on the downhill side of it?

[taxwonk]

Originally posted by Mmmm, Burger (C.J.)
If I misunderstood, then yes. But the reason that there was all that income and gains was because the supply side policies of reagan and bush set the stage for strong economic growth under clinton.

Or it could have been the economic cycle which flows on unaffected by the short term policies of any govenrmental policy.

[sgtclub]

Originally posted by Mmmm, Burger (C.J.)
Cite? i can certainly imagine an overall correlation between tax rates and growth that show lower taxes correlated with higher growth, but has anyone empiricall demonstrated the laffer curve, and that we're on the downhill side of it?

I remember seeing a study referenced in the WSJ several years back, I think with reference to Ireland and some of the Nordic countries, but you may be right, that might have been low taxes correlative to higher growth (rather than tax revenues).

[taxwonk]

Originally posted by Mmmm, Burger (C.J.)
Cite? i can certainly imagine an overall correlation between tax rates and growth that show lower taxes correlated with higher growth, but has anyone empiricall demonstrated the laffer curve, and that we're on the downhill side of it?

I don't have a cite handy, but I do recall reading that the Laffer curve was disproved by one of the Nobel laureates for economics in the last few years. If you care more than I do, you're welcome to research it.

[Mmmm, Burger (C.J.)]

Originally posted by sgtclub
I remember seeing a study referenced in the WSJ several years back, I think with reference to Ireland and some of the Nordic countries, but you may be right, that might have been low taxes correlative to higher growth (rather than tax revenues).

Given the tax rates in most nordic countries, it would not be surprising that cutting their tax rate would increase revenue and, ultimately growth.

The dispute over the laffer curve is not whether in theory it is right. It is. The dispute is over the shape of the curve and where its peak (or peaks) are that maximize revenue, and also whether the revenue maximizing position changes in a dynamic, rather than static, world.

Put differently, you 1) have to know which side of the curve you are on. Even laffer's curve itself acknowledges that lowering taxes can lower revenues for a sizable range of tax rates. and 2) the fact that revenues go up in the short run from, e.g., a capital gains tax cut, does not mean that in the long run revenue will be higher, any more than sales volume during a promotional period can be used to predict overall sales.

[sgtclub]

Originally posted by Mmmm, Burger (C.J.)

The dispute over the laffer curve is not whether in theory it is right. It is. The dispute is over the shape of the curve and where its peak (or peaks) are that maximize revenue, and also whether the revenue maximizing position changes in a dynamic, rather than static, world.

Put differently, you 1) have to know which side of the curve you are on. Even laffer's curve itself acknowledges that lowering taxes can lower revenues for a sizable range of tax rates. and 2) the fact that revenues go up in the short run from, e.g., a capital gains tax cut, does not mean that in the long run revenue will be higher, any more than sales volume during a promotional period can be used to predict overall sales.

Agreed, although Wonk seems to think it has been disproved. I do not believe that's the case.

Wonk - here's a cheat sheet for you http://en.wikipedia.org/wiki/Laffer_curve

[Gattigap]

Originally posted by sgtclub
Reagan didn't have an R controlled congress - he had to cut deals with Tip. Bush 43 has not excuse.

Actually, that's a moot point, because Reagan's proposed budgets contained more spending than the bills that Congress actually passed.

[Mmmm, Burger (C.J.)]

Originally posted by Gattigap
Actually, that's a moot point, because Reagan's proposed budgets contained more spending than the bills that Congress actually passed.

That's a mischaracterization of the article.

The article points out only that Reagan submitted budgets that projected lower spending on entitlements than actually came to pass, because he projected greater economic growth and lower unemployment--the "rosy scenario". Neither congress nor the president appropriates for entitlements; rather, they are authorized programs for which spending is mandatory. Nothing on that page shows whether Reagan proposed cuts in entitlements (which he generally did) or what congress did with those proposals (generaly reject them).

Where it's interesting is discretionary spending. Reagan dramatically shifted the patterns. He decreased most discretionary spending (or sought to), but massively increased defense spending. Proposed versus enacted would be much more telling in that area.

[Gattigap]

Originally posted by Mmmm, Burger (C.J.)
That's a mischaracterization of the article.

The article points out only that Reagan submitted budgets that projected lower spending on entitlements than actually came to pass, because he projected greater economic growth and lower unemployment--the "rosy scenario". Neither congress nor the president appropriates for entitlements; rather, they are authorized programs for which spending is mandatory. Nothing on that page shows whether Reagan proposed cuts in entitlements (which he generally did) or what congress did with those proposals (generaly reject them).

Where it's interesting is discretionary spending. Reagan dramatically shifted the patterns. He decreased most discretionary spending (or sought to), but massively increased defense spending. Proposed versus enacted would be much more telling in that area.

The article doesn't have a link to it for some reason, but I was focusing on the very end. "As reported on the previous page, the House Appropriations Committee conducted a study that compared Reagan's concrete proposals to what Congress actually passed, not what was spent afterwards. And it found that Reagan asked for $29.4 billion more than Congress passed."

[Mmmm, Burger (C.J.)]

Originally posted by Gattigap
The article doesn't have a link to it for some reason

Yeah, that gives me confidence. It wouldn't surprise me if that's an aggregate figure including all spending, defense included.

It also wouldn't surprise me if the figure counted increases but ignored decreases. I have no idea.

The fact of it is that it's hard to calculate actual speding proposals with respect to entitlements. Instead, one usually talks about projected outlays based on different program rules (e.g., increased versus decreased benefits). I don't think there are too many entitlements Reagan originally proposed to increase. But I'm open to correction.

[taxwonk]

Originally posted by sgtclub
Agreed, although Wonk seems to think it has been disproved. I do not believe that's the case.

Wonk - here's a cheat sheet for you http://en.wikipedia.org/wiki/Laffer_curve

Thank you for the handy reference:

The satire illustrates the major fallacy commonly committed with the Laffer curve, namely the assumption that the middle is smooth and orderly merely because the two extreme endpoints are well-defined. A realistic tax curve would most certainly not resemble a smooth parabola or even any other simple function, but rather a very complex curve with many peaks, valleys, and multiple maxima. Inside the middle, a wide range of various economic factors confound any simplistic attempt at this interpolation.

As a pedagogical tool, a Laffer curve helps illustrate a specific application of the law of diminishing returns, where the inhibitory cost of taxes may eventually outweigh the increased rate of taxation, and thus led to a counterintuitive lower realization of tax revenue. However the Laffer curve should not be taken as a literal model for a tax revenue curve, especially in debates between relatively moderate amounts of taxation. It is in this context that the Laffer curve is often abused, taken as a serious model for tax revenue when it has little to no predictive value in debates between intermediary rates of taxation

Estimates of the effectiveness of the Laffer curve
In 2005, the Congressional Budget Office released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates" [2] that casts doubt on the idea that tax cuts ultimately improve the government's fiscal situation. Unlike earlier research, the CBO paper estimates the budgetary impact of possible macroeconomic effects of tax policies, i.e., it attempts to account for how reductions in individual income tax rates might affect the overall future growth of the economy, and therefore influence future government tax revenues; and ultimately, impact deficits or surpluses. The paper's author forecasts the effects using various assumptions (e.g., people's foresight, the mobility of capital, and the ways in which the federal government might make up for a lower percentage revenue). Even in the paper's most generous estimated growth scenario, only 28% of the projected lower tax revenue would be recouped over a 10-year period after a 10% across-the-board reduction in all individual income tax rates. The paper points out that these projected shortfalls in revenue would have to be made up by federal borrowing: the paper estimates that the federal government would pay an extra $200 billion in interest over the decade covered by his analysis. To support these calculations, the paper assumes that the 10% reduction in individual tax rates would only result in a 1% increase in gross national product, a figure some economists consider too low for current marginal tax rates in the United States. [3][4] The paper appears to focus on Federal government revenue only and does not look at the total public sector revenue (i.e., it does not include increases in local and state government revenue).

You've been very helpful

[SlaveNoMore]

On days like today, I am pleasantly reminded why I switched to the client side.

Now get back to billing, folks.

[Spanky]

Originally posted by Tyrone Slothrop
So why fight it?

So in essence you are saying that because I thought that parody of the homosexual lifestyle made it sound pretty fun, I must be a homosexual myself.

Yes Ty, you are right. I am actually a homosexual. You saw right through me. I was in denial. How could I possibly think that gay men are having fun unless I am actually gay myself. Thanks for getting me to accept reality and putting me in touch with my true inner self.

[I never took you for one of those moronic idiots that would label someone as being gay just because they said something complimentary about the homosexual lifestyle. In addition, I did not think you were one of those moronic idiots that actually thinks it’s funny (or derives some perverse pleasure) out of trying to get someone to admit they are Gay because you think the person in question would find it embarrassing or insulting. I guess I was wrong.]

[sgtclub]

Originally posted by taxwonk
Thank you for the handy reference:





You've been very helpful

You only quoted the critique, but nice try.

[taxwonk]

Originally posted by sgtclub
You only quoted the critique, but nice try.

The critique was two-thirds of the entry. Also, the one-third that was not a critique noted that it appeared the curve was not a true curve and was only a reliable predictor at the extreme margins.

I could say the same for any number of things. For instance, if I draw a random parabola and claim it establishes cooking preferences for ribeye steaks, I will be incredibly accurate in predicting that almost noone likes their steak frozen and raw or cooked to a smoldering hunk of carbon. It's only in the middle of the curve that my predictive ability goes down to near zero.

Read it again, Club.