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Oncle Boris
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Once in a brown moon
Aug 2001
time: 00:32
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quote:
Originally posted by Kidicious
Tax cuts always create economic growth. No one argues that. |
I am quite economically illiterate, but let me question that.
Surely there must be a sweet spot where some taxes could be beneficial to economic groth. For example, socialist states who don't tax poorer citizens might encourage foreign invsestments at the expense of consumer goods purchases, because the rich don't need that extra money anyway.
This could be the case of Canada, because they spend a good deal of their savings on US financial markets.
I could also argue that welfare states' employees tend to have salaries higher than they would get in the private sector for a similar work (this does not hold true for higher ranking positions, though). Also, in some countries with an advanced welfare program, working at the minimal wage or slightly better is not worth the trouble.
So some people would not work at all, or others would work at lower wages, thus spending a higher %-age of their revenues on lodging and food.
But then again I am assuming that when you say "tax cuts", you also imply not getting a deficit (thus the need to dismiss public workers). Obviously, tax cuts without regards to spendings would result in artificial growth.
I am not an expert at all, so please correct me if I am wrong.
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Ned
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of Aptos, CA
Oct 1999
time: 21:32
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quote:
Originally posted by Kidicious
Obviously, is right. The spending is what creates the growth, not the taxes. So you are right. |
Just to make it simple, if one has a tax rate of zero, one gets no revenue. If the tax rate is 100%, one gets no revenue because the private economy is dead. As the rates move from the extremes, up from zero or down from 100%, revenues increase. There is a point where the tax revenues are maximized between the two extremes.
This point has NOTHING to do with spending, although, of course, taxing without spending acts to retard the economy by itself.
Now the reason for this is that tax rates (as opposed to tax revenues) influence private behavior. As the rates change, the behavior changes. But the effects of the behavior change are not instantaneous. Some effects might not be seen for years, just as the changes in the Fed's interest rates have effects many quarters out. So, a drop in the rates when taxes are too "high" causes an immediate drop in revenues followed by behavior changes that bring revenues back up.
However, all tax rate decreases boost the economy so that over time the tax revenues are restored to their former level.
It must be interesting to see which of the two effects we saw with Kennedy and Reagan? I think with the Kennedy cuts, we clearly saw the Laffer effect in action as revenues as a percentage of the economy went UP within a short time after the tax rate cuts.
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Kidicious
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Diety of Kidiverse
Mar 2003
time: 21:32
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quote:
Originally posted by Ned
Just to make it simple, if one has a tax rate of zero, one gets no revenue. If the tax rate is 100%, one gets no revenue because the private economy is dead. As the rates move from the extremes, up from zero or down from 100%, revenues increase. There is a point where the tax revenues are maximized between the two extremes.
This point has NOTHING to do with spending, although, of course, taxing without spending acts to retard the economy by itself.
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Right.
quote:
Originally posted by Ned
Now the reason for this is that tax rates (as opposed to tax revenues) influence private behavior. As the rates change, the behavior changes. But the effects of the behavior change are not instantaneous. Some effects might not be seen for years, just as the changes in the Fed's interest rates have effects many quarters out. So, a drop in the rates when taxes are too "high" causes an immediate drop in revenues followed by behavior changes that bring revenues back up.
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No. Laffer assumed that people would immediately take advantage of the lower tax rates and maximize their imcome. Pretty much all economists believe that people do that. Unfortunately, many posters here do not.
quote:
Originally posted by Ned
It must be interesting to see which of the two effects we saw with Kennedy and Reagan? I think with the Kennedy cuts, we clearly saw the Laffer effect in action as revenues as a percentage of the economy went UP within a short time after the tax rate cuts. |
Just because revenues went up, does not mean that they did so primarily because people were working and investing more. Tax cuts also give people more money to spend on consumer goods which creates economic growth. The Kennedy tax cuts were designed to boost consumer spending, because they cut more taxes for those with relatively less income. The supply-siders want a more flat tax to encourage more saving. The two are really opposed.
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Kidicious
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Diety of Kidiverse
Mar 2003
time: 21:32
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quote:
Originally posted by Ned
Kid, I would like you to link to an article written by Laffer and not by one of his critics to support your claims. What you say simply does not make any sense because human behavior is involved. It takes time to switch activities from tax shelters to more productive uses. The switch cannot be instantaneous and I really doubt that Laffer ever said what contend he said. |
When you look at the Laffer Curve you don't see any time factor, so why are you reading that factor into it?
edit: read the quote from the article that shawnmmcc posted on page 2.
Last edited by Kidicious on 14-12-2003 at 03:16
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Adam Smith
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Maryland, USA
Jan 1970
time: 00:32
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quote:
Originally posted by Ned
Just to make it simple, if one has a tax rate of zero, one gets no revenue. If the tax rate is 100%, one gets no revenue because the private economy is dead. As the rates move from the extremes, up from zero or down from 100%, revenues increase. There is a point where the tax revenues are maximized between the two extremes. |
This is the basic proof that the Laffer Curve exists. Laffer went on to claim that the US economy was on the far side of the curve, i.e., that a $1 decrease in taxes would ultimately generate more than $1 in government revenue, so that the tax cut would pay for itself. There has never been any evidence to support this assertion. Best recent evidence I am aware of says that a $1 cut in taxes would ultimately genreate about 20 cents in government revenue, leaving 80 percent of the resulting deficit uncovered.
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Ned
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of Aptos, CA
Oct 1999
time: 21:32
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quote:
Originally posted by Sava
wow Boris... you are right, Ghengis Farb is the worst BAMer since Fez... 
btw, the neo-con faction is basically foreign policy oriented... they do have a domestic agenda, but it's the same as traditional conservatives... starve government programs, kill them, then turn the country into 19th Century America. It's called regression... making things worse, like they were before.
Good thread BTW  |
Sava, by your measure, Bush is no conservative domestically. Bush has expanded government programs, subsidies and trade protections as fast or faster than virtually all Democrat administrations to the dismay of true "19th Century Neanderthals," like Trent Lott.
Since the Republicans are now the majority party, it might be in your interests to see Bush remain president rather than some other 19th Century type from the party's troglydyte wing.
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13-12-2003 05:29
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