Learn the Laffer Curve

by Don Boudreaux on February 2, 2008

in Taxes

Dan Mitchell – former GMU student, current Cato Institute Senior Fellow, and one of the world’s most die-hard Georgia Bulldogs fans – does an absolutely splendid job of explaining the logic of the Laffer Curve in this short video.  Enjoy and learn!

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Jeff Brown February 2, 2008 at 3:00 pm

Excellent! How do I access parts II and III? Thanks

Steve February 2, 2008 at 3:57 pm

First rate. I'm not an economist, but even I realize that the truth is somewhere between the Republican free-lunch approach to tax cuts and the Democratic taxes-don't-matter mentality.

Martin Brock February 2, 2008 at 4:55 pm

Keynes, von Mises and others described the "Laffer curve" long before Laffer.

http://en.wikipedia.org/wiki/Laffer_curve

High marginal income tax rates were never supposed to collect revenue. They were supposed to encourage tax deductible investments. The top marginal rate of 70% in the seventies was considerably lower than the top marginal rate in the fifties, which was over 90%, yet the fifties were a period of robust growth. "Tax loopholes" were the whole point.

As Roberts notes in a recent blog post here, the Laffer curve effect on Federal revenue in the Bush administration is extremely dubious. Even in the Reagan administration, the effect is debatable, because revenue initially fell and then rose only as GDP rose. This effect could occur on either side of the peak.

Something else followed the Reagan cuts, a plummeting savings rate, ultimately culminating in the negative savings rate we have now, and Reagan also raised taxes substantially, specifically the payroll tax.

But suppose the Laffer curve theorists are right, and we got more Federal revenue by cutting marginal income tax rates, because people realized more taxable income than they would have otherwise. Am I supposed to celebrate this effect? More Federal revenue and less savings or private investment? That's a good thing?

I think not. We may raise marginal income tax rates again precisely in order to cut Federal revenue. In fact, we may encourage this effect by creating an unlimited entitlement to shelter any amount of income in a tax deferred investment account, as radical leftists like Sam Nunn and Pete Domenici advocated in the eighties. We want wealthy people investing directly rather than channeling income to the Congress for more central "investment". That's the whole point of a progressive consumption tax. The point is not to raise revenue. The point is not to raise revenue.

Chris Meisenzahl February 2, 2008 at 4:59 pm

Thanks, I enjoyed that. I remember learning of the Laffer Curve in an economics course in my Jesuit high school, circa 1988.

Will February 2, 2008 at 5:27 pm

Very well done. That's what Dr. Laffer has maintained from the beginning. People misconstrue the effect and then laugh at it.

TGGP February 2, 2008 at 5:35 pm
Jacob Oost February 2, 2008 at 5:56 pm

He says Keynes like "Kanes." I always said "Keens." Which is it?

FreedomLover February 2, 2008 at 7:13 pm

First rate. I'm not an economist, but even I realize that the truth is somewhere between the Republican free-lunch approach to tax cuts and the Democratic taxes-don't-matter mentality.

Posted by: Steve | Feb 2, 2008 3:57:17 PM

Define what "free lunch" means to hard-working businessmen and their employees. Now if you mean that people want their big public-works infrastructure(freeways, high-speed rail, dams, power generation) AND tax cuts, then I agree. However, I think there's enough room in the budget to cut out stuff to leave room for the stuff that benefits everyone. Yeah I'd gut Social Security, Medicare and Welfare direct payments first. That's $1.5 trillion right there! Then I'd make the military more efficient, no need to be spending $500 billion/year, even with the Iraq.

FreedomLover February 2, 2008 at 7:42 pm

Posted by: Will | Feb 2, 2008 5:27:12 PM

Laffer vs the Supply Siders

Someone claimed that Laffer wrote in a 2000 WSJ article that the Reagan tax cuts increased revenue, and now he says he never said that. If true, then would shatter Laffer's credibility.

lowcountryjoe February 2, 2008 at 8:46 pm

A letter of mine that the Wall Street Journal did not feel fit to print:

3 December 2007

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

Dear Editor:

Over this last year, I have read a handful of opinions in these pages on the topic of tax cuts and how tax cuts increase tax revenue. Rudy Giuliani’s opinion, The Meaning of Fiscal Conservatism (3 December) was the last straw for my level of tolerance on this topic. Enough already!

This isn’t just a criticism of Mr. Giuliani; this is criticism of all fiscal conservatives who have not moved beyond the way the current argument is framed, especially on these op/ed pages. As fiscal conservatives, we will never see reductions in spending if we play nice and try getting the tax rate to some optimal level that attempts to maximize revenue to the U.S. Treasury. We must champion for tax rates that seek to put us on the correct side of the Laffer Curve – the lower tax rate, lower revenue yielding side.

Could it be possible that the fiscal ‘progressives’ have been playing us for fools during the last two decades and that even they know that tax cuts bring in more money in which to spend? Think about that: ‘progressive’ lawmakers ask for government expanding concessions in order to swallow the supposed bitter pill of any proposed tax cut. In the end, the tax cuts are responsible for the additional revenue to pay for such expansions. Progressives are clever. We have not been.

Chipping in on the dicussion above: as to whether or not tax cuts on the income tax side pay for themselves in the longer run or not is debatable. But certainly payroll tax rates are not lowered. And because of that, any increase in economic activity that income tax cuts may bring, will also effect the amount collected in payroll taxes…a 15% tax that one cannot weasel him or herself away from paying.

Martin Brock February 2, 2008 at 9:21 pm

Yeah I'd gut Social Security, Medicare and Welfare direct payments first. That's $1.5 trillion right there!

Even if Congress couldn't stop you, you wouldn't survive your first term, unless you have alternatives in mind. Marginal income taxes don't fund Social Security and Medicare, not yet anyway. They probably will soon. That's the "trust fund" that Reagan dramatically expanded when cutting marginal income tax rates and that Bush tried to repeal as the bill comes due due.

How much could we raise the payroll tax without cutting revenue? A hell of a lot. When you tax the first dollars of income, you can tax practically to the point of starvation, because people won't starve themselves to avoid your taxes. They might start shooting back, but they won't starve themselves.

A state can tax 100% of income if it feeds taxpayers with tax revenue. [There really is no "income" in this scenario, but that's another story.] It can happen on a small scale. Slavery existed. It's not a myth. Slavery on a massive scale is simply inefficient, in the economic sense of "efficiency". Mass enslavement to a hierarchical authority, as in state socialism, doesn't effectively convey the value of resources. Prices signal little information about the balance of supply and common demand.

When a state feeds people generally, "good nutrition" becomes equivalent to "weapons of mass destruction". It's out there if the statesmen say it is. More likely, you send out your troops to collect grain for export, so you and your cronies can drive Mercedes, and you simply decree that everyone is well fed. Anyone saying otherwise is invisible.

But a marginal consumption tax (which Adam Smith advocated as a "tax on luxury") can approach 100% without starving people. Rates approaching 100% increase individual investment, if the tax doesn't apply to investment. Yes, these rates lower Federal revenue, but that's the whole point. We don't want central authorities reinvesting the income. That's what a wealthy capitalist is supposed to do. It's his job.

When we decide that a few lords of capital have a divine right to build themselves castles, and drive Mercedes, we must expect them to do that. History is overwhelmingly clear on this score.

Castles and Mercedes aren't the only shape this problem takes. A small class of corporatist lords can entitle themselves to years of consuming anything without producing anything themselves. They can grant themselves bank accounts full of cash and purchase entitlement to future tax revenue and other rents. They don't even need the bank accounts full of cash, but they can create these accounts if they want, if the accounts make the entitlements seem more divine.

It happens all the time. I hope it hasn't reached a catastrophic point. We'll know in a few more years. The leading edge of the baby boom hits the customary retirement age around 2010. We don't know yet how much this generation has forbidden us to produce except for their idle consumption, but we'll soon find out. The problem is a lot larger than Social Security. Anyone imagining that Social Security is the only block in this pyramid simply worships a state without this program. We did have states before Social Security. We even had states before income taxes.

Martin Brock February 2, 2008 at 9:26 pm

A letter of mine that the Wall Street Journal did not feel fit to print:

I hardly ever read newspapers anymore. Who cares what they print? Post your letter at forums.wsj.com. Letters to the editor are so … edited.

Adam February 2, 2008 at 9:54 pm

Great video. Thanks for posting!

Martin Brock February 2, 2008 at 9:59 pm

Could it be possible that the fiscal ‘progressives’ have been playing us for fools during the last two decades and that even they know that tax cuts bring in more money in which to spend?

No, it wasn't the "progressives". It was the "conservatives". That's just a matter of historical fact, and denying it won't rescue "conservatism".

Bushniks really did invent the "war on terror" practically from thin air, almost unilaterally. They didn't invent 9/11, intentionally, but 9/11 was over in a day. Bushniks spent a trillion dollars while most of the rest of the world watched from the sidelines. This scenario is laughably unlike W. W. II, when the U.S. waited until Europe was in flames before sweeping in to seal the fate of fascism.

When we finally declare victory in the "war on terror" and stop the hemorrhaging, we'll only be a bit more anemic. We can expect no transfusions from Europe, and the Chinese apparently don't need our real investment to fuel their growth anymore; otherwise, we wouldn't have this huge current account deficit with them. Maybe they'll buy our pricey real estate. A lot of it's not so pricey by European standards.

Maybe we sealed the fate of fascism, or maybe we only slapped the uglier side of its face. Maybe we were the prettier side already. The ditto heads love to call FDR a "socialist", but policies during his tenure were much more like fascism in fact.

Martin Brock February 2, 2008 at 10:31 pm

Martin Gardner was much cleverer than Laffer.

billy February 3, 2008 at 12:57 am

Well done and War Eagle.

FreedomLover February 3, 2008 at 5:01 am

Martin Brock:

You are a bit too obsessed with the rich's playthings. They are not the problem in the economy. Unskilled workers are. You still can't say how do we deal with that. Taxing the rich on the investment or consumption side won't solve that problem, except for salving the hurt feelings of the lower middle class. You seem to worry more about feelings then hard economic facts.

lowcountryjoe February 3, 2008 at 9:11 am

No, it wasn't the "progressives". It was the "conservatives". That's just a matter of historical fact, and denying it won't rescue "conservatism".

Name me one time that fiscally conservative(classically liberal) representaives have ever had a majority in both chambers of congress. Notice the word fiscally before you answer.

Bushniks really did invent the "war on terror" practically from thin air, almost unilaterally. They didn't invent 9/11, intentionally, but 9/11 was over in a day. Bushniks spent a trillion dollars while most of the rest of the world watched from the sidelines. This scenario is laughably unlike W. W. II, when the U.S. waited until Europe was in flames before sweeping in to seal the fate of fascism.

While 9/11 was over with in a day, as per your assertion, it is what happened on 8/2/1990 that led to P.L. 107-243. Now, you can dispute that if you wish but you ought to read through the document before you respond.

When we finally declare victory in the "war on terror" and stop the hemorrhaging, we'll only be a bit more anemic. We can expect no transfusions from Europe, and the Chinese apparently don't need our real investment to fuel their growth anymore; otherwise, we wouldn't have this huge current account deficit with them. Maybe they'll buy our pricey real estate. A lot of it's not so pricey by European standards.

Terror will exist in that region until the attitude toward capitalism and the charging of interest (usuary) are changed there. It could be a long time since the only real change can come from within and there's a religous component standing in the way as an obstacle to this economic liberty.

Maybe we sealed the fate of fascism, or maybe we only slapped the uglier side of its face. Maybe we were the prettier side already. The ditto heads love to call FDR a "socialist", but policies during his tenure were much more like fascism in fact.

It matters not what you label it; it is not liberty. But since you enjoy the labels — and I have no place to comment since my letter to the WSJ used labels [I'll comment anyway, though] — it is certainly not Objectivist.

Randy February 3, 2008 at 10:22 am

Martin,

"Something else followed the Reagan cuts, a plummeting savings rate, ultimately culminating in the negative savings rate we have now, and Reagan also raised taxes substantially, specifically the payroll tax."

It would make more sense to attribute the plummeting savings rate to the increased payroll tax. How would letting people keep more of their money cause them to save less? And why would we not assume that people would choose to decrease their savings first when a substantial percentage of their earnings is "reallocated for other uses" by the people who control the state?

Martin Brock February 3, 2008 at 10:49 am

You are a bit too obsessed with the rich's playthings. They are not the problem in the economy. Unskilled workers are. You still can't say how do we deal with that.

You're obsessed with the playthings. I'm discussing investment. Employing idle resources while diminishing central authority is the whole point if a progressive consumption tax.

I've discussed education and retraining in several threads, but the lottery discussed in the "stimulus" thread probably isn't necessary. We may simply leave investment in the hands of the wealthy.

Taxing the rich on the investment or consumption side won't solve that problem, except for salving the hurt feelings of the lower middle class.

A progressive consumption tax doesn't tax the rich. It slashes taxes on the rich so that they can invest more.

You seem to worry more about feelings then hard economic facts.

The obsession with feelings is entirely yours. It's a non-sequitur and a straw man.

Randy February 3, 2008 at 10:53 am

Hypothesis. People tend to spend on the following in order;

1. Necessities
2. Minor luxuries
3. Savings
4. Major luxuries

A increase to the progressive income tax will cut into the spending on major luxuries by the wealthy, which will in turn cut into the earnings of those who provide major luxuries, which will reduce their savings. The increase will also cut directly into the savings of those who have not yet begun to spend on major luxuries.

An increase in a payroll tax will hit primarily at those who have not begun to spend on major luxuries and will therefore decrease their savings and minor luxuries.

Therefore, the primary result of any tax is a greater dependancy on the state to return the savings it has "reallocated".

P.S. Yes, I know I should throw in the phrase marginal propensity at serveral points – but this is a blog comment and I'm trying to keep it short.

Martin Brock February 3, 2008 at 11:13 am

Name me one time that fiscally conservative (classically liberal) representaives have ever had a majority in both chambers of congress. Notice the word fiscally before you answer.

I haven't suggested that classical liberals have ever had a majority in both chambers. You tell me. The fact remains that "conservatives" and not "progressives" have played us for fools as described. I address precisely this point above. Why celebrate increased Federal revenue and a negative savings rate?

While 9/11 was over with in a day, as per your assertion, it is what happened on 8/2/1990 that led to P.L. 107-243. Now, you can dispute that if you wish but you ought to read through the document before you respond.

That PL 107-243 was enacted in 2002 leads little credence to this assertion regardless of the "whereas this" and "whereas that". We might instead have withdrawn forces from Kuwait and Saudi Arabia and lifted sanctions on Iraq earlier. We might instead have reinforced cockpit doors and little else.

Terror will exist in that region until the attitude toward capitalism and the charging of interest (usuary) are changed there. It could be a long time since the only real change can come from within and there's a religous component standing in the way as an obstacle to this economic liberty.

I don't expect the United States to repeal Islam in this part of the world. I've discussed my sympathies with Bentham. See his Defence of Usury.

http://www.econlib.org/library/Bentham/bnthUs.html

But it's irrelevant here. That some policy is effective within the borders of the U.S. is no evidence that U.S. military might can impose the same policy globally or that this imposition is beneficial within the borders of the U.S. or globally.

It matters not what you label it; it is not liberty. But since you enjoy the labels — and I have no place to comment since my letter to the WSJ used labels [I'll comment anyway, though] — it is certainly not Objectivist.

Labels have effects; otherwise, politicians wouldn't use them. We're getting the "liberals" back. We may remind them what the word means historically, or we may defend the "conservatives" that precede them on the incredibly dubious grounds that these "conservatives" are more like classical liberals. Objectively, they aren't.

Martin Brock February 3, 2008 at 11:22 am

It would make more sense to attribute the plummeting savings rate to the increased payroll tax.

It was a factor presumably, but the savings rate is an average. If the rate drops, then lower savings by lower income people is not offset by higher savings by higher income people, and we still have the higher Federal revenue, the higher Federal spending as a percent of GDP, the higher deficits and the rest.

How would letting people keep more of their money cause them to save less?

Investment is something people may do with money. The issue is what people do with the money they keep.

And why would we not assume that people would choose to decrease their savings first when a substantial percentage of their earnings is "reallocated for other uses" by the people who control the state?

A progressive consumption tax removes the income of the wealthy from the hands of central authorities. That's the whole point. I'll keep repeating the point until it sinks in. The point is not to raise Federal revenue. The point is not to raise Federal revenue. Raising taxes on the wealthy lowers Federal revenue? I think that's great. I wouldn't have it any other way.

Martin Brock February 3, 2008 at 11:43 am

A increase to the progressive income tax will cut into the spending on major luxuries by the wealthy, which will in turn cut into the earnings of those who provide major luxuries, which will reduce their savings.

Simply ignoring half the proposal doesn't remove it from the record. The wealthy also gain an unlimited entitlement to invest rather than pay the tax. The tax is completely voluntary. Bill Gates may pay no more of the tax than you or I if he chooses.

You're argument incredibly assumes a zero sum game. Building castles is hardly the only possible employment of idle resources, but if you adore castles so much, you may buy a ticket to Biltmore House. This castle employs many people. I've personally witnessed this employment many times, when I've bought tickets.

The increase will also cut directly into the savings of those who have not yet begun to spend on major luxuries.

No. It will increase their savings, as a right to avoid the consumption tax by investing is unlimited. Ignoring the record doesn't change it. Why do you expect investment to fall as we cut taxes on it to nothing?

An increase in a payroll tax will hit primarily at those who have not begun to spend on major luxuries and will therefore decrease their savings and minor luxuries. Therefore, the primary result of any tax is a greater dependancy on the state to return the savings it has "reallocated".

Non sequitur follows non sequitur here. I nowhere defend a payroll tax increase, and I'd would hotly contest any payroll tax rate increase. I'd scuttle the whole program in fact. I've discussed a specific alternative.

P.S. Yes, I know I should throw in the phrase marginal propensity at serveral points – but this is a blog comment and I'm trying to keep it short.

You should throw in "marginal entitlement to investment", because that's what a progressive consumption tax establishes. It's called a progressive "consumption" tax, because it only taxes consumption progressively. It doesn't tax investment at all. Investment is completely tax free. You may keep 100% of your interest, dividends, rents and capital gains as well as the yield of your labor as long as you reinvest the income.

Martin Brock February 3, 2008 at 11:45 am

Your argument incredibly assumes a zero sum game.

Martin Brock February 3, 2008 at 11:46 am

I would hotly contest any payroll tax rate increase.

Randy February 3, 2008 at 11:55 am

Martin,

I wasn't referring to your proposal at all, but only to the effects of taxation as it is. The key point in the hypothesis is that people spend on minor luxuries before they save, and that reallocations by the state therefore come out of savings. A subpoint applicable to your proposal is that spending on major luxuries by those who can afford it only occurs after the desired amount of savings (and investment) has already occurred.

Martin Brock February 3, 2008 at 12:33 pm

I wasn't referring to your proposal at all, but only to the effects of taxation as it is.

O.K. I don't advocate taxation as it is.

The key point in the hypothesis is that people spend on minor luxuries before they save, and that reallocations by the state therefore come out of savings.

A progressive consumption tax encourages people to invest before spending on luxuries. That's the whole point. The progressivity makes your distinction between "minor" and "major" luxuries. No one wants to outlaw luxuries generally. When Adam Smith advocates a "tax on luxury" in Wealth of Nations, he doesn't advocate a vow of poverty. He specifically addresses the castles of titular lords.

A subpoint applicable to your proposal is that spending on major luxuries by those who can afford it only occurs after the desired amount of savings (and investment) has already occurred.

Define "desired amount of savings (and investment)". I don't accept your tautology. I recognize no divine right to build castles. I desire an amount of investment precluding private castles. I prefer a greater variety of common goods from which to choose.

Again, when we decide that a few lords of capital have a divine right to build themselves castles, we must expect the castles. The historical record is very clear. When they employ resources to build castles, they don't employ these resources to build other things. I don't want our lords squandering resources on vainglorious nation building and self-aggrandizing missions to the moon either. I want resources organized to produce for common consumption.

Randy February 3, 2008 at 12:52 pm

Martin,

Re; "Define "desired amount of savings (and investment)".

Security and/or profit. People don't invest or save for the pure joy of it. They do it either to set aside for future security, or because they recognize an opportunity for profit. The marginal propensity to save/invest declines as the desired level of security rises and as the quality of investment opportunities declines.

I should toss in here that I think that investment is overrated. For investment to be useful, there has to be something useful to invest in. The railroad boom, the auto boom, the information technology boom, etc., and in the interim periods, not so much – with investors dropping wealth into cash, bonds, and real estate just to protect it.

I would also add that I believe the next boom will be in luxuries. Not anything new, just bigger, better, faster versions of what already exists. So while I do see value in an unlimited tax free account – and do see how it could incentivize many people to same more than they do, I see no reason to disincentivize luxury spending, as the increase in luxury spending is what the investors will be investing in.

Randy February 3, 2008 at 12:54 pm

That should be "as the desired level of security is achieved" – not rises.

Martin Brock February 3, 2008 at 2:31 pm

Randy:

Re; "Define "desired amount of savings (and investment)".

Security and/or profit. People don't invest or save for the pure joy of it. They do it either to set aside for future security, or because they recognize an opportunity for profit.

I have no problem with these motivations to invest, but Bill Gates didn't accumulate a hundred billion dollars worth of assets to secure his daily bread.

The marginal propensity to save/invest declines as the desired level of security rises and as the quality of investment opportunities declines.

The marginal propensity to save/invest does not decline as the level of security rises, not for everyone anyway. Wealth is an end in itself. It's victory in a game of king of the hill. If people didn't pursue ends for this reason, we'd have no Olympic athletes. We can expect people to pursue profits under a progressive consumption tax, and we have historical precedents.

"Quality of investment opportunity" is a relative, subjective judgment. New investment opportunities always exist. We don't want to throw money at novel investment indiscriminately, but no one proposes this policy.

A private castle is not an intrinsically more rational expenditure than a museum that never profits. The castle never profits either. If the museum never profits, investors more likely reorganize the resources, but a castle is never expected to profit.

I should toss in here that I think that investment is overrated. For investment to be useful, there has to be something useful to invest in. The railroad boom, the auto boom, the information technology boom, etc., and in the interim periods, not so much – with investors dropping wealth into cash, bonds, and real estate just to protect it.

Genuine investment is a gamble on the productive or more productive organization of resources. There is always something potentially useful to invest in. There are no interim periods in which these opportunities are absent.

I would also add that I believe the next boom will be in luxuries. Not anything new, just bigger, better, faster versions of what already exists.

Of course, we'll produce better, faster versions of what already exists. Bigger? I don't want a bigger computer. I want a smaller one. My current mp3 player is much smaller than my first. The printer/scanner/copier in my home office is far smaller than anything my father had downtown, and he never had color.

So while I do see value in an unlimited tax free account – and do see how it could incentivize many people to same more than they do, I see no reason to disincentivize luxury spending, as the increase in luxury spending is what the investors will be investing in.

Here again, you simply ignore your own distinction between "minor" and "major" luxuries. A progressive consumption tax doesn't forbid luxuries at all. It channels investment toward a greater variety of more common luxuries, like the automobiles, radios, televisions, record players and rock and roll we produced in the fifties when marginal income tax rates exceeded 90%, while real median income actually rose.

Historical precedent does not support your alarming assertions. Castle builders don't starve when we stop building castles. They find other work. All the Federal employees who would lose their jobs under a progressive consumption tax would also find other work.

FreedomLover February 3, 2008 at 2:46 pm

Martin,

You realize that with all your "progressive" income/consumption taxes that if you piss off the rich folks, they'll take their liquidity elsewhere, like Malaysia. Because they can. It's the duty of any nation to not piss off the investor class, because we depend on them for our livelihood. Now the only other solution is to do like Lenin did and kill them all, but where does that leave us except living in a Communist hell-hole.

Martin Brock February 3, 2008 at 4:24 pm

You realize that with all your "progressive" income/consumption taxes that if you piss off the rich folks, they'll take their liquidity elsewhere, like Malaysia. Because they can.

That you don't like the word "progressive" doesn't concern me. I'm happy to call the reform something else.

People may sell income earning assets in the U.S. and buy assets elsewhere. That's fine with me. I don't care. Someone else will buy the assets here. We had income tax rates exceeding 90% in the fifties, with exemptions for investment, and everything didn't go to hell in a hand basket. Your alarmist theories in favor of some state you prefer does not contradict empirical experience.

It's the duty of any nation to not piss off the investor class, because we depend on them for our livelihood.

Far from pissing them off, I propose to cut the taxes of the investor class practically to nothing.

Now the only other solution is to do like Lenin did and kill them all, but where does that leave us except living in a Communist hell-hole.

This false choice is simple nonsense. I'm not so simple. Try it on someone else.

Randy February 3, 2008 at 4:51 pm

If the 90% income tax rates worked so well, why were they ended?

Martin Brock February 3, 2008 at 5:29 pm

If the 90% income tax rates worked so well, why were they ended?

Ask John Fitzgerald Kennedy and his allies in the Congress. Maybe they thought the investment exemptions too limited, though they could have loosened these restrictions. Maybe they wanted more entitlement to marginal consumption. Maybe they wanted more Federal revenue. Whatever their reasons, they made the decision.

I'll emphasize again that I favor high marginal tax rates only in the context of an unlimited entitlement to avoid the tax through investment. I advocate a progressive consumption tax, not a progressive income tax. The point is to channel investment toward expanding and improving the variety of goods and services commonly available, not to raise Federal revenue. Lower Federal revenue is the goal.

Randy February 3, 2008 at 5:59 pm

"The point is…, not to raise Federal revenue. Lower Federal revenue is the goal."

I suspect that the political class disagrees with you. I for one think that higher federal revenue is precisely the goal. The available evidence certainly gives me no reason to trust their professions of altruism, and your insistence on granting them a role is my primary point of contention with your ideas.

Martin Brock February 3, 2008 at 6:30 pm

I suspect that the political class disagrees with you.

When I say "the point", I mean "my point", not the "the point of the political class". That goes without saying.

I for one think that higher federal revenue is precisely the goal.

Kennedy might have sold it this way. I haven't seen the Congressional record. He probably sold it differently to different people. That's politics. I don't labor long to wonder what he got out of it himself.

The available evidence certainly gives me no reason to trust their professions of altruism, and your insistence on granting them a role is my primary point of contention with your ideas.

I don't grant anyone's role, but I propose to halve Congressional revenue in favor of less central investment. Congressmen and other statesmen write the law governing property. Politicians play this role. You propose nothing else. You just say "political class" derisively when you oppose a reform some reason and say something else when you favor a reform. This rhetoric is persuasive, not to me anyway.

Randy February 3, 2008 at 7:19 pm

I don't have a "plan", Martin. My method is to get the believers to understand what kind of people they are placing their faith in. Yes, I use the term "political class" with as much "derision" as I can muster. As far as I'm concerned, they are the type who would rob people in dark alleys if they hadn't stumbled upon a more effective method.

Martin Brock February 3, 2008 at 7:50 pm

I don't have a "plan", Martin. My method is to get the believers to understand what kind of people they are placing their faith in.

Of course, you have a plan. Private property, markets and the rest of the rule of law is a plan. It's not "central planning" in the narrow sense of these words, but it certainly is a plan. You don't want everyone free to do anything.

Yes, I use the term "political class" with as much "derision" as I can muster. As far as I'm concerned, they are the type who would rob people in dark alleys if they hadn't stumbled upon a more effective method.

Without a state, you have nothing to rob, because nothing is property. Natural territoriality is not property. Property is forcible propriety, and it is always bounded.

Randy February 3, 2008 at 8:31 pm

I would have no problem at all with a state that didn't steal from me. Yes, I know, its not "stealing" because the people doing the stealing say its not. Hey, if that works for you…

Martin Brock February 3, 2008 at 10:28 pm

What works for me is irrelevant. "Stealing" violates propriety by definition, and lawmakers define "propriety". We needn't like it, and we can try to change it, for what it's worth. What I won't do, or can't do, is accept it without complaint.

vidyohs February 3, 2008 at 10:36 pm

No Martinduck,

You forget that property is not just land, or maybe you'd like to tailor your statement here:

"Without a state, you have nothing to rob, because nothing is property. Natural territoriality is not property. Property is forcible propriety, and it is always bounded.
Posted by: Martin Brock | Feb 3, 2008 7:50:48 PM"

Humans certainly possessed property long before such a thing as a "state" came into being. The FRNs I get when I cash a client's check is my "property". The car I drive is my "property". The spear that Og carried 30,000 BC was Og's property. The shell necklace Og made for his sweetie Oog was Oog's property.

They even possessed land before states came along, and they held the land until someone with more force came along and took it from them. The fact that it was taken from them did not negate the fact that they possessed it for X amount of time, which may have been centuries.

Property rights are establised by the possession by individuals that can retain it against all challengers (physical or legal) using whatever means, even including the force of a state.

vidyohs February 3, 2008 at 10:38 pm

Martinduck,

Furthermore, robbers certainly predated the "state". As a matter of fact robbers and how to deal with them were one of the many reasons for inventing the "state".

lowcountryjoe February 3, 2008 at 11:17 pm

Martin,

I supoose that you're one to believe that the state is the entity that grants rights to us, don't you?

Martin Brock February 3, 2008 at 11:28 pm

I supoose that you're one to believe that the state is the entity that grants rights to us, don't you?

Legal rights are the will of armed men, and pretending that they aren't is the worst possible pretense. If you want to discuss other "rights", you need to define them first.

Martin Brock February 3, 2008 at 11:33 pm

Furthermore, robbers certainly predated the "state". As a matter of fact robbers and how to deal with them were one of the many reasons for inventing the "state".

When you tell me what anyone "stole" before the advent of "property", your statement ceases to be nonsense. Acknowledging the reality that forcible propriety is the will of armed men is no endorsement of anything armed men will. Pretending that armed men have some divine right to enforce particular proprieties, because you like them, is incredibly arrogant. I judge forcible proprieties by their consequences, like Milton Friedman and many others.

Martin Brock February 4, 2008 at 12:02 am

vidyohs:

You forget that property is not just land, or maybe you'd like to tailor your statement here:

I hardly forget it. I say it over and over again. For example, I say that Treasury notes are "private property" as well as entitlement to tax revenue, because that's the law as a matter of fact. This statement is no defense of Treasury notes. It's just a fact.

Humans certainly possessed property long before such a thing as a "state" came into being.

You may call something preceding the rule of law "property" if you choose. John Locke did, but his "property" is as meaningless as yours in modernity. It was already meaningless when he described it. I don't live on a Lockean frontier, and in my neck of the words, when people use the word "property", particularly the uniformed people wearing guns, they mean legal entitlement, and that's all they mean.

The FRNs I get when I cash a client's check is my "property".

Exactly. Assuming you obtained the check lawfully.

The car I drive is my "property".

Assuming you have the title.

The spear that Og carried 30,000 BC was Og's property.

No. It was his possession. It might have been Gor's possession a day earlier, and he might well have killed Gor to obtain it.

The shell necklace Og made for his sweetie Oog was Oog's property.

No. That was her possession too. Since Og made it, it's more like Lockean property, but it still isn't "property" in any modern sense.

They even possessed land before states came along, and they held the land until someone with more force came along and took it from them.

Exactly. They possessed it when they could hold it by their own force. This state is natural territoriality, not property. Read Locke. Even he wouldn't call this possession "property". Lockean property doesn't exist among hunter/gatherers. It appears only with agriculture, when one man farms a parcel of land himself. When you show me any reputable authority calling Og's territory "property", you'll have a leg to stand on.

The fact that it was taken from them did not negate the fact that they possessed it for X amount of time, which may have been centuries.

People didn't live for centuries 30,000 years ago, and they certainly had no titles to property, because they had no written language. They didn't even have Lockean property.

http://en.wikipedia.org/wiki/History_of_writing#Proto-writing

Property rights are establised by the possession by individuals that can retain it against all challengers (physical or legal) using whatever means, even including the force of a state.

No. That's territory and possession. It's not at all what we call "property" today. It's not even what Locke called property in the 17th century. Where do you find anyone at any time using the word "property" this way? "Conservatives" don't use the word this way. "Liberals" don't use the word this way. "Libertarians" don't use the word this way. Anthropologists don't use the word this way. Do words simply mean whatever you say they mean?

Randy February 4, 2008 at 4:59 am

Martin,

"What I won't do, or can't do, is accept it without complaint."

So why are you here? If you really want to change the forcible proprieties you need to be debating with the people who exercise them, and you're certainly not going to find such people here. How do you imagine that trying to convince people who believe in liberty that there is no such thing will help you to achieve your objective?

vidyohs February 4, 2008 at 6:25 am

Martinduck,

Yep the old mulberry bush crap again. Because you can have the time to construct voluminous rebuttals to anything and everything means that you mistake the act of overwhelming as superior knowledge. Tain't so, it is just another trip around the bush.

You're so hung up on the state that you refuse to see anything but your own erroneous twiddle.

Og has it, he keeps it, he uses it, and no one else has access to it, but it isn't property?

Yeah right. Use whatever name you want it makes no difference, the thing was Og's, and that makes it property.

Property is a thing, an object. Possession is an act. Got it?

Contrary to your assertion that no one uses the word property to describe possessions today is blatantly wrong, it is used quite commonly in every taxing office in the land, and so those who pay taxes on property also use it. Which pretty much includes everyone, doesn't it martinduck?

Look back over your shoulder, martinduck. I won't be there to chase you around on what has obviously become another one of your chase me people, chase me.

lowcountryjoe February 4, 2008 at 7:03 am

Legal rights are the will of armed men, and pretending that they aren't is the worst possible pretense. If you want to discuss other "rights", you need to define them first.

I did not ask about legal rights but your answer explains your position very well without needing any further explanation. The rights I'm speaking of are those rights that man is inherently been blessed to have bestowed upon him at birth. It's those armed men that you speak of who take confiscate rights from other men — rights that they were not entitled to take but have done so anyhow.

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