Obama’s Math Works Only in BizzaroEcon World

by Don Boudreaux on December 12, 2011

in Budget Issues, Economics, Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, Taxes

Last night on “60 Minutes” (HT IndianaJim) President Obama said to interviewer Steve Croft about tax cuts:

Steve, the math is the math.  You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else.

This answer reveals a deplorable understanding of either economics or math or both.

Revenues are the product of the “price” per unit (for example, the tax rate on a dollar of income) multiplied by the number of units for which that price is paid.  If the percentage cut in the price per unit is smaller than a corresponding percentage increase in the number of units for which the now-lower price is paid, revenues don’t fall; they rise.  The math, indeed, is the math.

Obama’s math works only in a bizzaro economic world – a world where changes in prices have no, or never more than a de minimis, effect on people’s behavior.

In that bizzaro world producers would never lower prices.  (Why do so if lowering prices won’t result in a larger sales volume and higher revenues?)  In that bizzaro world McDonald’s would charge $1,000 for each Big Mac.  (Why not, if prices don’t affect people’s consumption choices?)  In that bizzaro world no one would propose taxing cigarettes to discourage smoking.  (Why do so if higher prices don’t affect behavior?)  And in that bizzaro world no one would ever call for higher tariffs to protect domestic producers from foreign competition.  (Why do so if raising tariffs does not reduce the number of imports that people buy?)

It’s one thing to question a claim’s empirical relevance; it’s quite another to dismiss it categorically as being an alleged violation of the laws of mathematics.

What sorry testimony about the “reality-based” political community that the current President of the United States believes it to be simply a matter of “math” that lower tax rates necessarily result in lower tax revenues.

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Methinks1776 December 12, 2011 at 11:35 am

Hardly surprising from a guy who thinks Hawaii is in Asia, doctors amputate limbs to line their pockets, and there are 57 states.

But, don’t worry. He’s sure to spend perma-stimulus wisely and provide excellent healthcare.

W.E. Heasley December 12, 2011 at 1:03 pm

When Obama [smartest president ever…remember that proclamation from the media] made the 57 states comment, , it sure would have been interesting if someone had asked Obama to name the state capitals of states 51 – 57.

GAAPrulesIFRSdrools December 12, 2011 at 1:23 pm

I’m sure all of the (repeat after Obummer) Navy Corpsemen will forgive this error.

Methinks1776 December 12, 2011 at 1:27 pm

Especially in light of his need to hurry along and catch up with the family dog who was already flying on one of the Federal Family’s tax-funded jets to a golf vacation in Barry’s home state in Asia.

(and, no, by “family dog”, I don’t mean Michelle).

GAAPrulesIFRSdrools December 12, 2011 at 1:43 pm

Hey its easier to fly in two 747′s than have another embarrassing picture of Michelle with that look of discontent on her face and earphones planted in her ears.

Hector December 12, 2011 at 6:46 pm

When you run out of reasonable arguments, bashing the president’s dog is surely a valid way of rescruing our economy.

Methinks1776 December 12, 2011 at 7:06 pm

Oh, Hector, Hector, Hector…..

Not only do you lack a sense of humour, but you don’t even understand what was being bashed (hint: it wasn’t the dog. Or Michelle). Try again.

Greg G December 12, 2011 at 1:51 pm

Stay classy Methinks.

Invisible Backhand December 12, 2011 at 2:19 pm

“What’s the word on the street, Oba-Huggy Bear?”

“Those jive asses are calling theyselves libertarians but dey be talking like Republicans. Word.”

jmulcahy December 13, 2011 at 4:54 am

Hector,

I think it the President who is “rescruing” (sic) the pooch.

Slappy McFee December 12, 2011 at 3:00 pm

Ummm… but you wouldn’t say “word” after your own statement. That would be said by someone in agreement with you.

Fred December 12, 2011 at 3:03 pm

word

Invisible Backhand December 12, 2011 at 3:36 pm

“Lordy lordy. Yassuh boss.”

Invisible Backhand December 12, 2011 at 3:47 pm
Chucklehead December 12, 2011 at 7:44 pm

Obamagrad, Kerryopia, Frankenstien, Pelosicisco, Schumerstan,
Derbing, and Sandersgrad

khodge December 12, 2011 at 11:39 am

Not to mention accounting. Oh wait, government accounting does come from a bizzaro world.

GAAPrulesIFRSdrools December 12, 2011 at 1:23 pm

More than you can possibly imagine.

Matt December 12, 2011 at 11:44 am

Wait. This is poorly stated, yes. But we know with as much certainty as we can know an economic fact that we are nowhere close to the point on the Laffer curve where Obama’s statement would be empirically false, and we haven’t been in recent memory. Do you disagree? I think that’s widely agreed at all points on the political spectrum and well evidenced from both time-series US data (remember we’ve been cutting taxes) and comparative data (remember we’ve got some of the lowest taxes in the world). So his statement is as accurate for practical use as a statement of economics can be.

This is like saying “the math is the math, there are only seven days in a week.” That is not a universally true statement of math, but as a practical guide to conduct it might as well be.

Darren December 12, 2011 at 11:57 am

But we know with as much certainty as we can know an economic fact that we are nowhere close to the point on the Laffer curve where Obama’s statement would be empirically false, and we haven’t been in recent memory.

And where are we, then? What metrics are used to know where on the Laffer curve we are sitting? *Can* this be known with any degree of confidence?

Invisible Backhand December 12, 2011 at 12:10 pm

I read somewhere (long forgot where) that someone studied the FIT from Nixon forward and concluded that a top rate of 25% was too low, 39% was too high, and 33% was just right. I don’t place much stock in that.

I happen to be somewhat in agreement with Hayek here, in that taxation is too complicated a subject to determine maximum revenue simple percentage of one type of income.

Bill December 12, 2011 at 12:32 pm

And what is the elasticity (Laffer effect) at the top end of the income distribution?

Methinks1776 December 12, 2011 at 12:04 pm

(remember we’ve been cutting taxes)

Remember, tax revenues rose when they cut tax rates (as Milton Friedman said – you know you’ve cut taxes rates enough when tax revenue stops rising with every incremental tax cut). Remember that we have fallen off the cliff into a huge recession. Remember, the Laffer curve is different for every country and so your statement about low tax rates around the world is as irrelevant as it is inaccurate.

WhiskeyJim December 12, 2011 at 1:57 pm

Right Methinks. And also different given different economic conditions I would bet.

Regardless, Obama is arguing over pennies; he could confiscate all the billionaire’s wealth EVERY YEAR and not get rid of the deficit in his class warfare rhetoric, and his spending problem now is nothing compared to the glacier coming at him in unfunded social nets.

His window for getting spending under control before structural spending swamps world GDP in the rollover alone is growing smaller every year, especially given anemic economic performance.

Talking about revenue in such a situation is like talking about painting the car when the transmission needs to be fixed; it may raise the car’s value a little, but who cares if it doesn’t run?

steve December 12, 2011 at 4:11 pm

“Remember, tax revenues rose when they cut tax rates”

When was this? Are you using nominal dollars? Cutting rates is sometimes associated with closing loopholes, but cutting taxes more often leads to a loss of revenue. Yes, if you wait a few years growth in the economy, which has occurred under all tax rates, will eventually return revenues to what it was pre-cut.

Steve

Methinks1776 December 12, 2011 at 5:24 pm

After the Bush Tax rate cuts in 2003. Also, in 1986. Yes, in nominal dollars. But, unless inflation spiked in 1987 and 2004 (it didn’t), it doesn’t matter.

Look, the whole debate is tiring. If people don’t think it’s worth working for the next taxable dollar, they won’t. They’ll spend a lot of time avoiding taxes. They’ll lobby for and get exemptions. They’ll enter into non-taxable barter transactions. They’ll hang out with their kids – since they can’t provide for their future, at least they can give them their time. The truly determined simply leave. Each of us makes these decisions daily and yet some of us think that others don’t. Ultimately, the government never seems to be able to collect more than what? 22% of GDP in taxes? I think that’s the upper bound.

So, the tax rate will go up, people will work less or lobby for and get loopholes. Less wealth will be created because it is punished. The people who will be able to become wealthy will be the ones with political access – in other words, the already wealthy. Opportunities for the poor but inventive will decrease. The brightest of them will leave for friendlier climes or settle for a smaller, poorer life. It’s not as if we haven’t seen this movie before. Repeatedly.

You can dream about how the world “should” be all you want, but it will be as it always was. Humanity won’t change. We’ll always be self-interested and acquisitive.

steve December 12, 2011 at 10:56 pm

The Bush tax cuts were actually a series of cuts starting in 2001. Revenue did not reach 2000 levels until 2005-2006. If you cut rates and wait long enough, revenue goes up. Raising rates, as done in the 90s also increased revenues.

Yes, it is a bit tiresome. When you look at the actual numbers to see what happens when rates are changed, it is dificult sometimes to tell what happened because there are always other things going on. However, what I would dispute is the implied assumption that a substitution effect will always dominate over the income effect. There is significant evidence, especially if you just watch the people around you, that it is not clear which will predominate.

Steve

Dan J December 13, 2011 at 12:19 am

Cutting rates brings about greater Econ activity…… Not instantly…… People Need time to realize the lowered tax will stay…… To reallocate….. For investment to begin taking effect……..
That 22% revenue is short lived…… As people then take steps to reallocate to avoid, legally, paying the higher taxes.

Methinks1776 December 13, 2011 at 12:47 am

Steve,

What evidence do you have that it was the tax increases and not the tech bubble that increased tax revenue in the 1990′s? When returns are very high, the effects of tax increases are deadened.

Revenue did not reach 2000 levels until 2005-2006.

That’s not important. The question is whether tax revenue rises when taxes are lowered – not whether revenues returns to some arbitrary pre-bubble bursting levels. Tax revenue did rise after the Bush tax cuts. Was it all due to reductions in the income tax rate? Beats me. Personally, I’m don’t get excited when more wealth is fed into the government furnace. Maximizing the state’s income is not what’s important to me. Maximizing mine is.

But, you do have to understand that as tax rates decline, you get to keep more of what you earn. I don’t think it’s a crazy assumption that people are more willing to both work and take entrepreneurial risks if the reward for doing so is higher. And isn’t that what we really want?

brotio December 13, 2011 at 11:07 pm

Personally, I don’t get excited when more wealth is fed into the government furnace.

Great point. There is evidence that the economy can suffer federal spending at about 18% of GDP. I think that’s still too high, but it’s bearable. I’d prefer federal spending to be no more than 5% of GDP, and could easily be convinced that (in peacetime) that’s too high.

The Other Eric December 13, 2011 at 3:04 pm

It happened in the Kennedy administration. Then again in the Reagan administration. Then again under Bush 2 (although there are problems aplenty with those maneuvers).

kyle8 December 12, 2011 at 5:18 pm

Also, our recent tax cuts have not had much of a stimulative effect, that might be because we are to the left of the point of equilibrium on the Laffer curve. But a more likely explanation is that these have all been TEMPORARY tax cuts, and temporary cuts have little or no stimulative effect.

Methinks1776 December 12, 2011 at 5:36 pm

Yes. Markets are forward looking and if what they have to look forward to is tax hikes, then it’s not going to stimulate anyone to make long-term investment.

Jon Murphy December 12, 2011 at 12:06 pm

We have some of the lowest personal tax rates in the world. But our corporate tax rates are among the highest.

Methinks1776 December 12, 2011 at 12:36 pm

The top marginal tax rate for personal income in Singapore is 20%, Bermuda is 0%. Canada is 29%. Switzerland is 40%, but you have to consider that the 35% top marginal rate in the United States is not the whole story. You also have to pay state and local taxes, which amount to 50% of your income in places like NYC. That’s scheduled to go up to around 60% as the Obamacare taxes start kicking in next year and the Bush tax cuts expire.

U.S. personal tax rates are not “among the lowest in the world”. We also have some of the most progressive taxes in the world.

steve December 12, 2011 at 4:20 pm

You should read up on the Singapore Provident Fund. Switzerland has a VAT and Canada, well go read.

http://siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/Pensions-DP/0609.pdf

Steve

Methinks1776 December 12, 2011 at 4:49 pm

Hey, thanks for the link! I believe the SPF is not the socialized nightmare that is Social Security, but I appreciate the opportunity to find out more about it.

Yes, there’s a VAT, but there’s sales tax in the United States too, property taxes, FICA, Medicare, universal access, and a hodgepodge of fees that are taxes by any other name. I thought we were talking about INCOME taxes, so I left out all the other mess.

It would be interesting to have a worldwide, all-in comparison.

kyle8 December 12, 2011 at 5:22 pm

What is relevant is total amount of average income with goes out to pay all taxes and government fees. (and you have to average in corporate taxes since they get passed on to the citizens.)

Under that measurement I would be highly surprised if we are among the lowest taxed.

GAAPrulesIFRSdrools December 12, 2011 at 7:35 pm

A VAT isn’t an income tax.

Greg Webb December 13, 2011 at 10:11 pm

“We can reset the tone anytime you like GW…..or not. But you tend to call anyone disingenuous who you can’t shoehorn into your Manichaean worldview of heroic libertarians versus statists. Don’t expect me to cooperate in feeding your stereotypes.”

Nice job in resetting the tone! You tend to make arguments that, when all the facts and circumstances are considered, are not valid. I am confident that you know better. So why do you try the sleight of hand style of argumentation?

Seth December 12, 2011 at 12:36 pm

‘This is like saying “the math is the math, there are only seven days in a week.” ‘

Actually, it’s not like saying that at all.

GAAPrulesIFRSdrools December 12, 2011 at 1:27 pm

But we know with as much certainty as we can know an economic fact that we are nowhere close to the point on the Laffer curve where Obama’s statement would be empirically false, and we haven’t been in recent memory. Do you disagree?

I have one dispute with the Laffer curve, in that it presumes that the objective of the tax system isn’t to raise sufficient what is necessary, but to extract the most that can be extracted.

I would like to know on what basis that you assert that we know with “certainty” “we are nowhere close to the point on the Laffer curve where Obama’s statement would be empirically false”.

John Dewey December 12, 2011 at 3:24 pm

“I have one dispute with the Laffer curve, in that it presumes that the objective of the tax system isn’t to raise sufficient what is necessary, but to extract the most that can be extracted. “

I have read a couple of books and a dozen essays by Laffer. I do not think he promoted the Laffer curve in order to maximize revenue. The objective of Laffer and other supply-side economists was to promote economic growth. The Laffer curve merely shows that lowering tax rates to increase economic growth need not result in a reduction in tax revenue. That curve overcomes the objection to one of the chief tools supply-siders would use to grow the economy,

g-dub December 12, 2011 at 9:16 pm

I have one dispute with the Laffer curve, in that it presumes that the objective of the tax system isn’t to raise sufficient what is necessary, but to extract the most that can be extracted.

It does not make this presumption. It is a logical proposition that at least one peak has to exist somewhere for the “function.” (I use the word “function” only in the conceptual sense, as the function implied by the logic is not ever really known empirically: a functional model generated from data.) It simply says that logically there has to be a peak, not that a tax revenue system should be there.

Laffer was, for one thing, telling the tax hogs “don’t cut your own throat even though you want to cut ours.” It is true that the tax hogs do want max revenue. The hogs will happily lower tax rates if they think that max rev will be accomplished; after all, they operate on the motive of pure greed. But Laffer certainly wasn’t saying that was the thing to do.

GAAPrulesIFRSdrools December 12, 2011 at 10:27 pm

It does not make this presumption.

Not explicitly, but it does suggest there’s a tax rate that optimizes collections. In the hands of a politician, well…

Dan J December 13, 2011 at 12:30 am

Art Laffer is an economist, first, and politically motivated second. From what I have read and heard from him, promoting economic growth is first on his list while still maximizing revenue as the two are absolutely intertwined.
The bigger problem I see, is the narrative of trying to promote maximized GOVT revenues in taking money from the people. This should not be the goal. Promoting and maximizing freedom and upholding oaths taken to protect the ideals stated in the Constitution……. Maximized freedom from the dictates of other men…aka GOVT.

John Dewey December 13, 2011 at 10:18 am

Dan J:: “From what I have read and heard from him, promoting economic growth is first on his list while still maximizing revenue as the two are absolutely intertwined.”

Please provide any evidence which supports this assertion that Arthur Laffer ever desired to maximize government revenue, either as a primary or secondary goal.

Can you explain how “promoting economic growth” and “maximizing government revenue” are absolutely intertwined?

g-dub December 13, 2011 at 12:17 pm

jd> “Please provide any evidence which supports this assertion that Arthur Laffer ever desired to maximize government revenue, either as a primary or secondary goal.”

Seconded — I have not seen him say anything like this when I have seen him (many times) on TeeVee.

Dan J December 14, 2011 at 12:12 am

The Laffer curve model is the very basis of recognizing that there is an equilibrium (a moving target, albeit) in tax collection and promoting Econ growth. If your being realistic in sense of running federal GOVT under the current system, in which debt is owed and/or there is a yearly expense from assumed tasks to be performed by federal GOVT, rather then they way we…..less GOVT folk….. Or so I assume…….. (from big ‘L’ Libertarian to little ‘l’ Libertarian)……….. Then GOVT must have some revenue to pay for these expenses. His model is to show that there is an equilibrium in tax collection. Too high, and revenues shrink from the dynamics of an economy that reacts by tax avoidance or reduced Econ activity from the weight of GOVT pulling the very will to continue striving for greater success. Too low, and lesser tax incentive is possibly unlikely to to spur greater Econ activity to gain maximized tax revenue. The Laffer curve is a very model to show where a tax rate could be to maximize revenues without doing greater Econ harm which in turn lowers revenues. and, under current circumstance, the U S GOVT of last 100 years…. Or so…….. Whatever…… The GOVT has been allowed to be put into a position of assuming the need to pay for things…. Things…. Military …… Welfare…… SS…. Etc.,…. Etc.,…..
I don’t think I was being outrageous here.

I don’t see how the two are not intertwined.
generated.

John Dewey December 14, 2011 at 10:14 am

Dan J, nothing in what you just wrote early this morning provides any evidence that Arthur Laffer desired to maximize revenue. What you wrote is your interpretation of wehat the Laffer curve is. Arthur Laffer does not interpret the graph this way in any document I have ever seen.

Jon Murphy December 12, 2011 at 11:44 am

I didn’t see the interview. Did anyone on 60 Minutes call him out on that (although, since we are talking about it here, I assume the answer is ‘no’).

indianajim December 12, 2011 at 3:48 pm
Jon Murphy December 12, 2011 at 4:00 pm

Thanks

Invisible Backhand December 12, 2011 at 12:02 pm

“Steve, the math is the math. You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else.”

This answer reveals a deplorable understanding of either economics or math or both.

Do you seriously think Obama doesn’t understand an issue he’s been working on for almost three years? Of course you don’t, it’s just transparent Foxnews level slander.

Ben Hughes December 12, 2011 at 1:13 pm

Sounds like a variant of http://en.wikipedia.org/wiki/Argument_from_authority to me. Did the Soviets understand economics because they’ve been “working on” it for decades?

The Other Eric December 13, 2011 at 3:05 pm

LIKE

alanstorm December 12, 2011 at 1:21 pm

IB, your comment reveals a deplorable understanding of reality. To judge by the bizarre and fantastic statements emanating from the White House since early ’09, he indeed has no understanding of economics or math, and never did.

On what do you base your assertion that he understands reality of any kind, in any way?

WhiskeyJim December 12, 2011 at 2:00 pm

Exactly. There is every reason to believe he firmly believes the Marxian class warfare view of the world, and that is the one he understands.

Nothing else matters. I am sure he does not even believe western Europe is nonviable as structured.

Invisible Backhand December 12, 2011 at 2:21 pm

He’s president and you’re not, random blog commenter? Oh right, that would be an appeal to authority again.

Dan J December 13, 2011 at 12:32 am

He understands economics……. Intent is to undermine and create a situation for promoting Marxism and calling for the demise of capitalism.

GAAPrulesIFRSdrools December 12, 2011 at 1:29 pm

If he’s not ignorant of the error, then he’s just a liar and you are a errant, disputatious troll.

anthonyl December 13, 2011 at 1:21 am

You have an unhealthy trust in public figures.

Speedmaster December 12, 2011 at 12:09 pm

>> “Steve, the math is the math. You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else.”

I guess a dinner party conversation between Obama and A. Laffer could be rather awkward. ;-)

Jon Murphy December 12, 2011 at 12:13 pm

Dude, I would pay to see that.

Invisible Backhand December 12, 2011 at 12:15 pm

Well we did try that, did it work? Did you account for the exogenous variables? Did you factor in during Reagan’s two terms oil dropped from $28 a barrel to $8? How did you handle Reagan’s deficit, debt and interest on the debt?

Tried it again during the GW Bush years…how did that work? How do you account for the Clinton surplus then?

Like Jesus said, there’s always an answer that simple, reasonable, and wrong.

Slappy McFee December 12, 2011 at 12:24 pm

Whew, I guess its a good thing that businesses everywhere raise their prices the day after Thanksgiving because with all those shoppers, just think of the money they make.

yep, it is a bizzare world you live in.

Jon Murphy December 12, 2011 at 12:24 pm

I didn’t know Obama and Laffer had dinner during the Reagan years, the Clinton years, and the Bush years. They must be good friends!

Invisible Backhand December 12, 2011 at 1:02 pm

Invisible Backhand: “I’m so hungry I could eat a horse.”

Jon Murphy: “How could you even think that! A horse is a beautiful animal…”

Dances with Wolves December 12, 2011 at 3:43 pm

All mammals and birds are beautiful to me. Their lives are sacred. I’m especially fond of wolves.

vidyohs December 12, 2011 at 3:59 pm

Horse tastes great, filleted or ground, makes great burgers.

Wolves, not so much, they are desperation food, unlike Chihuahuas which are great on a Rotisserie.

Dances with Wolves December 12, 2011 at 9:20 pm

Vidyohs, you’re right! Pheasant in a red wine sauce is wonderful! Bon appetite!

Hector December 12, 2011 at 12:13 pm

True – there are circumstances under which lowering taxes CAN increase revenue. But (1) who guarantees that this will happen? and (2) it will happen immediatly? Maybe Obama is neclegting secondary and dynamic effects in his statement: but whoever says the idea that cutting taxes will NOT lead to a decrease in government revenue still has to come up with the CONTRARY PROVE that the indirect effects are larger than the first order effect. In case of income taxes and government revenue, for example, scientific evidence is in favor of Obama’s conclusion.

Obama’s statement is not mathematically precise – but what is actually stupid is indicating that just because revenue could go up after a tax raise, a decrease in taxes raises revenues.

Jon Murphy December 12, 2011 at 12:22 pm

No one said a decrease in taxes always raises revenues.

The actual statement was ” If the percentage cut in the price per unit is smaller than a corresponding percentage increase in the number of units for which the now-lower price is paid, revenues don’t fall; they rise.”

In other words, if the percentage change in the item is larger then the percentage decrease in the tax, then revenues will rise.

Think about it this way: which generates more revenue (remember revenue is price*quantity)

Selling one cheese burger for $1,000 (Revenue = 1*$1,000 = $1,000)
Selling 1000 cheese burgers for $2 (Revenue = 1,000*$2 = $2,000).

In this case, the “tax” fell by 99.8% but the quantity rose by 99,900%, so revenue grew by 100% (Yes, I know these numbers are ridiculous, but I figured the scale would make the point clearer).

See?

The question is, then, would the rise in taxes be greater than the rise in quantity of item being taxes (income, let’s say). If the answer is “yes,” then revenue will drop. If “no”, then revenue will rise.

Greg G December 12, 2011 at 12:27 pm

I have to admit, this craze for unending tax cuts is good evidence for Public Choice Theory. No individual voter wants an insolvent government. But they want their tax cuts and keep supporting politicians who promise them no matter how big the deficit or how many wars we are fighting.

Federal tax revenue as a percentage of GDP is at the lowest point in many decades. Proposed solution: more tax cuts.

Jon Murphy December 12, 2011 at 12:32 pm

Actually, Greg, I theoretically agree with you (meaning I see where your conclusion comes from, not that I would support such a proposition).

Methinks1776 December 12, 2011 at 12:42 pm

Great. We should weight votes by the percentage of income paid in taxes as a way to deaden people’s instinct to use government to rob their neighbours. The higher the percentage, the more weight their vote gets.

Greg G December 12, 2011 at 1:20 pm

Why not go full boat and auction off government to the biggest income producer in a fully transparent process? With Methinks method enough of the medium sized income producers might be able to send in jack booted thugs to rob the richest guy. This way his rights are protected.

Methinks1776 December 12, 2011 at 1:31 pm

No, dippy, not the highest income producers. Those paying the highest percentage of their income in taxes. If you think about it hard enough, I’m confident that one day you’ll understand the difference. Well, maybe “confident” is too strong a word….

Greg G December 12, 2011 at 1:38 pm

Same problem. 51% of them could send in jack booted thugs to rob the wealthiest in some creative new ways. Accountants can be very inventive as we have seen.

Methinks1776 December 12, 2011 at 1:44 pm

No, dear. You may be a stupid, bloodthirsty, violent thug at heart, but most people aren’t – which is why they launder their violence through the voting booth.

Seth December 12, 2011 at 12:52 pm

And, I believe gov’t spending as % of GDP is at its highest point, yet you don’t mention spending cuts? Why?

Sam Grove December 12, 2011 at 4:43 pm

Spending cuts?
What are spending cuts?

Hal December 12, 2011 at 1:15 pm

This is why the constitution sets up limited government, with a democratic republic, not a pure democracy. The drafters of the constitution as well as de Tocqueville, clearly anticipated politicians like TR, FDR, LBJ, W, and Obama (along with all the other petty tyrants), as well as the greed of voters, and tried to limit their power grabs. But as history shows the constitution failed. There is no way to stop the avarice of a majority of those willing and able to steal from the minority.

Hector December 12, 2011 at 2:00 pm

You discredit yourself by using the term stealing. If taxing is stealing, than it doesn’t matter if its 9% or 90% – hence no taxation = no public services. Basic public economics tells me that cannot be optimal. The truth is that taxation is a legal form of redistribution, just as the market is a system of redistribution. Our debate should be about: do I want to live in a country with high taxes and a (potentially) more even wealth distribution or do I want to live in a country with low taxes and a more uneven distribution.

Jon Murphy December 12, 2011 at 2:03 pm

“no taxation = no public services.”

Why? In many places around the world, and in some places inside our very own US, governments do not provide public services: private fire departments, private police, privately built roads and infrastructure.

Hal December 12, 2011 at 2:39 pm

Where did I equate taxation with stealing? I wrote “There is no way to stop the avarice of a majority of those willing and able to steal from the minority.” Since the majority of Americans now receive direct payment of some sort from the federal government, while fewer and fewer people pay ever more in taxes, there is really no other conclusion to draw.

But I will clarify so you can understand. Taxation to provide legitimate services government, which are explicitly defined in the constitution is not stealing. Using government for “social” transfers of wealth is stealing, “social” programs such as welfare, SS, Medicaid, Medicare, etc.

Additionally, market distribution is not “redistribution”. Market distributions are determined by cooperative production of value based on the preferences of consumers. Government “social” redistribution starts from the baseline conclusion that consumers’ preferences are wrong, so take wealth and redistribute it according to bureaucrats’ and politicians’ preference.

A majority of voters think they are deserving of more than is proportionate to the value they’ve produced, so turn to politicians to take from one group and give to themselves. SS and Medicare are two of the most evil programs because not only is this straight up theft, but theft perpetrated by the rich on the poor. Those over the age of 65 are 47 more wealthy than those between the ages of 18 and 35, yet politicians take from these young people and give to rich, old people. On top of this, these programs encourage people to not save as much nor take care of their bodies as much as they should because they know they can simply use the force of government to take from young, though poor, people.

Hal December 12, 2011 at 2:40 pm

Edit: 47 times more wealthy…

vikingvista December 13, 2011 at 2:40 am

“The truth is that taxation is a legal form of redistribution, just as the market is a system of redistribution.”

The truth is that taxation is the violent expropriation of wealth from innocent people, while the market is the voluntary exchange of wealth. Whether or not one or the other is legal, just tells you how to judge the law.

Dan J December 14, 2011 at 12:15 am

The market is voluntary…. Taxes are not……

Salt Water Economist December 12, 2011 at 4:48 pm

Hal,

You left out Lincoln. What about his freeing the Slaves. Where was that in the Constitution?

And, Clinton, he raised our taxes and balanced his budgets. That had to be unconstitutional, wasn’t it?

kyle8 December 12, 2011 at 5:30 pm

Lincoln did indeed violate the constitution in a variety of ways.

Clinton raised taxes, but then went along with Newt and lowered capital gains taxes, this remarkable “tax cut for the rich” is what got the economy of the late 1990′s soaring.

You silly lefty dingbat.

Hal December 12, 2011 at 6:28 pm

I left out a lot of constitutional violators. So? Is your argument that since I didn’t mention them all, my argument falls apart? If so, please explain how.

Darren December 12, 2011 at 6:43 pm

No individual voter wants an insolvent government.

Very few. All it takes is for government to stop spending like a high school kid who found an American Express card. Voters (the ones getting stuck with the tab) might be a tad more willing to trust them with their money.

Dan J December 13, 2011 at 12:39 am

Oh, because threat of GOVT confiscating more of your money (higher taxes) is a huge incentive to start investing for returns that would have less I your pocket or portfolio.
Higher taxes on my income is a greater incentive to lower my prices and claim more on my income.
Ha!
Who is that working for Illinois? The Chicago Merc, Sears, Caterpillar are all threatening relocation or investments in other locales. Indiana has already successfully courted businesses to relocate to a fiscally sound location with lowered taxation.

nailheadtom December 12, 2011 at 12:17 pm

If the president wants to raise revenue, as apparently he does, why does he have to get it from taxes? Rather than steal the money of US citizens, why not steal the money of others? Can’t the US government threaten the residents of some place like Argentina or Zambia with the same punishment that they would visit upon Americans if they don’t pay up? What’s to stop the US military from collecting the cash from just about anybody?

Randy December 12, 2011 at 12:23 pm

I like it. I have seriously considered that the problem with the military actions of the last century or so have been all cost and no benefit. We should follow the Roman model and reverse that.

Don December 12, 2011 at 12:41 pm

*Somebody* is benefiting.

Randy December 12, 2011 at 12:49 pm

Good point… the “military industrial complex” and all that…

kyle8 December 12, 2011 at 5:33 pm

That might appear a bit crude. Instead they could be invited to pay for their own “protection” Under our defense umbrella.

If they refused to pay then it should be no surprise if they then fall prey to “terror” incidents.

vikingvista December 13, 2011 at 2:45 am

“If they refused to pay then it should be no surprise if they then fall prey to “terror” incidents.”

Another good idea–so long as the choice is available to everyone, including Americans.

vikingvista December 13, 2011 at 2:43 am

It’s a great point. What the US government does to us would be widely recognized as an act of war if they did it to a resident of another country. And that’s what it is–an act of war against the citizens of this country.

g-dub December 14, 2011 at 12:14 am

Or, you could get your central bank to print some dough and somehow sucker some foreigners into accepting it, including certain asian countries.

Remember when that chinese central banker said “we hate you guys” way back shortly after TARP. lmao!

Randy December 12, 2011 at 12:20 pm

It is a significance issue, and the politicians want to have it both ways. When it comes to taxes or regulation they want to claim that their infinite repeating incremental increases have no impact, but when it comes to fiscal or monetary policy they want to claim that their interventions are absolutely critical. The truth is that in an economic environment in which political behavior plays such a large and significant role, all their actions, even the most seemingly minor, are potentially critical.

Invisible Backhand December 12, 2011 at 12:22 pm

Relevant:

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 the paper’s analysis.

http://en.wikipedia.org/wiki/Laffer_curve#2005_US_CBO_estimates_on_tax_cuts

The Laffer curve is just a myth used by people with a vested interest in lower taxes. Kind of like how a 16 year old boy tells his girlfriend that having sex will cure her acne.

Randy December 12, 2011 at 12:28 pm

“people with a vested interest in lower taxes”

Yes, such people do exist. I’m glad that at least you see that.

Seth December 12, 2011 at 12:47 pm

How does a CBO estimate of the Laffer curve effects of a tax policy change prove the Laffer curve to be myth?

Dan J December 13, 2011 at 12:52 am

CBO? Ha…. You mean the group who changed their calculations after an invite to the White House?

GAAPrulesIFRSdrools December 12, 2011 at 1:33 pm

“…like how a 16 year old boy tells his girlfriend that having sex will cure her acne.”

Man, you ran in a stupid crowd.

Invisible Backhand December 12, 2011 at 2:28 pm

I can tell just from that you don’t have clue one on how to talk the panties off.

Talk about a stupid crowd–you hang around here and believe dim bulbs like Methinks, Dan H, Vidyohs, I Am Sam…

GAAPrulesIFRSdrools December 12, 2011 at 2:36 pm

I can tell just from that you don’t have clue one on how to talk the panties off.

Even when I was young, I preferred the classier approach to discourse with the opposite sex, as opposed to say preying on some girl’s sensitivity with her appearance. Then again, I dated girls with a brain who wouldn’t buy a line like that, or the Marxist drivel you spew.

Somehow I think your main squeeze is named Rosey…

g-dub December 12, 2011 at 6:56 pm

The Laffer curve is just a myth used by people with a vested interest in lower taxes.

“It’s a familiar proposition that if you raise a tax too high, revenue actually falls, because people make such extraordinary efforts to avoid it… Nobody questions that something like the Laffer curve exists; but even the supply-siders are skeptical about whether the U.S. economy is really in the ‘backward-sloping’ section.” –Paul Krugman, p95 _Peddling Prosperity_, 1994

Invisible Backhand December 12, 2011 at 7:56 pm

Exactly! It’s such a distilled abstraction it exists only in the ethereal plane, along the rational consumer and the indifference curve.

JS December 12, 2011 at 8:17 pm

The curve exists, but no one knows what it looks like.

Invisible Backhand December 12, 2011 at 8:56 pm

Shhh! Austrian economics means things they like (laffer curve) are completely knowable and things they don’t (jobs created by the stimulus) are completely unknowable.

g-dub December 12, 2011 at 9:00 pm

Conceptually, in its most simple form, is a “tit.” The emphasis is on “conceptual.”

You’re saying no one knows exactly what a laffer curve exactly looks like, for any given situation, and that is true. I personally haven’t seen anyone I respect present it as something scientifically certain and have done with data and mathematical models.

From above:
JS> Laffer took known logical economic principles and introduced a theory that violated other known economic principles. It’s always possible to say that one thing will cause another, as long as it is consistant with principles of human action, such as the law of marginal utility or the disutility of labor, etc., but it is impossible to measure by how much.

I’m not sure where you get this, or what economic principle is violated. I have heard Laffer talk many times. From what I have heard, he has never indicated any sort of precision in the matter, nor implied that it can be made so.

Let’s face it. He was trying to express a simple idea that raising taxes to raise revenue has hazards for those who think too simply about it — mainly the “tax the rich” hogs. Heck, the story is that he expressed it first on a napkin, not a grand treatise of pretend science. I assert that it was never to be anything more than a simple idea of the hazards mentioned. Yes, he gave politicians who wanted to lower taxes a weapon crafted in logic. It is logical.

In the limit, and taken ideally, there are the two extremes of zero taxation and 100% taxation. The revenues are zero for both of those cases. Since we know revenue is collected, we know there is at least one peak. We don’t know if there are two peaks (bimodal) or whatever, or how it exactly changes. We don’t know how flat it is near the peak(s?) and all sorts of stuff. It doesn’t mean the concept, when not expecting too much out of it, is wrong.

People should just use “the laffer curve” (a concept, not a known empirical fact) as cautionary device, and little more, for what I have seen. Yet it is not a wrong concept, nor totally useless.

g-dub December 12, 2011 at 9:20 pm

I mistakenly left out this part from JS, from another place:

JS> The arrogance of Laffer is to pretend to be able to measure.

Dan J December 13, 2011 at 12:50 am

The only people not with a vested interest in lowered taxes are GOVT officials who benefit greatly with more controls (businesses and individuals who show up to Congress looking for advantages in tax breaks) and potentially more money to spend on pet projects with their names attached like an airport that wastes money… Pennsylvania.
The other group without a vested interest in lowered taxes are those who pay none to start with and/or receive money from the GOVT for a hangnail. Lazy leeches who suck on the utters of the productive. But, to be fair, many have been incentivized to do very little and just enjoy the free ride.

Slappy McFee December 12, 2011 at 12:22 pm

These arguments would be easier if we agreed that taxes don’t only include what is collected.

GAAPrulesIFRSdrools December 12, 2011 at 2:37 pm

When you have those that tell you tax cuts are “spending” good luck with that.

Matthew December 12, 2011 at 12:26 pm

It is unfortunate that Obama is given the time on 60 minutes for an interview for the following reasons. Ingore his existence.
Obama voted present 129 times as a Illinois Senator
Obama continues to divide America
Obama will not make any of the tough decisions facing America
Obama does not understand any Economic theory
Obama surrounded himself with the corrupt
Obama will never develop a golf swing, because he has no spine.

Hector December 12, 2011 at 12:40 pm

After reading this article I actually think about voting for Cain because after his 9-9-9 tax reform, government revenue will have increased enough to repay all debt in no time!

Chucklehead December 12, 2011 at 7:54 pm

Suggested edit
Obama surrounds himself with corrupt cronies.

Just as Bernanke answer to everything is print more money, Obama’s answer to everything is tax the rich.

Everywhere is freaks and hairys
Dykes and fairies
Tell me where is sanity?

Tax the rich, feed the poor
Till we run out, rich no more

I’d love to change the world
(Dee-dee-dee-dee)
But I don’t know what to do
(Dee-eee-dee-dee-dee-dee)
So I’ll leave it up to you-ooo-ooo
(Be in my prayer)

Population, keeps on breedin’
Nation bleedin’, still more feedin’
Economy

I’d Love To Change The World
(Alvin Lee) – Ten Years After (Nottingham England)

Matt December 12, 2011 at 12:32 pm

It doesn’t matter what Obama personally does or doesn’t think is right. He’s a politician and he’s appealing to what he believes his electoral base and independents want him to do.

Its simple incentives people.

Slappy McFee December 12, 2011 at 12:36 pm

Exactly…

William Freeland December 12, 2011 at 12:40 pm

The case is even simpler than this though it seems, although Professor Boudreaux is extremely eloquent in this post on the dynamic effects: well done. You can cut loopholes/”tax expenditure” and lower rates simultaneously with a positive revenue effect. I don’t think the government particularly need more revenue, but even simple models of our tax code which do not include dynamic effects seem to rebut this. Maybe the “someplace else” Obama is talking about is closing tax expenditures or I’m otherwise missing important context, but this looks very silly or at least deceiving on its face.

kyle8 December 12, 2011 at 5:36 pm

The magnificent attempt at deception is the very idea that what we need is more revenue when in fact our problems stem entirely from runaway government spending which has increased at a rate matched only by world war 2.

Bill December 12, 2011 at 12:47 pm

Right next door to where the president lives, the state of Maryland recently learned a lesson that seems to have been lost on the WH.

http://mjperry.blogspot.com/2009/05/exhibit-b-tax-rich-lose-rich.html

g-dub December 12, 2011 at 6:59 pm

That’s why the communists/marxists *really do* want world domination (one world government). The don’t want anyone to be able to “vote with their feet.”

Dances with Wolves December 12, 2011 at 12:49 pm

Years ago, I took Econ 2 (Intro to Macroeconomics) with a middle of the road econ professor, Bruce Brown. For example, he didn’t care much for the concept of corporate social responsibility; he was channeling M. Friedman.

I remember that he spent a fair amount of time explaining the difference between progressive and regressive taxation. I came away with the conclusion that progressive taxation was fairer and the way to go. I also remember that he spent 2 or 3 minutes talking about the Laffer curve, and I concluded that it was an oversimplification and not a very useful paradigm.

I don’t remember the teacher ever discussing the fact that progressive taxation could result in lower tax revenue. Apparently, the fairness of a progressive tax scheme overwhelmed the possibility of lower tax revenues.

You can look up Laffer Curve and Progressive tax on Wikipedia yourself.

Here is the “video profile” link to my former econ professor:
http://www.class.csupomona.edu/600/video-profile-dr-bruce-brown/

GAAPrulesIFRSdrools December 12, 2011 at 1:35 pm

All hail, copulates with lupines, for he has howled and we should be silent.

Greg Webb December 12, 2011 at 1:56 pm

GAAP,

Please save your vulgarity for the public john where you scribble your phone number and phallic graffiti.

GAAPrulesIFRSdrools December 12, 2011 at 2:38 pm

I can’t help it you were feril.

Greg Webb December 12, 2011 at 8:50 pm

GAAPRules is right. The silly Marxist and ecoterrorist is wrong and using my name again.

Greg Webb December 12, 2011 at 8:51 pm

BTW, my steak was delicious!

kyle8 December 12, 2011 at 5:40 pm

Sorry you could not grasp the Laffer curve, it is fairly easy to understand, and quiet important. Unlike many others on this site I do not oppose progressive taxation, As government does need some money then it makes sense to take it from those with the most ability to pay.

What I have trouble with is OPPRESSIVE taxation. Using progressivity, not to generate legitimate revenue, but to punish people and to redistribute wealth. That is nothing more than organized theft.

Greg Webb December 12, 2011 at 11:43 pm

Take an econ class and stop eating meat. We know what you think and it’s false. Your Louisiana cooking stinks as well.

Dances with Wolves December 12, 2011 at 11:58 pm

Crawfish! Oh my God, crawfish! They are yummy! You just drop them, live of course, in boiling water with onions and Zataran’s spices. Ummm mmummm good!

Babinich December 13, 2011 at 5:38 am

“Apparently, the fairness of a progressive tax scheme overwhelmed the possibility of lower tax revenues.”

Fairness? How and by whom is fairness guaranteed?

Greg Webb December 13, 2011 at 1:42 pm

Take an econ class. If you don’t understand why a progressive tax is fairer than a regressive tax such as a flat sales tax, then you need to do some more self-study. You comment simply shows your sheer ignorance.

Greg Webb December 13, 2011 at 2:00 pm

Pretender, you also pretend at knowledge of economics, among other things. Progressive income taxes are inherently unfair. Only a flat income tax rate would be fair to everybody. Sales taxes are different as they are a tax on consumption. So the more expensive toys that you buy the more sales tax that you pay. So, it may be considered fair too. But, we should not expect an ignorant troll to know better.

Greg Webb December 13, 2011 at 2:14 pm

I’m ashamed that we apparently have the same name. You are an empty suit without an iota of brains.

Dances with Wolves December 13, 2011 at 9:23 pm

Nah, Pretender. There is only one Greg Webb, and he defends the principles of limited government, individual liberty, equality, and the Constitution. You, on the other hand, are merely a leftist troll that has gone by many names here at the Cafe.

Don December 12, 2011 at 12:51 pm

The original post seems to assume that Obama’s statement was made in the context of all possible tax systems applied to all possible cultures to “prove” the statement wrong. There is no value in a post based on ridiculous assumptions.

An interesting post would probe the idea of what possibilities are there to lower some rates and get more revenue, given our current tax system and culture. That is, are we “past the hump” on the Laffer curve in any part of our taxcode? I can’t think of any.

Methinks1776 December 12, 2011 at 12:58 pm

Well, as long as you can’t think of any, then there’s really nothing to talk about, is there? Oh, the irony of your criticism of Don Boudreaux’s post for supposedly ridiculous assumptions while basing yours on assertion unadorned by evidence.

Don December 12, 2011 at 3:43 pm

Nobody else seems to have thought of an example either. I couldn’t find a good study, and this is not a federal tax situation, but cigarette taxes in NYC ($4.50/pack) might be past the hump.

Jon Murphy December 12, 2011 at 3:46 pm

What about the corporate tax rate? I cannot prove it empirically, but seeing as we have some of the highest corporate tax rates in the world and that companies keep some earnings overseas, that may suggest we are on the wrong side of the Laffer Curve.

vikingvista December 13, 2011 at 2:57 am

It’s important to remember that all the way down the left side of the Laffer curve, more and more people are paying taxes. That is, just because there’s a tax-revenue-maximizing tax rate, doesn’t change the fact that EVERY tax at any level is a disincentive to engage in the taxed activity. As you drop that rate down to zero, you will continuously attract businesses into this country. The optimal stimulating tax, is always zero.

g-dub December 12, 2011 at 7:20 pm

don> An interesting post would probe the idea of what possibilities are there to lower some rates and get more revenue, given our current tax system and culture.

Not really. Not in my lifetime has there been a good reason to “get more revenue” for the government. My hope has been to diminish the government’s revenue.

I like low taxes for their own reason. If the government gets more revenue simply because taxes were lowered (starting from a point on the negative slope region of the laffer curve), then I simply regard it as a negative externality.

g-dub December 12, 2011 at 7:21 pm

should non-:

Not really. Not in my lifetime has there been a good reason to “get more revenue” for the government. My hope has been to diminish the government’s revenue.

I like low taxes for their own reason. If the government gets more revenue simply because taxes were lowered (starting from a point on the negative slope region of the laffer curve), then I simply regard it as a negative externality.

Dances with Wolves December 12, 2011 at 1:05 pm

I don’t think that the 10 minutes spent watch Bruce Brown speak in his video profile will be wasted. He starts out by mentioning Adam Smith’s core ideas and goes on from there. At the time I took his class, I asked him if he would become an econ professor if he had to do it all over again. He said that he would have studied finance instead as he thought it would be more practical and profitable. I don’t know if he’d give the same answer today.

GAAPrulesIFRSdrools December 12, 2011 at 1:38 pm

Maybe not, but I’m pretty sure that in order to watch anything that you obsessively endorse, the viewer would have to be wasted.

Greg Webb December 12, 2011 at 1:48 pm

…, the viewer would have to be wasted.

You’re speaking from frequent six-pack experiences, no doubt. You must have an advanced degree in beer fermentation.

GAAPrulesIFRSdrools December 12, 2011 at 2:41 pm

You’re speaking from frequent six-pack experiences, no doubt. You must have an advanced degree in beer fermentation.

I went to Penn State in the early 1980′s. Enough said?

Greg Webb December 12, 2011 at 8:54 pm

GAAPRules, you are clearly better educated than Marxist with Fake Indian Name for Fictitious White Man.

Hal December 12, 2011 at 1:08 pm

Supposedly good economists believe this as well. This is in fact a large part of the first or second chapter (I can’t remember which since I read it a while ago) of Alan Blinder’s Hard Heads, Soft Hearts. If this “well respected” economist believes this, what do you expect others to believe, particularly those with an incentive to believe that lower tax rates do not result in higher revenues?

rjs December 12, 2011 at 1:09 pm

speaking of economics, there’s a new study of 18 OECD countries that concludes the the optimal top tax rate could be over 80%…

http://www.voxeu.org/index.php?q=node/7402

Slappy McFee December 12, 2011 at 1:39 pm

I always enjoy when intellectuals advocate theft and think that nothing bad will happen.

Greg Webb December 12, 2011 at 2:01 pm

Slappy,

You’ve been slapped silly. Reading your trite, useless comments are a theft of decent peoples time. Go troll elsewhere.

Fred December 12, 2011 at 3:33 pm

You’re not as clever as you think you are.

Greg Webb December 12, 2011 at 3:47 pm

Whatever you say, Freddy Krueger.

Fred December 12, 2011 at 4:15 pm

See you in your dreams sweetie.

Greg Webb December 12, 2011 at 8:56 pm

Silly troll. Slappy is right. Dunces with Fools is simply a Marxist troll.

Josh S December 12, 2011 at 1:14 pm

I guess in Obamanomics, Walmart should have some of the lowest revenues in the world, since they sell at such low prices.

Hector December 12, 2011 at 1:30 pm

…and in Joshnomics suddenly there are 1 billion us citizens paying income taxes just because they are so low.

Methinks1776 December 12, 2011 at 1:37 pm

Yes, Hector. Obviously, the population of the United States will suddenly triple to 1 Billion people when taxes are low enough. Can we assume this is one of the Brilliant Blinder insights you picked up?

When taxes are low enough, it’s no longer worth forgoing higher yielding taxable opportunities or spending valuable time trying to figure out how to avoid taxes. In other words, the opportunity cost of tax avoidance activities rises.

Hector December 12, 2011 at 1:48 pm

True. But how large is this effect, seriously? I believe that a world in which taxes are low and I spend time with my wife is better than a world in which taxes are high and I spend the time evading taxes – but this is a very different argument than the “revenue goes up when taxes go down” line.

Slappy McFee December 12, 2011 at 2:01 pm

For clarification, the theory states:

When tax rates change, revenues change. Arthur Laffer, as well as many of us here, believe it is an inverse relationship. Increasing tax rates result in lower revenues. Decreasing tax rates result in higher revenues.

To use your own example. When tax rates are high, you would choose to spend more time with your wife (rather than working) than you would when tax rates are low. You would also find more ways to hide income when rates are high.

There is a reason that no matter what the top tax rate has been for the past 60 years, only on the rarest of occasions has federal government revenue been able to crack 20% of GDP.

Jon Murphy December 12, 2011 at 2:05 pm

A brilliant point, Slappy.

Methinks1776 December 12, 2011 at 2:06 pm

Well, Hector, not everyone has the same preferences, opportunities and talents as you. You prefer less material wealth and more time with your spouse. That’s wonderful. Some people will want to spend more time working to secure their family’s financial future and their own retirement – not to mention satisfying their material wants and needs. Every person’s optimal combination is different. And it’s not all about time spent working either.

For instance, taxes reduce the after tax return for a given level of risk. Why take a giant risk on a start-up when you can invest in muni bonds and get a similar after tax reward for much less risk (if tax rates are high enough, theoretically, the tax- adjusted muni rate can be higher than the taxable rate)?

This is just a way of saying that you now require a higher pre-tax rate of return on any potential taxable investment to compensate you for the risk. Which, of course, means that the hurdle rates for projects will be higher and fewer projects will be economic (fewer will have an NPV of zero or higher because of the higher discount rate). That is, fewer entrepreneurs will be able to raise capital because the cost of capital will be too high. The implications for economic growth when the cost of capital rises are obvious. Less economic activity and less income. If there is less income, how do you expect to raise more revenue?

Think about it at the limit – why not raise taxes to 100%? Would you work at all? Excuse me…I should say “will you work to produce taxable income?”, for if you want to eat, you will work.

Hector December 12, 2011 at 2:20 pm

@ Methinks1776: You do have a point. But some of the effects you are pointing out (e.g. maybe I want to maintain my income even after a tax increase -> I work almost the same as before) actually imply that the Laffler effect will be small. Also, I believe that taxes can be distortionary and that dynamically, this effect can be large. But I have not seen any serious estimates / statistic evidence that e.g. an income tax cut would lead to higher government revenues in the same year. Some people here seem to argue this is the case…

Methinks1776 December 12, 2011 at 2:35 pm

e.g. maybe I want to maintain my income even after a tax increase -> I work almost the same as before

To maintain your income after a tax increase, you will have to work MORE than before, not the same amount. If you’re very poor, you may may have little choice than to work more (assuming, of course, the owner of the company at which you are employed has been able to negotiate sufficient rents from his friendly politician to make it worth his while to keep you employed).

Are you telling me that if I taxed away 90% of the next dollar you earn you will forgo time with your wife, your books, the TV or whatever else you enjoy doing to work just as hard as you did before to make the $0.10? You’d work just as hard and give up just as much, to receive less? If that’s the case, I have a job for you. Please email me.

John Dewey December 12, 2011 at 3:36 pm

Slappy McFee: “Arthur Laffer, as well as many of us here, believe it is an inverse relationship. Increasing tax rates result in lower revenues. Decreasing tax rates result in higher revenues.”

I do not think Arthur Laffer believes this to be always true. I think he believes it to be true at some points on the Laffer curve.

What I do think Laffer believes is that continuing to decrease taxes will continue to increase economic growth down to a very low level of taxation – the minimum level required for protecting life and liberty, ensuring property rights, and defending the nation. I do not think Laffer is an anarchist, or even as libertarian as Professor Boudreaux.

Slappy McFee December 12, 2011 at 4:30 pm

JD –

You are correct sir. I did leave out some details.

kyle8 December 12, 2011 at 5:46 pm

You believe what you believe because of inadequate education and because you obviously were not alive during the 1970′s

Back then when there were high marginal rates and literally thousands of little loopholes in the tax code, people routinely made decisions not based upon business but upon taxes.

The result was tying up billions of dollars in less than efficient or low-profit ventures, and paying an army of accountants.

vikingvista December 13, 2011 at 3:09 am

“only on the rarest of occasions has federal government revenue been able to crack 20% of GDP”

It would seem then, that the mechanism by which taxes change tax revenue, is through their effect on GDP. But GDP doesn’t follow a Laffer curve. GDP (to the extent it reflects free trade) is monotonic decreasing with tax rates.

That means there is a one-to-one mapping between tax rates and GDP. But that means, you can take any Laffer curve, and replace the tax rate abcissa with GDP.

The Laffer curve, then, really tells you at what GDP tax revenues are maximized.

Of course tax rate is a naturally upper and lower bounded variable, unlike GDP, so instead of GDP, you would really be talking about % of maximal potential GDP at any given time.

tms December 12, 2011 at 1:26 pm

When people say the Laffer curve has been discredited, my response is, “that’s like saying that the law of gravity has been discredited.”

Hector December 12, 2011 at 1:38 pm

True, the concept can not be discredited. But far in outer space, the law of gravity might not be very important for you and your decision making. Same with the Laffer curve. Some dynamic, secondary effects from tax cuts can be expected, but they are relatively unimportant.

Jon Murphy December 12, 2011 at 1:54 pm

“ome dynamic, secondary effects from tax cuts can be expected, but they are relatively unimportant.”

Why?

Hector December 12, 2011 at 2:09 pm

See above:

“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 the paper’s analysis.

http://en.wikipedia.org/wiki/Laffer_curve#2005_US_CBO_estimates_on_tax_cuts

There are a host of reasons for cutting taxes (especially due to secondary and dynamic efficiency effects). But the scientific evidence regarding the effect on government revenue indicates the Laffer effect is not important (28 vs 100%).

Jon Murphy December 12, 2011 at 2:13 pm

All due respect, Hector, I am hesitant to trust a CBO report. Often times, I would not call their methods scientific. In their research on stimulus spending, for example, the question they ask is “Assuming the stimulus created jobs, how many jobs did it create?” All due respect, the CBO more often then not starts with the assumption that they were correct, and then go about proving it.

Additionally, I fail to see in your post why the secondary consequences of a tax cut are unimportant.

Methinks1776 December 12, 2011 at 2:26 pm

Hector,

There’s something I remember from an intermediate macro text written by Barro that I used to have in my library:

Here’s what happened in after the 1986 tax reform which cut tax rates for all brackets: Tax revenues from middle income earners declined. It turns out the middle class spends everything it earns. Tax revenue from the higher earners increased – more than offsetting the decrease from the lower brackets . It turns out that individuals in higherr income brackets tend to invest more of their disposable income and have more flexibility in how the receive and declare their income.

But, this matter little, I think. The government has run up unsustainable debt and shows no evidence of slowing down. If taxes were increased to 100% on the top quintile, it wouldn’t be enough to cover government’s costs for more than a few months – and, of course, they’d only get to collect whatever revenue it can get once.

I suspect the only way to get out of this pickle is to rob every saver through inflation (which is what I suspect will happen) or to significantly pull back the regulatory and tax drag on the economy to provide incentive (and remove barriers) to investment and grow our way out of the hole politicians have dug. I’m not optimistic.

Randy December 12, 2011 at 3:06 pm

I expect the inflation approach. Its the only method that can actually work (i.e., solve the “problem” of politicians owing a lot of money) and still allow the politicians to be reelected. Inflation is something that can be easily sold by propaganda as either something that “just happened”, or something that the other guys did.

Don December 12, 2011 at 3:56 pm

Speaking of inflation robbing savers, if “savers” equals idle capital, does disinflation rob productive capital? Which is better for growth, rewarding idle capital or productive capital?

Economiser December 12, 2011 at 4:15 pm

What’s the difference between “idle capital” and “productive capital?”

kyle8 December 12, 2011 at 5:49 pm

I am sure they can inflate the economy (heck they have already been trying real hard) And somehow blame it on China, wall street, Or Terrorists

Methinks1776 December 12, 2011 at 5:59 pm

…wall street, Or Terrorists

I’m told those are synonyms.

vikingvista December 13, 2011 at 3:28 am

“Speaking of inflation robbing savers, if “savers” equals idle capital, does disinflation rob productive capital? Which is better for growth, rewarding idle capital or productive capital?”

The mechanism is key. If the mechanism of inflation is not robbery, then nobody is getting robbed.

As far as what is better, central bank monetary inflation, or deflation as a natural result of economic growth, it depends upon who you think makes better use of resources–the government or millions of individual producers. Monetary inflation shifts resources to the government. Production inflation (natural money deflation) shifts resources to those who are most productive. Of course, one benefit is that runaway production inflation is never something you need worry about.

SaulOhio December 12, 2011 at 1:54 pm

The Laffer Curve has not been discredited. Its just that you have to be careful about its meaning, and how it works. It most definitely does not say that a tax cut will always result in an increase in revenue.

And one big problem comes from looking at it too literall and mathematically. You can’t know where you are on the curve, so you don’t know if a tax cut or a tax increase will increase revenue. And all sorts of other factors will have an effect, such as regulation, inflation, security of private property rights, recessions and recovery, and changes in all of the above. So you can’t plot a nice clean graph of a nation’s Laffer Curve and find out whether or not you should cut taxes.

So the Laffer Curve has limitations. But the essential idea it expresses is still true, that as the rewards of tax evasion and avoidance are reduced by a tax cut, people will evade and avoid taxes less. More will be produced, so there is more to tax.

SmoledMan December 12, 2011 at 2:18 pm

Never mind for a moment about the Laffer Curve. Where are we as a society in terms of not vilifying wealth creators? All I hear from the media and government officials is a daily demonization of the people that make this country great. A steady stream of invective from people like Obama, Krugman, DeLong and Warren. You would think THEY made this country great?

steve December 12, 2011 at 4:29 pm

Not what I hear. I dont hear people going after Gates, Jobs and the owners of most companies. People are pretty fed up with over 8% of our economy going to the financials when they crashed the world economy.

Steve

SmoledMan December 12, 2011 at 4:33 pm

The only reason liberals don’t go after Jobs is because he was one of their own. Otherwise Gates didn’t kowtow to the leftie establishment and they went after him. Now they leave him alone after he paid them off with billions for “the poor”.

Tor Munkov December 12, 2011 at 5:19 pm

Jobs neXt computers also had a crucial role in creating the World Wide Web, now including 3 billion people.

As to Gates; The hammers of war and fascism did indeed run Gates out of the world changing tech industry model he himself created. Undaunted, he took his revenge in the arena of humanitarianism.
As only one man with the help of his wife and family, he is singlehandedly a greater humanitarian force than the entire criminal clusterf#$k known as Washington D.C.
His Global Alliance model increasingly saves more and more lives now at a 500 thou a year pace.
Initially he attacked excess fertility, but quickly switched on the fly to mass production of vaccines to improve human life spans and quality.
His Global Alliance today has a 36 Billion endowment having already achieved the following:
3.5 million lives saved from Hep B. / 1.2 million lives saved from measles / 600 Thou saved from Hib bacteria / 500 thousand saved from whooping cough / and 200 thou saved from yellow fever and assorted other maladies.
When Gates was denied the fruits of his labors, he handily adjudicated himself and appears likely to long outlast the kleptocractic fumblings of a soon forgotten America permanently pelted off the world stage by a unanimous international barrage of rotten vegetables and handmade brickbats.

kyle8 December 12, 2011 at 5:56 pm

Have you ever considered the Irony? He first attacked fertility as no doubt a surrogate for the dangers of overpopulation. The he switched to providing medicine and sanitation so that the third world people will be enabled to live longer, have a higher live birth rate, and increase their population even more.

Although I do not begrudge the actual human aid to real humans he is providing I wonder as to the overall long term feasibility of his benevolence.

Western nations have been in the humanitarian racket for at least two hundred years and I have rarely seen any example in which this aid did not backfire or do as much harm as good.

(I am not counting temporary aid in the wake of a natural disaster, I am talking about ongoing aid programs.)

Tor Munkov December 13, 2011 at 1:59 am

@kyle8. Turns out Malthus was completely wrong. Yes less deaths and healthier people have the option to produce more children. It turns out, that they choose not to though. Once 3rd worlders are convinced their children will survive, they consciously choose a smaller number of children for the same reasons as 2nd and 1st worlders.
GAVI isn’t really a charity, its a more like the Walmart of vaccines and also an oversight system that brutally shames leaders which are lagging behind.
It may be a new entity type thats suitable to crowd out and expose other 1st world monopoly inefficiencies as well.

Dan J December 14, 2011 at 12:20 am

Whether they choose to have children at rate of more than two per couple ………. It would seem that it is not an overnite choice….. Over time this occurs…… And for overpopulation nut jobs….. This is not fast enough….

Don December 12, 2011 at 5:47 pm

Hedge fund managers can a billion dollars and pay just 15% tax rate, so as a society we are pretty gentle on the genteel.

Methinks1776 December 12, 2011 at 5:57 pm

You have to stop repeating total bullshit or people will stop taking you seriously.

Hedge fund managers to not pay a 15% tax rate. Most hedge funds trade – which means their holding period is less than a year and is taxed at the regular income tax rate.

Private equity and venture capital firms invest in and develop companies for years – riskier than short term trades because of the extended time horizon. They make longp-term investments and those are taxed at the 15% rate.

JS December 12, 2011 at 8:27 pm

Laffer took known logical economic principles and introduced a theory that violated other known economic principles. It’s always possible to say that one thing will cause another, as long as it is consistant with principles of human action, such as the law of marginal utility or the disutility of labor, etc., but it is impossible to measure by how much.

The arrogance of Laffer is to pretend to be able to measure.

I Miss Nixon December 13, 2011 at 7:20 am

SaulOhio

No only has the Laugher curve been completely discredited, it has been show to be dangerous

Here is a link to a chart showing the long term decline in investment in the United States, caused by tax cuts. Before the 1986 Reagan tax reform act, investment reached almost 24% of GDP. Look at the trend since. This is why we have a very sick economy.

Investors have taken their money and invested elsewhere, because they knew that tax cuts would destory the country in three ways. First, they would deprive us of effective gov’t. Second, they would deprive us of the multiplier, which is above 1, of gov’t spending, and third, they would lead to debt.

http://www.tradingeconomics.com/united-states/investment-as-percent-of-gdp-imf-data.html

SmoledMan December 12, 2011 at 2:16 pm

Never mind about Big Macs. Take a look at he tech industry. A PC that costs $300 now is 100x as powerful as a PC that cost $2000 in 1983. Price per performance/storage/capability is always going down in the computing industry. It also happens that the computing industry is one of the least regulated in the world. Draw your own conclusions.

SaulOhio December 12, 2011 at 5:11 pm

“But that industry is different.”

There are always excuses why free market principles that work in one context absolutely won’t on others. Always without real evidence.

Hector December 12, 2011 at 6:34 pm

The rooster makes cock-a-doodle-doo in the morning and each morning, the sun rises. Draw your own conclusions. I think that’s about the same logic as your post. Ever heard something like learning curves (that maybe just aren’t that steep for Bic Macs)?

John Dewey December 12, 2011 at 3:53 pm

Here’s words from Arthur Laffer about his famous curve:

“The Laffer Curve does not say that ‘all tax cuts pay for themselves’ as many people claim. What is true is that tax rate cuts will always lead to more growth, employment, and income for citizens, which are desirable outcomes leading to greater prosperity and opportunity. There is, after all, more to fiscal policy than simply maximizing government revenue.”

from the Laffer Center for Supply-Side Economics

steve December 12, 2011 at 4:30 pm

The Bush tax cuts are still in effect. We do not have economic growth. Look at a chart of GDP growth. Compare that with tax rates. What do you find?

Steve

SmoledMan December 12, 2011 at 4:32 pm

Ah yes, because tax rates are the sole variable in the economy. Never mind Obama’s EPA, NLRB and other constraints.

SaulOhio December 12, 2011 at 5:13 pm

And Bush’s Sarbanes Oxley, steel tariffs, prescription drug benefits, and more recently, a higher minimum wage, extensions on jobless benefits, “stimulus” spending…

Methinks1776 December 12, 2011 at 5:28 pm

Yup!

g-dub December 12, 2011 at 7:11 pm

war

I Miss Nixon December 13, 2011 at 7:27 am

SaulOhio

You are so good at making things up, you could have worked for Nixon

Did you ever look at stock prices after passage of Sarbanes—they went up. Apparently, people will buy more stock, if they believe the books. Imagine that.

But, don’t confuse you with the facts.

However, I would appreciate your explaining why investment as a percent of GDP has trended down since the GOP started cutting taxes (the trend was reversed by Clinton’s tax increases)

http://www.tradingeconomics.com/united-states/investment-as-percent-of-gdp-imf-data.html

Jon Murphy December 13, 2011 at 7:30 am
steve December 12, 2011 at 11:19 pm

So tax rates are a minor factor in economic performance? If Obama’s EPA is responsible, why did GDP drop 9% in 2008 (4th quarter).

“And Bush’s Sarbanes Oxley, steel tariffs, prescription drug benefits, and more recently, a higher minimum wage”

But now I am confused. Up above, I think it was asserted that the Bush tax cuts promoted growth, when these things were in effect.

Steve

Methinks1776 December 12, 2011 at 5:32 pm

Steve,

I don’t know if you’ve noticed, but we’re in a bit of a recession at the moment and that’s probably going to offset any benefits from a tax cut (which wasn’t a cut since Bush and Obama are spending like it…well…ain’t their money. But nevermind). You need to be able to isolate the effect of the tax cuts from everything else that’s going on before declaring it did no good.

Speaking of which…..do you ever stop to consider how they’re wasting all that money? I mean, who would you rather spend what you worked so hard to earn you or John Boehner?

kyle8 December 12, 2011 at 5:59 pm

Well because they were only temporarily prolonged. Temporary taxes never have much of a stimulative effect. It turns out that a tax cut of only half as much that was actually permanent would have a much more stimulative effect as it would allow businesses to plan ahead.

Darren December 12, 2011 at 7:04 pm

allow businesses to plan ahead

So, how about a temporary tax cut that was scheduled to be increased on a specific date? Business should be able to plan under that scenario.

Methinks1776 December 12, 2011 at 7:08 pm

Yes, they will plan to not expand. That’s what the pols are going for, right?

John Dewey December 12, 2011 at 6:06 pm

Steve: “The Bush tax cuts are still in effect. We do not have economic growth.”

Those growth inhibitors listed by SmoledMan and SaulOhio prevented masked the full effects of marginal tax rate reductions. Even so. real growth in U.S. GDP has averaged 1.4% since the minimal Bush Tax rate cuts were implemented at the end of 2003. That’s low by historical standards, but it is growth. Furthermore, economic growth averaged over 3% for the first three years of the Bush tax cuts.

John Dewey December 12, 2011 at 6:21 pm

steve,

One more important growth inhibitor of the past eight years: rising energy costs.

Real crude prices since the Bush tax cuts were implemented were three times the average of the late 1990s. It has been impossible for the U.S. to maintain 1990s growth rates when it is paying three times as much for oil imports.

steve December 12, 2011 at 11:32 pm

Yes, I read Hamilton. But what you seem to imply, is that tax rates are not the primary determinant of economic performance. The tax increase of the 90s were followed by stronger growth than the weak recovery of the 2000s.

“Furthermore, economic growth averaged over 3% for the first three years of the Bush tax cuts.”

Why did they stop working? You (seem to ) assign all growth as resulting from the tax cuts. Yet the drop off in growth later on must come from something else. If tax rates are that important, shouldnt we see consistent effects when raised or lowered? Shouldnt they last?

Steve

John Dewey December 13, 2011 at 2:27 pm

Steve: “You (seem to ) assign all growth as resulting from the tax cuts.”

Where do I make such an assertion? My belief is that many factors promote U.S. economic growth and many factors inhibit U.S. economic growth. Here are a few:

rising energy prices – inhibit growth
falling energy prices – enables growth

government regulations – in general, inhibit growth

rising population – enables growth

wage floors – inhibit growth

trade barriers – inhibit growth

taxes – inhibit growth

government spending – almost always inhibits growth

Some forms of taxes and some forms of government spending do more harm than do others. Increasing marginal tax rates for the most productive members of a population is about as harmful as it gets.

John Dewey December 13, 2011 at 2:31 pm

steve: “Why did they stop working?”

I don’t have all the answers. My guess is that massive increases in government spending transferred resources from efficient economic activity to less efficient economic activity. Massive government interference in housing markets caused a huge allocation of resources to be directed to inefficient and unnecessary economic activity.

The answer to all economic downturns is almost always government interference.

John Dewey December 13, 2011 at 2:44 pm

steve: “The tax increase of the 90s were followed by stronger growth than the weak recovery of the 2000s. “

I completely disagree. I think you are collapsing the 1990s timeline and ignoring other key factors.

First, income tax rates were increased in 1990 and a recession followed almost immediately.

Second, in the mid-1990s, real energy prices dropped to pre-OPEC levels. Reduced industrial and transportation costs offset the inhibiting effect of the Bush I tax increases.

Finally, capital gains tax rates were cut in 1997. Growth in government spending dropped to the lowest level in decades. The strongest economic growth in decades immediately followed those two government decisions.

I Miss Nixon December 13, 2011 at 7:29 am

According to his blog, imports are good for us. The more we import, the better

Don Boudreaux December 13, 2011 at 2:47 pm

Imports measured in real quantities, not measured nominally.

You’re better off if you have twice as many widgets today as you had yesterday; not if you have the same number of widgets for which you are paying double the amount that you paid yesterday.

indianajim December 12, 2011 at 4:08 pm

Laffer (on FOX of course) had the best line of the day responding to the Obama quote (I’m paraphrasing perhaps, but as best as I can remember it from this morning after nearly choking on my breakfast upon hearing Obama’s “the math is the math” categorical contravention of the Laffer curve) :
“When the lawyers tell you ‘the math is the math’ you know you’re in trouble!”

Laffer had more to say, of course, in the FOX interview, but I can’t find a link to it or else I’d have posted it.

Methinks1776 December 12, 2011 at 4:52 pm

Ha! :)

nailheadtom December 12, 2011 at 4:19 pm

” There is, after all, more to fiscal policy than simply maximizing government revenue.”
Not from the standpoint of the government.

SmoledMan December 12, 2011 at 5:01 pm

Maximizing revenue is one goal. The other is providing the crushing jackboot on the face of the capitalist.

I Miss Nixon December 13, 2011 at 7:38 am

Why is it that every time I deal with an American business it feels like getting a jackboot on the face?

Dances with Wolves December 13, 2011 at 9:18 pm

Try paying for those goods and services. Not paying should get you a kick in the ass. The jackboot in the face is part of your National Socialism fantasies.

kyle8 December 12, 2011 at 6:01 pm

I actually think that many on the left would rather NOT maximize government revenue, in fact they would prefer a lower overall rate of economic activity if it means that they can punish those they hate.

Darren December 12, 2011 at 7:05 pm

maximizing government revenue

I’d be happy if they could stop there.

Tor Munkov December 12, 2011 at 4:39 pm

The U.S. is BizzaroEcon world. The dictatorship-flavored GDP of your worldwide monopolies is many multiples of your legitimate economy.
As Herbert Hoover said in June of 1941 in a plea to let Hitler & Stalin kill themselves off…
“And what happens in the United States during and after a war that must take years and years even if it were won? We must at once establish further centralization of authority amounting to practical dictatorship in the United States. We will disguise its name, but total war cannot be won without it. We must bring about unity by force. We must regiment industry and labor. Intellectual life and civil liberty must be shackled to the war machine.
The necessities of war organization require vast taking over and operation of industry by the Government. War organization creates vested personal power, vested economic interests, vested habits and vested ideas. We have a taste of all this already in organizing preparedness only.
It is easier to regiment a people than to unregiment them. They can be deprived of their liberties by a ukase, a command, or by administrative order. It is a long and painful climb back to freedom. Does any American believe that these vast powers vested in government will be restored to the people if we join in world war?
We shall have a debt equal to 50 per cent of our national wealth if we ever go into this war. The only answer is to inflate wages and prices by huge amounts in order to make it bearable. That would rob every present life insurance policy, every savings-bank deposit, and every college endowment of its buying power. That would be the ruin of the saving classes in the United States. No such event has ever happened in history without moral degeneration and the wreck of the whole form of government.
After this war is over it is certain that the forces pressing for continued economic dictatorship would be stronger than ever.
Dictatorships in Europe are world evils which grew out of the despair from long years of war, inflation, unemployment and frustration. What profit to us is it to destroy totalitarianism abroad and create it at home?”

Salt Water Economist December 12, 2011 at 4:42 pm

Tor Munkov, Troll of the Day!!

Sam Grove December 12, 2011 at 6:56 pm

I can endorse that message.
Nothing grows government like war.

Dances with Wolves December 12, 2011 at 9:00 pm

Sam, you are right! I just had a nice juicy chicken sandwich, and I am thinking more clearly now. Like my dancing partners, I now like killing animals and having them for dinner!

Salt Water Economist December 12, 2011 at 4:41 pm

Don,

You comments show both a deplorable lack of respect for the President and a deplorable lack of understanding of either economics or math or both.

Tax cuts not only do not result in greater tax collections, they result in reduced economic growth (and lower future tax collecitons) whenever the multiplier for gov’t expenditures is greater than 1 (and the tax cut results in reduced gov’t expenditures).

kyle8 December 12, 2011 at 6:03 pm

BWAHAHAHHAAAAHHHAAHH!!!!!!!!!

Darren December 12, 2011 at 7:13 pm

It’s possible the increased revenue to government is greater than the reduction economic growth. If one believes the people exist for the primary purpose of sending more money to government, then I suppose decreasing prosperity in this way would be acceptable. One could also pursuade oneself that government spending would in itself increase economic growth where private spending of the same funds would not. I think I’ll take a break now until I stop laughing.

Salt Water Economist December 13, 2011 at 2:43 pm

Darren

Whenever the gov’t multiplier is greater than the private multiplier we are better off with the gov’t taxing and spending. For example, my state has gutted our future by cutting higher education spending, where the multiplier is several times 1.

If you doubt such, compare the personal income in the Bay Area and Kentucky. 50% of the folks in the Bay have a college education or better and they make twice as much, for they are twice as productive as the people in KY.

Second, we are better off when the gov’t buys things we can’t buy: an Army, Navy, and Air Force, police, preventive health care (The Plague is no longer and problem and only the Gov’t can tackle the Flu, AIDS, etc.I could go on and on, but you wouldn’t listen.

Jon Murphy December 13, 2011 at 2:48 pm

Out of curiousness, what’s the math you use to show the government multiplier is greater than 1? Surely there must be some math you used to arrive at the conclusion that government spending on education has a greater multiplier than private spending.

Fred December 12, 2011 at 8:46 pm

Lets see.
First we remove money from the economy through taxation, the selling of bonds, or devaluing the currency through printing funny money.
Then we skim some off the top to pay government drones who add nothing of value to the economy.
Finally this reduced pool of money is added back into the economy based upon cronyism instead of business sense.

What could possibly go wrong?

kyle8 December 13, 2011 at 8:05 am

That is an absolutely perfect description of current government policy.

I am going to use it.

Fred December 13, 2011 at 9:48 am

I have been making an effort to find a way to make the concept of the multiplier effect look absurd.

Salt Water Economist December 13, 2011 at 2:45 pm

Fred

The multiplier is “spontaneous emergence of order out of seeming chaos.” In fact, it makes even more sense. Remember, to make money you got to spend money.

Having linked Hayek and Keynes, I am sure my spontaneous emergence of order out of seeming chaos as explaining the multipiler will earn me the Prize, next year.

Fred December 14, 2011 at 9:33 am

Repeat after me: Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth. Money is not wealth.

Charlie December 12, 2011 at 4:46 pm

In context, the statement is perfectly correct. He’s responding to Kroft’s assertions that the Republicans say, “there are other ways to raise revenue.”

So in this case, the math actually is the math and it includes the current state of the economy, estimates of the relevant elasticities involved and even the exact tax plans both sides have advocated for. This discussion follows with what deductions are actually being discussed to increase the tax base and who that would fall on.

This isn’t a statement of isolated theory, though even if it was it would be correct, because the caveat “without getting revenue from elsewhere.” In theory, this could cover new economic activity. In practice, it is meant to cover what the Republicans were actually proposing, which it turns out was not a balanced approach at all (which is what the discussion is about).

“PRESIDENT OBAMA: No, Steve. Steve, that’s just not the case. What happened was that they made overtures, where they were willing to raise about $200 billion in exchange for $2 trillion or so worth of cuts of core programs like Medicare that seniors depend on for their security in their golden years. And what I said to them was, “A balanced approach means exactly what it says. It means it’s balanced.” I would love to see tax reform. And if we can get a commitment from the Republicans that they want to work on a serious tax reform package that makes sure that the wealthiest Americans are paying their fair share, that is simplifying the tax code, that is lowering rates, but by broadening the base, that’s something I’m all for. It’s part of my plan. But what we haven’t seen is any serious movement on the other side. Let’s take another example…

KROFT: Well, they say they’re ready to do it. They say it’s your insistence on raising the taxes to the wealthiest Americans, that you’re fixated on that. And that there are other ways to raise revenue.

PRESIDENT OBAMA: Steve, the math is the math. You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else. Now, either it’s coming from middle-class families or poor families or it’s coming from folks like you and me that can afford to pay a little more. I mean, I think the average American understands that.

KROFT: The argument has been that if you reform the deduction process…

PRESIDENT OBAMA: The deductions mean home mortgages for middle-class families. The deductions mean things that a lot of people of modest means rely on. Now we can have a discussion about potentially reforming some of those deductions, but you can’t get away from the basic concept that either we have a system in which the people who have benefited the most from this new economy — by a magnitude of 200%-300% increases in their income. Either they’re doing a little bit more or they’re not.

I think they should. And this is not because I’m interested in punishing the rich. I want everybody to be rich, that’s great. It has to do with the fact that the less I’m asking you or me to do, the more I’m asking somebody who’s in a much tougher position to sacrifice. And that is basic math. I want to be very clear here, Steve. Democrats have moved significantly on a whole range of issues, in part, because of my leadership.”

Salt Water Economist December 12, 2011 at 4:55 pm

Charlie

The trolls here have no concern or regard for either facts or context, but great try

Dan J December 14, 2011 at 12:32 am

Boy… Solyndra really took a bite out of this wealthy folk ‘not paying their fair share’…. We need more transference of tax dollars to failure businesses whose original investors don’t want to lose their shirt over….it very helpful if you are a big contributor to a presidents campaign……

Obama wants more money so he can waste it and give it to his buddies who will then skim the top and give it to Obama.

Jon Murphy December 12, 2011 at 5:02 pm

I see your point, Charlie, but even in context, the math doesn’t make sense: there are other ways to raise revenue other than tax increases. With all due respect to the President, he is making a very linear calculation: tax cuts lower revenues and tax hikes raise it. But that is not really correct. It all depends on magnitude (an issue which no one seems willing to discuss, which is another matter).

Methinks1776 December 12, 2011 at 5:09 pm

How about not worrying about raising revenues and cutting the vast array of departments employing bloodsucking leeches we euphemistically refer to as “bureaucrats”? And meanwhile, how about lifting that jackboot a little so that those of us who are trying to grow our businesses (instead of massively contracting, as we’ve done) can get a little breathing room to actually serve the public? If we can do that, we can increase income and then Barry can get more of his precious revenue without even raising tax rates.

Jon Murphy December 12, 2011 at 5:32 pm

Well, you still have the revenue issue, but now there are less costs, so the profit (revenue – costs) is greater. Isn’t that the ultimate goal?

g-dub December 12, 2011 at 8:06 pm

math is math.

Methinks1776 December 12, 2011 at 5:04 pm

You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else. Now, either it’s coming from middle-class families or poor families or it’s coming from folks like you and me that can afford to pay a little more.

Heck, yeah. Let’s go extract tribute from the people who have figured out how to create the most wealth! They’re all just dying to toil for the state and being smart enough to create the most wealth, they’ll be too stupid to figure out how to avoid handing it over to us politicians. We’ll, of course, we’ll carve out exemptions for our friends, he he!

“I think they should. And this is not because I’m interested in punishing the rich.”

Hell no!

“I want everybody to be rich, that’s great.”

That way there’s more to steal! Hell, yeah!

“Democrats have moved significantly on a whole range of issues, in part, because of my leadership.”

Damn straight! Moved closer to hell, where I’m most comfortable.

I know that wasn’t your point, Charlie, but this kind of political comedy always gives me the giggles.

indianajim December 12, 2011 at 8:59 pm

:)

Charlie December 13, 2011 at 8:47 am

At least you basically conceded all the points I made.

I think it’s fine that you believe the gov’t should spend less. I’m just not sure how it applies to this post.

If you read closer, he actually comes out for a lot widen the base lower the rate type taxes, such as ending the mortgage deduction. He just also wants to go back to the top bracket being the same as the booming 90s. That’s actually a very moderate and coherent position that a lot of professional economists share.

It’s amazing it causes so much vitriol.

Methinks1776 December 13, 2011 at 9:11 am

Charlie, I’m not conceding anything. I’ve just ignored your point and I’m just having a laugh. No offense to you, I just got caught in reading the interview.

Barry, BTW, does not want to end the mortgage deduction for everyone – just for “the rich”. That’s a quite funny because “the rich” often buy houses for cash as it’s pretty hard to get a $4MM mortgage and interest on only the first $1MM is deductible.

The rich who do have mortgages can start a home-based business. If they pay back their mortgage, take out a HELOC and invest it in the business, the interest is tax deductible again. Come to think of it, the middle class can do that too. There goes that extra revenue he was looking for.

If you want to get rid of that option, then you’ll have to do so at the expense of a source of funding for start-ups and further complications in the tax code that people will undoubtedly find a way to get around.

Perhaps we should consider that politicians finding new and interesting ways to shake down the population is not in the best interest of the public. Ultimately, “the rich” will not be able or willing to finance government’s bloated ambitions (hell, even Buffet and Gates aren’t willing) and that burden will fall on the “middle-class” and “the poor”.

Charlie December 13, 2011 at 4:42 pm

I was really lumping your last irrelevant comment with the previous comment where you basically conceded that president’s position was coherent and said that you preferred spending cuts, “How about not worrying about raising revenues and cutting the vast array of departments employing bloodsucking leeches we euphemistically refer to as “bureaucrats”?” Or was that comment irrelevant too?

Captain Profit December 12, 2011 at 5:10 pm

Out of curiosity, anyone know what he’s referring to later in the interview where he talks about a “not yet fully implemented” law that tells banks they “can’t take wild risks with other people’s money” and “can’t expect a taxpayer bailout?”

Economiser December 12, 2011 at 5:31 pm

I expect he means the Volcker Rule and the Dodd-Frank Act’s living will requirements.

Captain Profit December 13, 2011 at 4:18 am

Thanks. I looked up the Volcker rule. As I understand the proposal, the government will somehow determine acceptable risk levels for banks. Kind of like what they did for BP with regard to underwater drilling. What could go wrong?

Mesa Econoguy December 12, 2011 at 6:10 pm

Completely unsurprising President Moron would make these idiotic comments.

Followed by more idiotic comments from his leftist lickspittles.

muirge0 December 12, 2011 at 6:44 pm

Don, the math is the math. You can’t raise rates and decrease revenue, ….

Sam Grove December 12, 2011 at 7:00 pm

Yeah, so let’s tax everyone %100 and watch gov’t revenues go up.
Oh wait, who will go to work if gov’t takes all your pay?

Dances with Wolves December 13, 2011 at 7:48 am

LOL! Stupid muirgeo. Raise your hourly rate as a pediatrician to $1 million per hour and watch your revenue drop tp zero. You are obviously pretending at knowledge again.

Dan J December 14, 2011 at 12:33 am

Physics is physics… You can’t squeeze blood from a rock

muirge0 December 12, 2011 at 7:02 pm

Best evidence suggest slightly more progressive taxes would increase revenues and less progressively would decrease revenues.

http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables1.pdf

Apparently Obama DOES know the math and the empirical evidence.

Mesa Econoguy December 12, 2011 at 7:35 pm
Dances with Wolves December 12, 2011 at 9:02 pm

Muirgeo, you idiot troll. Wrong again! You would think more clearly if you roasted a pig and had a barbeque!

RussFan December 12, 2011 at 8:20 pm

This is by far the most retarded post you have ever made, Don. You know he isn’t going to start charging poor people income tax. Anyone with even the most basic political literacy knows this. Yet you say his math is bizarro because you ignore that constraint and get different answers. I’m embarrassed for you as an academic to have to stoop to this level.

JS December 12, 2011 at 8:42 pm

There aren’t poor people in this country. You just refer to them as poor.

Rather than say math is math, the question is really one for human nature. The more you take from a man, the less incentive he’ll have to produce. Everything is subject to the law of marginal utility.
Economics is not math, per se, but logical conclusions based upon principles of human nature. Math is used for economic calculations to assist people in making future decisions, but they are just estimates of what the future might be like.

Fred December 12, 2011 at 8:54 pm

The more you take from a man, the less incentive he’ll have to produce.

Aye.

I remember one summer I was cooking at some tourist trap, working 50-55 hrs a week, and one week I took on an extra shift from some dude who wanted to go to a rock show or something. I was thinking “Yeah! 60+ hr paycheck! Overtime rules!” And the check was no different than one with eight fewer hours. Apparently it put me into a different table and all the overtime was eaten by taxes. I was like “Screw this!” and stopped picking up extra shifts.

RussFan December 12, 2011 at 9:16 pm

Quite right. The question is of marginal utility. What tax rate makes me indifferent towards working an extra hour or not? Fred alludes to this with his anecdote, one I am familiar with from working in retail in the past. But the fact is, taxing someone an extra 3% at $1,000,000 a year isn’t causing them to quit their job and sit at home doing nothing all day. It does have other significant economic implications, but it isn’t causing anyone to close up shop because it’s just not worth the effort anymore.

The ratio of marginal utility of working vs not working for people who make a lot of money is extremely high, and it would take significantly higher tax rates to make them indifferent, the way many people claim they are now.

Methinks1776 December 13, 2011 at 12:23 am

but it isn’t causing anyone to close up shop because it’s just not worth the effort anymore.

You’re playing fast and loose with those assumptions. How sure are you about that? A seven figure income rarely comes from wages alone. People have a lot of flexibility in the timing and type of non-wage income. By rearranging investments, it’s not that difficult to get a tax-adjusted investment income pretty close to the disposable income you would have had if you continued to work and just work less and have less taxable income. That’s a pretty good deal. If you haven’t accumulated enough wealth for that option, why not just get a less stressful job and make less money NOT working 80 hour weeks? A million dollars isn’t easy to earn and since you’re keeping less of it anyway, why not cut back a bit? There are lots of imaginable combinations, but assuming that nobody will make any adjustments to their behaviour if their compensation were cut “only” 3% is ridiculous.

You’re seeking to penalize people with the most options and access to the best tax lawyers. It’s unlikely you’ll collect from them the revenue you think you will because they’re pretty good at avoiding taxes. And that’s what these people will spend their time doing. They’ll still be working for their income. You just won’t be able to tax it.

JS December 13, 2011 at 7:58 am

I agree with you. To a great extent the laffer curve is used as an excuse for no taxes, but what you don’t grasp is that you are arguing for the side that will take everything from people and nationalize industry, using the same arguments that you’re defending. You’re naive, at best, if not stupid to be thinking that our probl;em is taxes when we have runaway corrupt big government.

John Dewey December 13, 2011 at 10:33 am

“The ratio of marginal utility of working vs not working for people who make a lot of money is extremely high, and it would take significantly higher tax rates to make them indifferent, the way many people claim they are now.”

I could not disagree more. There is most certainly a marginal tax rate which will cause every high wage earner and every high income couple to work less or to forego opportunities to raise more income. I do not believe that marginal rate is the same for every high wage earner – our preferences for work and for leisure are not identical. At a 50% marginal tax rate – combining federal income, state income, local income, medicaid, etc – some high income wage earners are going to say “What’s the point?”

indianajim December 12, 2011 at 9:14 pm

Found part of Laffer’s interview response to Obama’s statement, again,

“the math is the math. You can’t lower rates and raise revenue, unless you’re getting revenue from someplace else.”

Here are the Laffer remarks this morning on Fox, just after his comment that “When the lawyers tell you the ‘math is the math’ you know you’re in trouble.” Here are Laffer’s comments that follow:
http://mediamatters.org/mmtv/201112120004

Methinks1776 December 12, 2011 at 9:32 pm

Thanks for the link, Indianajim. I think we found Muirdiot’s people.

muirge0 December 13, 2011 at 12:52 am

Laffer is an idiot.. surprise..surprise. He thinks Newts a good candidate. Great… put Newt up there. He also tells us you can’t love jobs and hate the job creators…LOL.

The rich have more money than they have ever had and they are paying less taxes then they ever have ( percentage-wise)…. so WHERE are the jobs? DA!

Dances with Wolves December 13, 2011 at 7:51 am

Muirgeo, what a moron you are! Quit bitching about what other people have and voluntarily give more to the federal government. Then, move to China, which has the kind of political leadership that you respect (and will kill you if you don’t). Foolish Marxist moron.

muirge0 December 13, 2011 at 10:03 am

DwW,
I won’t voluntarily give more because so many who have what they have have it BECAUSE f the government. So we need to figure out how to pay our debt.
We owe $15 trillion. Like it or not we do. Who should pay it? How do you recommend we pay for it?

I think anyone who lives close to Wall Street or DC should pay a major hunk of it because their communities took the biggest chunk.

Or maybe we each pay our $50,000 a head… how about that. And when the people who don’t even have $50,000 are bankrupt we divide what’s still owed by those of us who still have money until its all paid off. Is that OK with you?

Dances with Wolves December 13, 2011 at 10:07 am

Nope. Leftists wanted all this social welfare spending. Therefore, they should pay for it. YOU GUYS made this mess, you get to clean it up. How about that?

JS December 13, 2011 at 8:33 am

Who gets to decide how much money someone can make or inherit?

Despite the constitutional protections originally intended for property, it has turned out the the democratic vote has final say on the matter. People posting here arguing for higher taxes, if empowered, will take everything from people. Everybody should understand that.

They will protest against excessive wealth unless it is owned by someone who postures as a socialist, such as actors and other celebrities. Solyndra is okay, but a banking executive is a demon.

I read all their posts. None of them are educated enough to elaborate on why our banking and financial sector are the way they are. They don’t realize that the the problem is with the monopolization of money and the laws that allow it to be multiplied.

The regulations to police the financial sector do not address the real reasons for the problems, which are this: The government wants the power to print money so they can buy votes through the redistribution of wealth. They can only tax so much before the people protest, so they need the power to continuously inflate the currency so that the masses pay more for things. This is how the welfare state is financed, and it is financed by the masses, as there aren’t enough rich people to matter.

The government can allow the banks to go under whent he Ponzi schemes end, but they need the banks to rob the people on their behalf. It’s easier for them to blame the banks and rely on stupid types like the posters here to argue for them, but the last thing they will do is change the laws of fractional reserve banking that cause the problems.

The idiots here can argue that raising taxes 3% on millionaires won’t disincentive them equivalently, but they are missing the point. That tax increase won’t solve the problem either. The problem is on the other side of the ledger. The government needs to be reduced.

Further, what the idiots here, I won’t name them as we all know who they are, also don’t realize is that big government causes a reduction in economic opportunity for the masses. It tends to freeze things where they are, so if I have ample market share in what I do, I will have less to fear ion losing it to hungry upstarts who might challenge me. The welfare state and big government in this way reward the status quo because they create class immobility.

No socialist country, or no country with an intrusive central government, has a middle class to speak of. They have the filthy rich elites who own and control everything, and the poor who service them.

Once the markets are frozen, the rich people who own the companies might not grow so much, but they will remain well off without fear of competition, and the masses will be frozen below them.

Hector December 13, 2011 at 9:36 am

What about scandinavian countries? They have a huge government in comparison to ours, and a much larger and powerful middle class. Causality just isn’t as simple as you try to depict it…

John Dewey December 13, 2011 at 10:40 am

Explain how their middle class is “much larger and powerful”.

I have not seen recent data on median household income, but 4 years ago the median houshold income for Sweden, Finland, and Denmark was well below that of the U.S.

I do not believe any other nation on earth has as large population of $50K to $100K households as does the U.S.

rhhardin December 12, 2011 at 9:21 pm

Obama doesn’t believe it.
What’s insulting is the low quality of the lies.

indianajim December 12, 2011 at 9:31 pm

Just remember the even gross untruths have a chance to persuade rationally ignorant voters. The good news is that social networking and blogs are reducing the cost of information. Hopefully the era in which a political strategy of telling a Big lie and repeating it over and over is coming to an end.

Jon Murphy December 12, 2011 at 9:35 pm

The great masses of the people…will more easily fall for a big lie than a small one.

indianajim December 12, 2011 at 10:19 pm

In Germany in 1925, sure seems to have been true; in the USA in 2011-2012 (with the lower cost of information, social networking, etc.), hopefully not.

Jon Murphy December 14, 2011 at 9:47 am

I don’t know, Indiana…how many people fell for the birther lie? How many people fell for An Inconvientant Truth?

Dances with Wolves December 12, 2011 at 9:33 pm

You don’t need no stinkin’ job! Tax the rich! Then, go out to dinner and have a roast lamb and mint jelly!

paulroscelli December 12, 2011 at 10:03 pm

His grasp of elasticity is a little light as well.

SheetWise December 12, 2011 at 10:21 pm

I had this software company that sold a very cool program for $1,000 a copy, and we sold 1,000 copies a year, grossing $1M with a cost of only $900k — providing me with a very comfortable income of $100k a year. Since the $900k covered all of our development expenses, I kept pushing the sales team to bring in more customers. You see, the finished product only cost $5 to produce — so every marginal sale was $995 pure profit!

So one day the sales manager comes up to me and tells me that there are about 20 million people who would like to use this software, and that they would buy it if I would simply reduce the price to $10. So I fired the guy.

Can you imagine! I’ve got a perfectly profitable business going, and this idiot want me to drop my price from $1,000 to $10. You just can’t teach business to some people.

Don Boudreaux December 12, 2011 at 10:48 pm

:-)

muirge0 December 12, 2011 at 11:02 pm
muirge0 December 12, 2011 at 11:08 pm

Bottom line… Obama is right. We will not see our economy improve until our revenues increase ( more towards 18 to 19% of GDP). Time will prove me right and all you fundamentalist wrong. Right now we are below 15%…. way to low and only short sighted economic ideologues don’t get it. We have the lowest tax collection rate in 40 years and HERE WE ARE.

http://www.cbo.gov/ftpdocs/120xx/doc12039/HistoricalTables1.xls

Dances with Wolves December 13, 2011 at 12:14 am

“Obama is right

LOL!

anthonyl December 13, 2011 at 1:48 am

Your not wrong except about whose revenue.
Your not muirge0, are you?

steve December 12, 2011 at 11:39 pm

Let me offer my own, real story. When the Bush tax cuts came along, I could not get my guys to work as much as they had done before. The tax cuts made for a significant raise. Rather than being willing to work more because they would keep more, they cut back and started taking more time off.

Steve

anthonyl December 13, 2011 at 1:35 am

That’s why government should be kept out of people’s lives. That was kickback (refund) more than a tax cut. Maybe you could hire cheaper labor?

Captain Profit December 13, 2011 at 3:45 am

All tax breaks are refunds. Bribing us with our own money and all that. Only thing I’m wondering about is how “the Bush tax cuts for the rich” benefited Steve’s employees.

Jerry December 12, 2011 at 11:47 pm

Yes Don, Its NOT about math. Its about where we are on the Laffer Curve. Krugman has argued more than once that we are not past the peak of the curve. Is Krugman wrong? Please weigh in on this. Others posting comments have stated where they think we are on the curve. Please tell us your view. I think the very last point in your post is that Pres O’s “math” comment denies the existence of the curve. Shameful whether from ignorance or willful deceit. But, if we really are unequivocally not on the backside of the curve my liberal friends are going to argue with me that “math” vs Laffer curve is a distinction without a difference. Please say it ain’t so.

anthonyl December 13, 2011 at 1:43 am

What is Laffer curve? Jerry. Sounds hilarious!
The point is not how much government can wring out of a population, but what it needs to complete it’s tasks. The tasks are up for debate. The need is suspect.

anthonyl December 13, 2011 at 1:24 am

He’s confusing revenue with confiscated funds. Revenue is earned, taxes are confiscated.

anthonyl December 13, 2011 at 1:30 am

Why do the things government provides us increase in price every year but things that private enterprises provide get better and cheaper every year?

R3ality December 13, 2011 at 2:29 am

Don’s argument works at times but does not always hold true. Logically there are diminishing returns where eventually you cut taxes and revenues don’t rise. As Milton Friedman said, “If a tax cut increases government revenues, you haven’t cut taxes enough.” The 1920’s Mellon tax cuts, the 1960’s Kennedy tax cuts, and the 1980’s Reagan tax cuts did boost revenues because reducing excessive tax rates stimulates growth, reduces tax avoidance, and can increase the amount and share of tax payments generated by the rich. Bush’s tax cuts did not raise revenues because the tax rates were not excessive and were already low enough to be subject to diminishing returns. By Friedman’s thinking, we had already cut taxes enough.

John Dewey December 13, 2011 at 11:07 am

I agree with your argument that the Mellon, Kennedy, and Reagan income tax rate cuts were followed by increases in economic growth and by the corresponding increases in income tax revenues.

The Clinton-Gingrich capital gains tax rate cuts were likewise followed by increases in capital gains recognition, and corresponding increases in capital gains tax revenues.

I think you are mistaken about the Bush income tax rate cuts. I think those cuts in 2003 were also followed by increased economic activity in 2004 through 2008. That increased economic activity led to increases in federal government tax revenues – increases very similar to those which followed the earlier income tax rate cuts:

U.S. federal income tax revenue (billions)

FY2003 – $925
FY2004 – $998
FY2005 – $1,205
FY2006 – $1,398
FY2007 – $1,534
FY2008 – $1,450

Source: http://www.usgovernmentrevenue.com

Income tax revenues finally did decline 5 years after the Bush tax rate cuts were implemented. But those tax revenues were still 57% higher than before the cuts.

Jon Murphy December 13, 2011 at 7:26 am

I have a question for the President and anyone else out here:

Why is the focus on increasing revenue? Shouldn’t the focus be on profit (revenue – cost)? You can increase revenue all you want, but if costs are increasing at a faster pace, then you’re still drowning. Why is there this weird obsession with revenue?

Dances with Wolves December 13, 2011 at 8:00 am

Because thieves, whether in government or not, want to increase revenue, not decrease costs. To a thief, there is no cost to increasing revenue as there is with actually working a productive job. So the more revenue the better. And, to a thief, cost does not matter because cost cutting reduces the thief’s lifestyle and political payoffs. So cost cutting is bad. Better to raise more revenue from the victims, slaves, taxpayers, etc. than get a real job.

BTW, what did you have for dinner last night? I had some yummy veal!

Jon Murphy December 13, 2011 at 8:45 am

My dinner was rather simple: grilled kangaroo on a salad with feta cheese and Italian dressing (I’m not kidding. That’s really what I had).

Dances with Wolves December 13, 2011 at 9:53 am

Kangeroo! Really? That sounds yummy! What spices did you put on the Kangeroo meat? Did you kill it yourself?

Jon Murphy December 13, 2011 at 10:01 am

Honestly, you can treat kangaroo the same way one would treat steak. I like some Montreal Steak Seasoning or a lite brushing of honey-chiplote BBQ sauce. You grill it at a low temp for just a few minutes (it takes practice. Kangaroo meat is a lot less fatty than beef, so it cooks faster. It’s very easy to over-cook kangaroo). Throw it on a bed to lettuce, some crumbled feta and any type of dressing you like, and you have a good meal in about 5-10 minutes!

Dances with Wolves December 13, 2011 at 9:11 pm

Jon, that sounds simply tasty! I can’t wait to try Kangeroo. I will definitely try your recipe. Thanks! And, bon appetite!

Randy December 13, 2011 at 9:15 am

DWW pretty much nailed it. I would add that politicians have the ability to decrease costs at will. That is, a business must spend money to make money (costs and benefits) but a political organization doesn’t. To the political organization, benefits can be promised at will, but then paid only the extent necessary to maintain order and legitimacy.

P.S. Kangaroo? Are they importing that now? Did you get it at a restaurant or a store?

Jon Murphy December 13, 2011 at 9:23 am

There’s a game meat store in the town next to me that sells all kinda of exotic meats: kangaroo, buffalo, turtle, alligator, venison, ostrich, etc. http://www.healthybuffalo.com/

You’d have to go to a specialty store to find it.

Randy December 13, 2011 at 9:35 am

cool

Greg G December 13, 2011 at 9:46 am

Avoid the bushmeat. You can get AIDs from that.

Jon Murphy December 13, 2011 at 9:51 am

Seriously?

Dances with Wolves December 13, 2011 at 9:55 am

Sorry to hear that you have AIDs from eating bushmeat, Greg G. Now I understand why you hate freedom so much. If someone had just made it against the law, then you would not have eaten it.

Greg G December 13, 2011 at 10:00 am

Jon

Joking about the possibility it could be in your store but some African bushmeat does carry the virus.

(And I did laugh at that one DwD. Well played.)

Jon Murphy December 13, 2011 at 10:02 am

Thanks, Greg. I wasn’t sure if you were kidding or not…I wasn’t sure how to react :-P

Most of the stuff this place sells is farm-raised here in the States (including the kangaroo), so it’s probably safe.

muirge0 December 13, 2011 at 10:04 am

Some North American Elk carry brain eating viruses/ prions.

Dances with Wolves December 13, 2011 at 10:05 am

Well, now we know what happened to Muirgeo.

Jon Murphy December 13, 2011 at 10:09 am

Indeed they do, Muirego. That’s why it is important to thoroughly cook meats and, if you are hunting, look for odd behaviors in the animal as you stalk it.

Remember: When in doubt, spit it out!

brotio December 13, 2011 at 7:01 pm

Some North American Elk carry brain eating viruses/ prions.

Don’t worry, you’re immune.

Dances with Wolves December 13, 2011 at 9:14 pm

LOL, brotio! That’s hilarious!

Greg G December 13, 2011 at 10:11 am

DwW

I laughed at that too. For a while I thought you might be G.W. With that good a sense of humor that no longer seems possible.

Dances with Wolves December 13, 2011 at 10:13 am

It is good to know that you have a sense of humor, too, Greg G. Keep working on those sleuthing skills.

Dances with Wolves December 13, 2011 at 9:12 pm

Jon, thanks again. That is a smorgasbord of good eating. I can’t wait to try them all! Yum!

Randy December 13, 2011 at 9:34 am

Just to clarify, the costs to the political organization are the so-called “benefits” that they actually pay out – but only to the extent that they actually pay out. The benefits to the political organization are the salaries they receive out of the revenue taken in, and the joy they get out of exploiting people.

muirge0 December 13, 2011 at 9:56 am

The obsession is with allowing ridiculously unneeded accumulations of wealth over paying for the government services we need. Sure cost issues could help but Jon like it or not we’ve already spent 15 trillion more than we have took in. I suggest some people got very wealthy because of that $15 trillion and others received lots of that $15 trillion directly. Don’t we need to pay that $15 trillion? How should we split the bill? Orr do you suggest we just pass it on and not worry about revenue to pay for it?

Dances with Wolves December 13, 2011 at 10:02 am

I suggest that you, Bill Gates, Warren Buffet, Al Gore, the Clintons, and all leftists send in 100% of your income for life.

Greg Webb December 13, 2011 at 10:27 am

That obviously is not the real Dances with Wolves. He would tell you to stop hunters and trappers. I’m sure he would advocate for more abortions to kill the baby humans. He likes squirrels and raccoons, but not people. Sorry, I’m not giving up my guns and rifles because of some wacko vegan eco-terrorist. He can eat nut and fruits, while I dine on a juicy steak. Fur is cool and PETA sucks.

Greg Webb December 13, 2011 at 9:04 pm

Pretender, I believe Dances with Wolves had an epiphany that caused her to switch to a carnivore. All she had to do was eat a nice juicy filet mignon steak and she was cured of her bitchiness.

Randy December 13, 2011 at 10:10 am

“the government services we need”

Who needs them? I don’t. If there are people who do then they should pay. If there are people who want to help the people that do then they can help pay. In the meantime, all I see is a political organization seeking to justify maintaining the extravagant lifestyles of its members by blaming people like me for all the problems of the world.

muirge0 December 13, 2011 at 10:39 am

Randy… put down that glass of publicly supplied water….LOL. Yes we know you live in mom’s basement but SHE uses the government services. You’re a funny guy.

Randy December 13, 2011 at 10:49 am

I pay for water service every month. The bill is proportional to usage, so I don’t water my lawn and do xeric gardening instead. And that is a good example of how payment for all such services should be handled. So try again.

Jon Murphy December 13, 2011 at 10:50 am

My water comes from a well.

Greg Webb December 13, 2011 at 9:02 pm

George, you know that its Irritable Bowel who lives in the basement. I’ve read that you’ve been there to administer an injection.

Greg Webb December 13, 2011 at 10:47 am

http://krugman.blogs.nytimes.com/2011/12/13/gingrich-helmsley-2012/

Only the little people pay taxes. Where did you get the Kangaroo meat from? Have you ever tried escargot?

Jon Murphy December 13, 2011 at 10:50 am

The Kangaroo came from a game-meat store one town over. I have had escargot and I love it.

Greg Webb December 13, 2011 at 9:01 pm

“Only the little people pay taxes.”

False, Pretender.

I guess you got over your love of little animals.

theBuckWheat December 13, 2011 at 9:16 am

“Obama’s math works only in a bizzaro economic world – a world where changes in prices have no, or never more than a de minimis, effect on people’s behavior.”

People like Arthur Laffer have rightly observed that there is a marginal tax rate that produces the greatest level of government income. When the rate is above that number, reducing the rate actually results in more revenue. It is interesting to note that socialists (er, “progressives”) always agitate for a higher rate, no matter where the optimum is. Conservatives tend to lobby for a lower rate.

(Neither party seems to care about the Rahn Curve, which indicates that when the total tax burden exceeds about 20%, people change their behavior to reduce the amount of taxes they pay. This is the psychological point where leisure becomes more valuable than work.)

Having said this, the discussion is way off base. Here in the land of the (stilll somewhat) free, our government was instituted in order to “secure the blessings of liberty.” The bigger that government becomes, the less liberty it can allow us to have, if only that we must work more hours in a month to pay for it.

So similar to the Laffer Curve, the Liberty Curve has zero liberty when we have 100% government and zero liberty at 0% government.

Our goal as citizens must NOT be to tune the tax tables to optimize government revenues, it must be to tune the size of government to optimize our liberty.

While the Laffer Curve is useful for this purpose, but we must pay more attention to the Liberty Curve instead.

muirge0 December 13, 2011 at 9:49 am

methinks wrote,
“Ultimately, the government never seems to be able to collect more than what? 22% of GDP in taxes? I think that’s the upper bound.

So, the tax rate will go up, people will work less or lobby for and get loopholes. Less wealth will be created because it is punished. The people who will be able to become wealthy will be the ones with political access – in other words, the already wealthy. Opportunities for the poor but inventive will decrease. ”

We are now at about 15%.. the lower bound? How’s it working?
And yeah we lost ALL the good people back in the 50′s and 60′s who paid much more to pave the nice infrastructure that YOU came to these shores to enjoy and profit from but now refuse do pay back into the system. Good luck protecting your wealth when the system breaks down merely because this generation seems to think it earned everything it has and owes nothing back.

I strongly suggest you might read John Bogle’s book The Battle for the Soul of Capitalism. He saw this coming and wrote well about it.

Dances with Wolves December 13, 2011 at 9:57 am

George, you read a book? Really?

Methinks1776 December 13, 2011 at 10:32 am

Okay, moron, let’s play that game.

You enjoy and profit from the infrastructure and whatever nonsense you imagine as well. My annual tax bill is never lower than seven figures. How much does a useless punter like you pay to enjoy the benefits? Why should I have to subsidize an idiot like you?

Greg G December 13, 2011 at 10:38 am

What? People who make more, pay more in taxes?

Can’t that be fixed?

Greg Webb December 13, 2011 at 10:48 am

Okay, moron …

Stop the abusive comments, PLEASE!

Greg G December 13, 2011 at 11:30 am

GW

Let me get this straight. You and Methinks spew out every insult you can think of at muirgeo for months on end but you think what I have written is abusive?

On second thought I guess I do need to take back that hurtful comment about you not having a sense of humor.

Greg Webb December 13, 2011 at 8:57 pm

Muirgeo spits out abusive comments all the time. You do your fair share as well. Apparently, you don’t like it when the favor is returned.

No need to apologize about the hurtful comments, Greg G. First they did not hurt because that always happens when one does not let leftists merely have they way. Second, it obviously was not true, and one gets called a lot of things that are not true in life. I was having fun with both you and muirgeo. Thanks for the set up guys!

Greg Webb December 13, 2011 at 8:53 pm

Not me, Greg G.

Greg G December 13, 2011 at 9:10 pm

GW

Sorry, I should have known it wasn’t you from the use of the word “please.” It was the “Moron” part that sold it. It is getting getting weird around here with all the impersonation.

As far as I’m concerned you can comment any way you like but the tone you choose to take will affect the tone you get back. You may have noticed that I have polite discussions with many people here.

Greg Webb December 13, 2011 at 9:52 pm

Greg G, I am pleased that you have had polite conversations with a few people that you have chosen to have polite conversations with. So have I. I had a long discussion with muirgeo when I started posting back in the late spring, but got tired of being called names so I started handing it back, especially when they make disingenuous statements.

Greg G December 13, 2011 at 10:07 pm

We can reset the tone anytime you like GW…..or not. But you tend to call anyone disingenuous who you can’t shoehorn into your Manichaean worldview of heroic libertarians versus statists. Don’t expect me to cooperate in feeding your stereotypes.

Greg Webb December 13, 2011 at 10:51 pm

“We can reset the tone anytime you like GW…..or not. But you tend to call anyone disingenuous who you can’t shoehorn into your Manichaean worldview of heroic libertarians versus statists. Don’t expect me to cooperate in feeding your stereotypes.”

Nice reset, GG! You tend to present arguments in such a way that leave out important facts that circumstances that, if considered, change the conclusion from the one you imply. Why use such a sleight of hand style of argumentation?

Greg Webb December 13, 2011 at 8:59 pm

“Okay, moron …Stop the abusive comments, PLEASE!”

Now that is an ironic comment. Requesting that others stop their abusive comments all the while calling one of them a moron. LOL! Nicely done, Pretender.

muirge0 December 13, 2011 at 10:50 am

Wow 7 figures and that’s not enough for you? You are one of the poorest people I know. Is the money that you need or do you feel good because you think you are dong some great service to humanity.

I pay my own way being a physician and making a good salary. See the problem for you is you think that for me my problem is that I want what you want or what you have. I absolutely do not. I do not want to sit deviantly in front of a bank of computers all day extracting wealth from people who actually provide services and make things for a living. I like that I have to only work 2 days of the next 16 and will be going on hikes with my kids and my dogs and drinking wine with my friends.

I have EVERYTHING I need. My whole problem is seeing so many GOOD people who have so much less. I work with them everyday. I really just wish more people could have it as good as me and be as happy as me… that includes you. Most people just want what I want. Most do not have the deviant needs for all the excesses people like you seem to need. We really don’t need more people like you. We need more people who have what I have. That’s my aim…that’s my big hope.

I really don’t understand what some one like you hopes for. I have to believe you are just in a miserable rut…surrounded with like minded people who have so lost their way.

Methinks1776 December 13, 2011 at 11:01 am

Of course you have everything you need, you filthy leech. I’m paying for it.

muirgeo December 13, 2011 at 12:08 pm

So this is stuff you really can’t talk about? Best not to go there heh? Yeah…too bad… best not to stress the small crack in the facade. Just keep going on pretending you’re important, you’re doing something important and that you’re worth it and that we need you and not the other way around… JUST LIKE ANY OTHER POWER HUNGER politician or other player. With a cohort of like minded peers you can stay shielded. You can trudge on.

You got seven figures… I guess maybe eight… numbers in your head that feed the addiction… me. I’m walking an oak lined publicly owned ridgeline with my dog… looking out at creation through an awesome fall fog… and then I’m going to some real live birthday party’s at the Labor and Delivery unit I’ll be in charge of today.

Fred December 13, 2011 at 1:56 pm

Um, muir, when you treat those indigent poor people who can’t afford a skilled physician, you are being paid in dollars extracted from productive people like Methinks.

Yet you despise her for paying your salary.

That’s messed up.

Jon Murphy December 13, 2011 at 1:58 pm

I think it’s self-loathing.

muirgeo December 13, 2011 at 3:20 pm

Would you like to track back where methinks income comes from? She pays 15% on her income because of special government favors and I bet we pay for her airfair and her lunchs. Not to mention the Fed has heavily heavily subsidized her income and business via the banking and finance industry.

In fact, my uncle and my countrymen and their blood and their dollars saved her motherland from Hitler and my father and our country fought and paid to rescue her ungrateful ass from communism. Now she comes her and makes 8 digit salaries trading with communist and whines like a god damn baby if some one tellls her that the rules are you pay back 91% of your top income… oh wait…that’s the rules everyone BEFORE her played by to set up this great gig she has. And all she does is complain. She is the poorest person I know. What an absolutly ungrateful pathetic person.

As I said before I just want people to be as happy as me… exept I think she deserves her suffering… She’s an aweful person through and through. She needs some ghosts of Christmas to visit her before its too late.

Methinks1776 December 13, 2011 at 4:28 pm

It’s not self-hate. It’s mental illness. He’s a schizophrenic who attacks the madhouse’s computer whenever he’s in the full bloom of his psychosis.

Randy December 13, 2011 at 11:25 am

“We really don’t need more people like you.”

That statement pretty much summarizes my take on what progressives are really all about. They are simply and malevolently intolerant. They can’t stand people who have more or want more. They pretend to care about those who have less, but I suspect that what they really feel for the poor is disgust. They want the planet all to themselves – unspoiled by all those other people.

muirgeo December 13, 2011 at 3:25 pm

No Randy I cherish and appreciate truly productive people. For them mostly their reward is seeing what they have bestowed on the world to make it richer. We’ve now set those people behind the whores who make money completly unrelated to doing anything productive. And THESE people, these wicked wwicked people let loose to benfit from the good work of honest caring people are the most devious devils of all… yet you wish to reward them with money anyway they can get it. YOU are damn fool.

Libertarianism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.

Jon Murphy December 13, 2011 at 3:28 pm

Just let him go, Randy. All he cares about is the 1%. All these people care about is money. That’s all they talk about, all they point to, all they can see. These guys care nothing for the 99% or Truth and Justice. All they want is to line their own pockets.

Randy December 13, 2011 at 3:54 pm

You know, because I have told you many times, that I have no love for those who exploit. But you have never proved that the people you resent, the people who “sit behind a bank of computers and move money”, are among the exploiters. The thing is, someone pays them – and pays them voluntarily. This fact means everything and yet you dismiss it out of hand. That is, you are completely accepting of political methods that are without question exploitation, but critical of people who make lots of money even though you have absolutely no evidence that what they do is exploitation. In summary, you simply want stuff for your friends and believe that the ends justify your means. And finally, you have developed a fondness for throwing out insults. It ain’t healthy and you know it. Best that you move along. But that said, enjoy your vaction.

muirgeo December 13, 2011 at 4:04 pm

“But you have never proved that the people you resent, the people who “sit behind a bank of computers and move money”, are among the exploiters. The thing is, someone pays them – and pays them voluntarily.”

Randy, that you do not understand how Wall Street and the Banking industry and public and private debt they profit from is subsidized by the Fed is very sad. They are the most heavily subsidized indutry of all and they lobby more than any industry for special favors, laws, rules and policy from politicians. THEY ARE the poitical class Randy.

Jon Murphy December 13, 2011 at 4:11 pm

And yet, these are the people you want to give more power to.

muirgeo December 13, 2011 at 4:18 pm

No Jon… if they are truly elected by and responding to the desires of the people they will have less power…. the people will have more… Do you have a better way.

Jon Murphy December 13, 2011 at 4:19 pm

“No Jon…”

I don’t know man. You say you want to give politicians more power. You say these guys are the political class. Ergo, you want to give these guys more power.

Randy December 13, 2011 at 4:59 pm

Muirgeo,

Re; “THEY ARE the poitical class”

Certainly there are close political ties between the fiscal manipulators in DC and the banking system. So you think that demonizing investors is going to end that? I’m not seeing how. If you want to remove the political pay for play from the investing business, I’d say the best bet is to focus on that “political” part.

Fred December 13, 2011 at 7:08 pm

I think I understand.
The evil rich people have captured the selfless angels in government who only care about helping the people, and put them into chains.
Only by giving these angels more power will they be able to wrest themselves from the chains put upon them by the evil rich.
Then they will use this power to control those evil rich who once controlled them, taking those riches away by force and giving that wealth back to the poor from whom it was stolen.
All failures of government can be fixed with more government.
It makes perfect sense.
If you’re a complete and total fucking idiot.

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