The Continuing Success of the Laffer Curve

[Verax]

I think this is a good time to remind everyone that the effective tax rate of the top 1% is about 15% right now. I'd also like to remind everyone that U.S. debt is at 18T. I'd also like to point out that the bottom 80% own 7% of the wealth.

So when thinking about these numbers and the LoL curve, is there ever going to be a time in the near future when we're supposed to think tax cuts for the rich is the sane direction?

 

[JasperL]

I think this is a good time to remind everyone that the effective tax rate of the top 1% is about 15% right now. I'd also like to remind everyone that U.S. debt is at 18T. I'd also like to point out that the bottom 80% own 7% of the wealth.

So when thinking about these numbers and the LoL curve, is there ever going to be a time in the near future when we're supposed to think tax cuts for the rich is the sane direction?

I like that - even better than "Laugher" Curve! I hope you don't mind if I use that in the future.

 

[iguanaman]

I think in this context the term "potential demand" might solve your problem, although I'm not an economist.

No economy has grown with "potential demand". It means people want something but can't afford it. That is the failure of supply side thinking. We have paid dearly for that mistake. Bank failures from deregulation, bubbles and scams do not make for a healthy economy in the long term, but they sure do increase deficits and wealth disparity.

http://www.huffingtonpost.com/charles-ferguson/how-wall-street-became-a-_b_1536475.html

 

[Verax]

I like that - even better than "Laugher" Curve! I hope you don't mind if I use that in the future.

Hehe go ahead. :thumbs:

 

[whysoserious]

This is a classic conservative straw man. That, or they don't understand the Laffer Curve themselves.

 

[Jack Hays]

LMAO. The article doesn't even attempt to defend the Laffer Curve. And the arguments Stephen Moore does make are just sort of random associations of SOME tax cuts with SOME good economic years, ignoring other good economic years with higher or increasing tax rates, and then pretending he's made a point of some sort beyond "Tax Cuts R Good!!" Pretty lame attempt at a defense even for Stephen Moore.



That's only true if there is some actual intellectual theory behind the Laffer Curve. The article doesn't explain what that might be or why the "deniers" are wrong. What everyone sane recognizes is that tax cuts, except in extraordinary circumstances rarely encountered in actual reality and which certainly don't exist in recent decades, do not pay for themselves, which is the claim that GOP leaders make citing the Laffer Curve as their intellectual underpinning.

Bottom line is the Laffer curve is a useful tool for GOPers to sell tax cuts to rubes and ignoramuses in the right wing base - a tax free lunch, lower taxes and get MORE revenue!! Yes, Virginia, there is a Tax Santa Clause!! To that extent, the Laffer Curve has been a rousing success, one any propagandist would be proud of. Beyond that, I can't see how the Laffer Curve has provided anything of value to anything.

Your claim about the "intellectual underpinning" of the Laffer Curve is false.

 

[Jack Hays]

I don't get your point.

Did you read the entire OP article?

 

[Jack Hays]

No economy has grown with "potential demand". It means people want something but can't afford it. That is the failure of supply side thinking. We have paid dearly for that mistake. Bank failures from deregulation, bubbles and scams do not make for a healthy economy in the long term, but they sure do increase deficits and wealth disparity.

How Financial Criminalization Crashed the Economy, and the Culprits Got Off Scot-Free*|*Charles Ferguson

MoneyGlossary.com: Potential Demand

MoneyGlossary.com: Potential Demand
MoneyGlossary.com, Home. Potential Demand. Definition: Future demand for a product in a market niche. << Go back.

[h=1]Potential Demand[/h]Definition: Future demand for a product in a market niche.

 

[jaeger19]

Except we don't need the Laffer Curve to explain that trade-off. We are nowhere near the the point at which increasing tax rates lowers revenue, so the Laffer Curve adds really nothing to the economic or political decision making process. The Laffer Curve trivializes the many factors relevant to the tug of war about the size of government to a single decision about really some tax rates of some taxes on some people.

Wrong.. because the laffer curve describes more than just income tax rates. It is a question of taxation.. so for example raising certain types of taxes like sin taxes.. will generate less revenue as people move to avoid taxes...

 

[jaeger19]

Sure it is - at least that's how it's used in politics. If not, please explain what the "Laffer Curve" means.

how its used in politics is not the "laffer curve"... any more than "humans came from monkeys".. adequately describes the theory of evolution...

If you want to wallow in ignorance.. then that's your choice...

 

[jaeger19]

Ok, but the concept is completely worthless for any point in between 0% and 100%.

There's no way to tell where you are on the mythical curve, there's no way to tell where the peak is, and there's nothing in particular that would require a single peak as opposed to multiple.

Wrong... there is a way to tell.. and that's with your revenue stream... understanding that there IS a sweet spot for revenue generation is a very important concept..

 

[jaeger19]

Actually yes. over time disorder increases. And you can't compare a LAffer curve to that of a scientific law.

Show me the data point on that curve...

And yes.. I can compare the concept and graph of the laffer curve with that of thermodynamics... the point being that important concepts don't have to have a "data point"..

 

[jaeger19]

I think this is a good time to remind everyone that the effective tax rate of the top 1% is about 15% right now. I'd also like to remind everyone that U.S. debt is at 18T. I'd also like to point out that the bottom 80% own 7% of the wealth.

So when thinking about these numbers and the LoL curve, is there ever going to be a time in the near future when we're supposed to think tax cuts for the rich is the sane direction?

Yes.. for example.. we have two tax structures for separate income... we have one tax rate for capital gains.. and another tax rate for earned income. the earned income rate is substantially Higher than the capital gains rate... which means that rather than say.. starting a business, manufacturing a product, or providing a service, which is earned income... money is going into things like stock markets, and other capital gains that do not grow the economy.

this is an example of tax avoidance that the Laffer curve predicts. SO.. if we raised taxes on capital gains.. AND LOWERED the tax on earned income... we could actually end up with LOWER taxes overall or a "neutral" change in tax rate.. but an increase in revenue.

But that's using an understanding of the laffer curve... and we don't want to do that.. we don't want to deal with taxes on a scientific and logical level... its so much better for the liberals think taxes should be raised as punishment for being rich...

and so called conservatives think taxes should be lowered simply to help the great job creators...

 

[jaeger19]

This is a classic conservative straw man. That, or they don't understand the Laffer Curve themselves.

And it appears that neither do many Liberals on this board..

 

[JasperL]

Wrong.. because the laffer curve describes more than just income tax rates. It is a question of taxation.. so for example raising certain types of taxes like sin taxes.. will generate less revenue as people move to avoid taxes...

Less revenue than what? A "sin" tax is no more than an increase in the price of a good such as some tobacco product. Simple supply and demand curves will tell you that as the price of a good rises, the demand curve shifts. So why do we need the "Laffer" Curve to show us what we all learned in Econ 101? We don't.

The Laffer Curve might tell us (sort of) that if you raise the sin tax per pack of Marlboros to $1,000 per pack that it will raise nearly no revenue, I guess that's something, but no one has proposed that and it tells us nothing really at all about what the effect will be at $2 or $3 a pack - nothing more than price elasticity graphs tell us anyway.

As far as I can tell, the "Laffer" curve is right wing shorthand for "taxes R bad" and maybe "taxes affect behavior" like all other costs. That's about it.

 

[JP Hochbaum]

Show me the data point on that curve...

And yes.. I can compare the concept and graph of the laffer curve with that of thermodynamics... the point being that important concepts don't have to have a "data point"..

The LAffer curve isn't important, or on the same level of a scientific law.

 

[JasperL]

how its used in politics is not the "laffer curve"... any more than "humans came from monkeys".. adequately describes the theory of evolution...

If you want to wallow in ignorance.. then that's your choice...

Well, Stephen Moore was using the Laffer Curve in its political context and that article is the subject of this thread, and the heading at the top labels this as a "Debate Politics" forum, not econoblog or something. And non-propagandist economists laugh (pun intended) at the "Laffer" curve as a serious concept because it's nothing but a graph of the marginal revenue response to changes in tax rates, and something the CBO and all other professional economists use daily, multipliers and all the rest.

Stephen Moore (the article discussed in this thread, I thought) talks about the Reagan era and basically says it's all about taxes, and "supply side economics" whatever that is. He also discusses the Clinton era, and dismisses the income tax rate increases, focuses on the capital gains rate decrease and then says all that other stuff (e.g. lower defense spending and NAFTA) drove the economy despite the income tax rate increases. He talks about the Texas Miracle (because No income tax!!!!) but doesn't even pretend to compare Texas with other states with lower overall tax burdens and/or no income tax that do less well. My state has about the 48th lowest tax burden and is middling to bad on the jobs and growth rankings nationally. So he's not doing an ECONOMIC analysis of anything - just propaganda - a defense of the political notion of the "Laffer" curve which is nothing more than "taxes R bad!"

 

[jaeger19]

The LAffer curve isn't important, or on the same level of a scientific law.

that's not the point.. the point is.. they both are valuable scientifically .. and they don't have " data points"

 

[JasperL]

Your claim about the "intellectual underpinning" of the Laffer Curve is false.

You're right in that there is a legitimate economic concept underlying the curve. My point was as it's used outside economics departments or econ blogs is that the "Laffer" curve simply means that taxes are bad, and generally (when any republican politician cites it) that tax cuts are a free lunch. So there's an economic concept, irrelevant to modern day decision making, and the use of the famous curve as a propaganda tool, and they're really at odds with each other - actual economists reject how the "Laffer" curve is used in politics, all of them, including conservative economists who have served under everyone from Reagan to Bush II.

Point is the "Laffer Curve" means what the user wants it to mean, and that's often (and nearly always when used by political figures) totally at odds with the legitimate theory described by the so-called 'curve.'

 

[jaeger19]

Less revenue than what? A "sin" tax is no more than an increase in the price of a good such as some tobacco product. Simple supply and demand curves will tell you that as the price of a good rises, the demand curve shifts. So why do we need the "Laffer" Curve to show us what we all learned in Econ 101? We don't.

The Laffer Curve might tell us (sort of) that if you raise the sin tax per pack of Marlboros to $1,000 per pack that it will raise nearly no revenue, I guess that's something, but no one has proposed that and it tells us nothing really at all about what the effect will be at $2 or $3 a pack - nothing more than price elasticity graphs tell us anyway.

As far as I can tell, the "Laffer" curve is right wing shorthand for "taxes R bad" and maybe "taxes affect behavior" like all other costs. That's about it.

Yeah... you realize that what you learned in Econ 101 was in part based on the understandings of people that understood the Laffer Curve? Wait.. you don't.


You incorrectly assume that the price of Marlboros has to go to 1000 per pack to make a difference. What you don't understand is that the laffer curve prediction is a parabolic curve... which means that when you get to a portion of the curve.. a SMALL change in tax.. may lead to pretty big consequences in revenue.

Lets say that a sin tax is already on the revenue decreasing side of the curve... a small increase in tax.. may cause an extreme drop in revenue. That's important when deciding when and how much to increase or decrease taxes. If indications are that you may be on the either side of the curve.. small changes may have big effects. And that can have big effects economically.

for example, when they decided to put an excise tax on luxury boats in the US.. it essentially put a stake in the heart of the luxury boat industry in America and costs way more in lost tax revenue. lost Jobs etc than it did in revenue generation. AND contrary to your premise.. that excise tax was not some large "100%" tax.. it was a relatively small tax... but it had a LARGE effect on behavior.
That's an important concept of the Laffer curve and a cautionary tale regarding taxation and its effects.

 

[jaeger19]

Well, Stephen Moore was using the Laffer Curve in its political context and that article is the subject of this thread, and the heading at the top labels this as a "Debate Politics" forum, not econoblog or something. And non-propagandist economists laugh (pun intended) at the "Laffer" curve as a serious concept because it's nothing but a graph of the marginal revenue response to changes in tax rates, and something the CBO and all other professional economists use daily, multipliers and all the rest.

Stephen Moore (the article discussed in this thread, I thought) talks about the Reagan era and basically says it's all about taxes, and "supply side economics" whatever that is. He also discusses the Clinton era, and dismisses the income tax rate increases, focuses on the capital gains rate decrease and then says all that other stuff (e.g. lower defense spending and NAFTA) drove the economy despite the income tax rate increases. He talks about the Texas Miracle (because No income tax!!!!) but doesn't even pretend to compare Texas with other states with lower overall tax burdens and/or no income tax that do less well. My state has about the 48th lowest tax burden and is middling to bad on the jobs and growth rankings nationally. So he's not doing an ECONOMIC analysis of anything - just propaganda - a defense of the political notion of the "Laffer" curve which is nothing more than "taxes R bad!"

Nice deflection... but the issue then is Moore NOT UNDERSTANDING perhaps the Laffer curve... its not an issue with the laffer curve.

From a political perspective.. you can't have legitimate discussions on political policy and taxation policy.. if the discussion is not based on fact.. its just that simple. And it doesn't matter whether its a republican OR a democrat that's misrepresenting the facts.

Your understanding of the Laffer curve is as flawed as Stephen Moore... just pointing out your hypocrisy...

 

[JP Hochbaum]

that's not the point.. the point is.. they both are valuable scientifically .. and they don't have " data points"

No, only one is objectively valuable scientifically (thermodynamics) and the other is ideologically valuable (Laffer curve). You won't find the Laffer curve in a non-ideologically driven textbook. (I know this as I have taken 2-3 years worth of econ classes.)

 

[jaeger19]

No, only one is objectively valuable scientifically (thermodynamics) and the other is ideologically valuable (Laffer curve). You won't find the Laffer curve in a non-ideologically driven textbook. (I know this as I have taken 2-3 years worth of econ classes.)

First.. most textbooks have an ideological bent.. its the nature of the beast.. (that's from experience at a doctoral level)

Second.. the Laffer curve is based on a long history of economic theory and that theory has withstood the test of time...

Do a little research.. you will see that I am correct.

 

[JasperL]

Yeah... you realize that what you learned in Econ 101 was in part based on the understandings of people that understood the Laffer Curve? Wait.. you don't.

What's different between the Laffer Curve and a supply/demand curve for a "sin" tax?

You incorrectly assume that the price of Marlboros has to go to 1000 per pack to make a difference. What you don't understand is that the laffer curve prediction is a parabolic curve... which means that when you get to a portion of the curve.. a SMALL change in tax.. may lead to pretty big consequences in revenue.

I didn't assume anything except that the Laffer Curve at best tells us something at an extreme - $1,000 was obviously an EXAMPLE of an extreme, and $2-3 was an EXAMPLE of the kind of real world decisions governments actually make.

Lets say that a sin tax is already on the revenue decreasing side of the curve... a small increase in tax.. may cause an extreme drop in revenue. That's important when deciding when and how much to increase or decrease taxes. If indications are that you may be on the either side of the curve.. small changes may have big effects. And that can have big effects economically.

You'll need to know the slope of the "Laffer" curve at some point to know that, which is an empirical question about the price elasticity of that particular good in that particular market, and the theoretical "Laffer" curve tells us nothing about the slope of the line at any point. You're guessing about the effect of some tax, and if your conjecture is accurate, it is based on what's empirically observed for that tax on that good in that locality. But even if accurate, the Laffer Curve didn't get you there - seeing/measuring/recording the change in demand of a good with changes in price of that good are what will inform that conclusion.

for example, when they decided to put an excise tax on luxury boats in the US.. it essentially put a stake in the heart of the luxury boat industry in America and costs way more in lost tax revenue. lost Jobs etc than it did in revenue generation. AND contrary to your premise.. that excise tax was not some large "100%" tax.. it was a relatively small tax... but it had a LARGE effect on behavior.

That's an important concept of the Laffer curve and a cautionary tale regarding taxation and its effects.

We've been through the excise tax on ships example before. Don't feel like doing it again except to say the example isn't a very good one for several reasons. Besides, that's an example of one tax on some goods in a very niche, extremely discretionary, luxury market that has little relevance to, say, Federal corporate income taxes.

 

[JasperL]

Nice deflection... but the issue then is Moore NOT UNDERSTANDING perhaps the Laffer curve... its not an issue with the laffer curve.

From a political perspective.. you can't have legitimate discussions on political policy and taxation policy.. if the discussion is not based on fact.. its just that simple. And it doesn't matter whether its a republican OR a democrat that's misrepresenting the facts.

Your understanding of the Laffer curve is as flawed as Stephen Moore... just pointing out your hypocrisy...

OK, so a person who wrote a book with Art Laffer doesn't understand the "laffer' curve? Beautiful argument!!! :lamo

And I agree about facts - so where in the OP's article does Moore present hard facts that somehow prove the "Laffer" curve? Where is your evidence supporting the Laffer curve - a cite would be nice. Etc..............