It also has absolutely no evidence. Despite being around for decades. The Laffer curve to economics is what creationism is to biology.
It also has absolutely no evidence. Despite being around for decades. The Laffer curve to economics is what creationism is to biology.
Hope is the denial of reality
It has tons of evidence.
Originally Posted by Ominous Gamer
Are you nuts?
What is the tax revenue at 0% tax rate? The answer is 0.
What is the tax revenue at 100% tax rate? The answer is likely 0 (you'll get some liberals donating to the government etc but the purposes of this its 0).
Somewhere in between those extremes is a tax rate that optimizes revenue. That number is not .001% nor is it it 99.9% tax rate. That's all the Laffer curve implies.
The assumption that US tax rates are far above the revenue-maximizing point is not particularly well supported by evidence.
"One day, we shall die. All the other days, we shall live."
At a level that any modern Western country actually has.
The Laffer curve has been used to justify reducing taxes to a level far below 99.9%.
Hope is the denial of reality
That's not what our far left professor was claiming though.
Well, technically he's still right. It certainly SHOULD work at some very high level of taxation but I don't think there's ever been any demonstrated evidence. Nor will you ever be able to get rigorous evidence for it, economics is not that hard a science.
Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"
he's not wrong. no-one here or anywhere in Western politics is arguing about whether or not taxes should be lower than 99.9%. Under the conditions that currently hold in pretty much any modern country in the world, there is little to no compelling empirical evidence that supports using the Laffer curve as a rationale for lowering taxes. There are many arguments that sound reasonable but ultimately it's barely above the level of conjecture. If you believe otherwise, please direct us to the "tons of evidence" you referred to earlier and we can discuss whether or not that evidence is compelling.
"One day, we shall die. All the other days, we shall live."
Sorry but what was claimed was not that there is no compelling empirical evidence for the Laffer curve where tax rates are, but for the Laffer curve at all: It also has absolutely no evidence. Despite being around for decades. The Laffer curve to economics is what creationism is to biology.
We don't have a crystal ball to look at how the present could hypothetically change in the future based on hypothetical changes in the present. Its far more reasonable to look at the decades that the curve has been debated and empirical evidence across the globe of which there is plenty of evidence that makes the comparison to creationism absolutely derisory.
In the US, based on the theory of the Laffer curve the tax rates were slashed in the 80s. Top rate of tax was slashed by more than half. Did tax receipt fall accordingly in line with the rate falls? No, they nearly doubled over the decade.
Other precedents exist including in the USA in the 20s.
It is entirely possible to argue that the Laffer curve does exist but we are on the left hand side of the slope (ie raising taxes will raise revenue, cutting taxes will cut revenue) without contending that the curve itself is creationism.
Your argumentum ad Reaganum is an excellent illustration of several reasons why we should view this supply side dogma with skepticism. During Reagan's tenure, although tax receipts may have doubled in absolute terms, in inflation-adjusted terms the increase was around 25%. As a share of GDP, they fell by a few percent. At the same time, the deficit ballooned, and the extent to which tax policy contributed to that remains unclear. Finally, Reagan didn't only cut taxes. During his tenure, he also raised taxes several times, recapturing a significant portion of the lost revenue.
If you're merely arguing that there is evidence for a relationship between tax rates and productivity, sure, that may certainly be true. But that's kind of a trivial point. What this debate has to focus on are the specifics of the Laffer curve: what, exactly, does it look like? Are its assumptions valid? Is it smooth? Is it symmetrical? Where does its inflection point lie? Where on the curve do we lie?
Without a clear picture of the relationship between taxation and revenue, and a clear picture of where we currently stand, the Laffer curve itself can barely be said to exist. It certainly cannot be said to exist in the form imagined by most conservative Western politicans and pundits. There is no compelling evidence to suggest that the inflection point, after which tax rates become prohibitive in an economic sense, lies far below 50% (and most academics who've worked on the subject seem to place it somewhere around 60-70%). There is no compelling evidence to suggest that the curve is symmetrical or that any part of it is particularly smooth. Even one of the two fundamental assumptions of the curve, that 100% taxation = 0 govt. revenue due to zero production, is questionable in a totalitarian communist state where revenue is redistributed in the form of food, shelter, education, healthcare and various other services.
It's not even the right damn' curve to talk about. The question of which tax rates maximize revenue is inextricably linked to the question of which policies--tax-related or otherwise--maximize production and growth, but you cannot answer the latter question simply by making up answers to the former.
"One day, we shall die. All the other days, we shall live."
I think comparing it to creationism is something of a misnomer but you really have to remember, Rand, the Laffer Curve isn't a real thing. It's something found in a model we use as a metaphor for the complex real-world interactions we try to study with economics. The function of the Laffer curve is something we will NEVER be able to actually see in direct operation in real life because it's not a natural function in the world, just an expression in the model. There IS NO empirical evidence from across the globe gathered in the past decades.
Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"
The comparison to creationism is based on the fact that most people who subscribe to it don't understand economics in the slightest; they believe in it as an article of faith. Which is sad considering the model has been attacked by game theorists and has little empirical evidence in its support (just search for the term in econ journals). Its main backer isn't a major school of economic thought but a think tank (Heritage). That's like me using a MoveOn.org study to support the economic rationale for a $15 minimum wage.
Hope is the denial of reality
As I said, a misnomer. The accurate thing to say is that the Laffer curve is to non-economists what creationism to non-biologists. Heeded by only a zealous subset of the uninformed masses.
Last night as I lay in bed, looking up at the stars, I thought, “Where the hell is my ceiling?"
Fair enough.
Hope is the denial of reality
That taxes fell as a share of GDP is not a problem it is the point! Take a smaller slice of a bigger pie and you end up with more. The fact he raised some taxes (your final point) but the tax take fell as a share of GDP means that overall tax rates were reduced. Yet despite a reduction of tax takes, real terms revenue increased it didn't fall.
That you could half tax rates but see a real terms increase in revenues demonstrates something important.
At the least it demonstrates one important but little-spoken about fact about the Laffer curve. People assume in discussions about the Laffer curve that the only thing that matters is whether we are at the peak of the curve or not. But the inflection point is not really the optimal point to be at. As you approach the inflection point the deadweight loss increases meaning that fewer revenues are raised despite more losses being suffered by the economy. Raising taxes from 40% to 50% is a 25% net increase in tax but won't increase tax revenues by 25%. Even if you're still to the left of the peak of the Laffer curve you might only get say a 10% increase in revenues (but the whole damage from the 25% increase has occurred despite only a say 10% increase if any in revenues).
While we're quoting Wikipedia:
https://en.wikipedia.org/wiki/Laffer_curve#Problems
When the stars threw down their spears
And watered heaven with their tears:
Did he smile his work to see?
Did he who made the lamb make thee?
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