1986 Tax Reform Act started it all

[imrob79]

I believe when Reagan and his pals decided to allow billionaires and those earning in the hundreds of millions annually at 28% instead of 50%, this country's inability to support itself began. Strangely, nothing has been done to circulate these missing funds back into our economy to the extent China all but owns the United States. Why have we abandoned Adam Smith's instructions to impose a truly progressive tax system? Why the fuck does it stop at 30%?? When can we have the 20% back so we can give it to small businesses and other means by which the other 95% can support themselves?

Are there compelling arguments against this premise? I'd love to hear them!

[Rand Rover]

You are missing one big thing: The tax base on which the different rates were applied. It was smaller before 1986 and bigger after. Several people are today calling to make the tax base even larger and the rates smaller. So, when you discuss getting "the 20%" back, what you are saying basically has no meaning because the different percentages were applied to different tax bases.

You should also do some reading on the Laffer Curve. The bottom line is that an increase in the tax rate does not necessarily result in an increase in tax collected.

[BigT]

No, you missed something big. The guy's from an alternate reality where a Reagan became president 100 years earlier.

[Clothahump]

When can we have the 20% back so we can give it to small businesses and other means by which the other 95% can support themselves?

Are there compelling arguments against this premise? I'd love to hear them!

Yes. Your premise is flawed. Robbing Peter to pay Paul might make Paul happy, but it sure as hell doesn't benefit Peter.

[Stately Greek Automaton]

Yes. Your premise is flawed. Robbing Peter to pay Paul might make Paul happy, but it sure as hell doesn't benefit Peter.

If Peter is no longer tripping over Paul in the street, he might find it to be a benefit.

[hajario]

Hopefully this thread won't get ruined by too many retarded jokes about the typo in the thread title. (1886 instead of 1986). I will report it for an edit.

My understanding is that although the tax rates were decreased but the tax revenue increased because at the same time lots and lots of loopholes and shelters were eliminated. It was actually a huge tax increase. It was brilliant. People thought that they were saving money and loved Reagan for it but were actually paying more.

[septimus]

You should also do some reading on the Laffer Curve.

Perhaps it is you who needs his ignorance fought regarding Laffer's Curve. You might start with:

http://economistsview.typepad.com/economistsview/2007/10/whos-laffering-.html

I realize Paul Krugman is only a Nobel Prize Winner whereas you probably have Karl Rove and Sam Stoned on your side. :D

[John Mace]

Strangely, nothing has been done to circulate these missing funds back into our economy to the extent China all but owns the United States.
If "nothing has been done", how did the top tax rate get from 28% to 35%

China does not "all but own" the US. It's the largest foreign holder of US public debt, but it's still only 16%.

When come back bring data, not just rant.

Oh, and Reagan was elected in the 1980s not the 1880s.

[kidchameleon]

China does not "all but own" the US. It's the largest foreign holder of US public debt, but it's still only 16%.

16% compounded over 125 years....

[Budget Player Cadet]

Yes. Your premise is flawed. Robbing Peter to pay Paul might make Paul happy, but it sure as hell doesn't benefit Peter.

"Taxation is theft! Social programs are theft! Social Security is a Ponzi scheme!"

[Measure for Measure]

You should also do some reading on the Laffer Curve. The bottom line is that an increase in the tax rate does not necessarily result in an increase in tax collected.This is crank economics. There is no empirical evidence that US tax levels have ever been anywhere near the point where the Laffer Curve becomes relevant. And Laffer never presented such an argument to a peer reviewed journal: he just sketched it on a napkin. What his apologists do is point to Kennedy's tax cut: but nobody ever argues that tax cuts won't stimulate aggregate demand. It's the disproportionate supply side effect which is without empirical support. Sure incentives matter: they just don't matter sufficiently so that cutting taxes will increase federal revenue. You are missing one big thing: The tax base on which the different rates were applied. It was smaller before 1986 and bigger after. Here RRover is correct. 1986 tax reform was bipartisan: it was pushed by Reagan's treasury dept., but was initially proposed by the democrat Bill Bradley. Reform also took millions off of the income tax rolls, something that conservatives supported in the 1980s, but opposed in the 2000s.

The problem was that there was no effort to reform congressional procedures. So the loopholes flowed back into the system and the base narrowed. Nonetheless, sweeping house every several decades still has its advantages, albeit short lived.

[Rand Rover]

Re: the Laffer Curve, I never made any of the claims that others in this thread are fighting against. I think the important part of the Laffer Curve concept is simply the idea that raising tax rates does not necessarily increase tax revenue because the tax rate raise will cause people to make different choices. That's it.

[Measure for Measure]

Re: the Laffer Curve, I never made any of the claims that others in this thread are fighting against. I think the important part of the Laffer Curve concept is simply the idea that raising tax rates does not necessarily increase tax revenue because the tax rate raise will cause people to make different choices. That's it. Ok, but Laffer didn't invent the idea that incentives matter. When you say "Laffer Curve", some people will think you're a crank. If you want to persuade them otherwise, you might add the qualification, "If rates are above, say, 99% then cutting tax rates could actually increase tax revenue." The problem was the Laffer crew implied that they were making an empirically relevant argument c. 1980. They were not. (That said, there were serious arguments for cutting taxes back then. But the proper name would be Martin Feldstein, not Laffer.)

Incidentally, there's a hierarchy of responses to tax changes. Most responsive is the tendency to shift income between different tax years. Least responsive are real behavioral changes, such as adjusting the number of hours worked.
----

Oh yeah: I think the OP wants to complain about the Kemp-Roth tax cuts, not 1986 tax reform. The latter was revenue neutral and not particularly regressive in practice, at least before the loopholes were put back in.

[MEBuckner]

China does not "all but own" the US. It's the largest foreign holder of US public debt, but it's still only 16%.
16% compounded over 125 years....
If China owns 16% of our debt, and the other 84% is held by little old ladies in Poughkeepsie with savings bonds, and we further assume that we're not paying off the debt at all and we're just letting the interest compound, and nobody does nothing, then in 125 years...the Chinese will still own 16% of our debt. The total dollar amount will be larger, but the proportion of it held by the Chinese will be the same. Only if for some reason the Chinese debt were compounding at, say, 5% a year but the Poughkeepsie debt were compounding at 3% a year would the proportions change.

But government debt doesn't remotely work like the way I described in any event. For one thing, neither the Chinese nor the little old ladies from Poughkeepsie are going to just sit there for over a century and not get paid and just let our tab keep compounding.

[Miller]

Fixed the typo in thread title from 1886 to 1986.

[John Mace]

Fixed the typo in thread title from 1886 to 1986.

Softie!

[saoirse]

Hopefully this thread won't get ruined by too many retarded jokes about the typo in the thread title. (1886 instead of 1986). I will report it for an edit.

My understanding is that although the tax rates were decreased but the tax revenue increased because at the same time lots and lots of loopholes and shelters were eliminated. It was actually a huge tax increase. It was brilliant. People thought that they were saving money and loved Reagan for it but were actually paying more.

And in fact, it was actually a tax increase, precisely what Walter Mondale predicted. And was pilloried for. Draw whatever lesson you like from that.

[Measure for Measure]

And in fact, it was actually a tax increase, precisely what Walter Mondale predicted. And was pilloried for. Draw whatever lesson you like from that. The key tax increase came via social security. Everybody got an income tax cut from Kemp Roth. Part of the tax cut was then reversed. The social security commission raised social security taxes. The net result of the Reagan era was higher taxes on the middle class, lower taxes on upper incomes and higher deficits for the nation. This from the guy that conservatives want to put on Mount Rushmore.

[Cumberdale]

But, it was the World Series of tax reform...and the American people won. Reagan said so himself!

[Damuri Ajashi]

You are missing one big thing: The tax base on which the different rates were applied. It was smaller before 1986 and bigger after. Several people are today calling to make the tax base even larger and the rates smaller. So, when you discuss getting "the 20%" back, what you are saying basically has no meaning because the different percentages were applied to different tax bases.

When you say base are you talking about how the 1986 act shut down a bunch of tax shelters so we were reaching more income? If so I agree, the 1986 act was fairly revenue neutral and was designed to be that way, they cut rates and closed a bunch of loopholes.

You should also do some reading on the Laffer Curve. The bottom line is that an increase in the tax rate does not necessarily result in an increase in tax collected.

At these tax rates it absolutely does. Its hard to argue otherwise during an almost unparalelled period of low tax rates when every CBO mark since 1986 proves that we are well to the left of the apex of the laffer curve (which is an almost useless device unless you get confiscatory tax rates).

EVERY reputable tax expert agrees that in the current tax rate environment, increasing taxes will increase revenues. That's why you don't hear the Republicans talking about the Laffer Curve these days, instead they have opted for more credible theories like Obama being born in Kenya.

[zoid]

Fixed the typo in thread title from 1886 to 1986.

Just another example of the Liberal Elite re-writing history.

[Lochdale]

Perhaps it is you who needs his ignorance fought regarding Laffer's Curve. You might start with:

http://economistsview.typepad.com/economistsview/2007/10/whos-laffering-.html

I realize Paul Krugman is only a Nobel Prize Winner whereas you probably have Karl Rove and Sam Stoned on your side. :D

Hasn't Krugman just become a full time crank at this stage? I swear he just cuts and pastes his rants in the NYT.

Raising taxes may result in less investment and more money spent trying to shelter income. I say may because it depends on the amount of the tax increase.

Back to the issue at hand, there are so many special interests that influenced every iteration of the tax code that true reform is next to impossible. Eliminate most of the deductions so that tax payers know exactly what they will be paying (even if it is higher) and people can comport their behaviour appropriately.

[Fear Itself]

Raising taxes may result in less investment...That would only be a problem if there was a shortage of capital. Corporations are awash in cash they won't invest in jobs or new capacity until demand picks up.

[foolsguinea]

Yes. Your premise is flawed. Robbing Peter to pay Paul might make Paul happy, but it sure as hell doesn't benefit Peter.Peter was a fisherman, and people have to eat. Paul was a tentmaker, and could see his sector's income gradually drop with improvements in material technology. Who feeds the tentmaker's children? Or shall they go into finance and sell swindles for a living?

[Max the Immortal]

Robbing Peter to pay Paul might make Paul happy, but it sure as hell doesn't benefit Peter.

Sure it does. Paul is a job creator, and everyone knows that we shouldn't tax the job creators. Give Paul a tax cut (and raise Peter's taxes to pick up the slack), and everyone will be better off, including Peter. Trust me.

[bup]

Holy shit - people still trot out the Laffer curve? Fuck but stupid is hard to cure.