Wang - Ka:
I don’t think many economists agree with the statements you attribute to them.
Oh, for heaven’s sake folks! Old myths die awful hard, don’t they!?! Boy, it’s fun to play with statistics the way the WSJ does. The problem is that the claims don’t hold up to a better statistical analysis. We’ve gone through this whole debate before here, where I and RTFirefly wasted a lot of time running the budget numbers. One point is that you have to convert to constant dollars. Individual income tax revenues almost always go up if you don’t! In fact, 1982 to 1983 is the only time they didn’t since 1970-1971 (thru at least 1999)!
To quote some of my conclusions at the time:
[Recall that a hefty increase in Social Security taxes was enacted sometime during Reagan’s term.] I believe that the 1981-1987 dip in personal income tax revenues is unprecedented in modern times (although I admit that I don’t think I bothered to convert all the data going back to 1934 to constant dollar values).
Hell, the rosy budget predictions from the White House Office of Management and Budget became such a joke during Reagan as the supply-side revenue predictions crashed and burned. (People who have read David Stockman’s book say he basically admits that they didn’t even believe the numbers they were putting out at the time --they knew they were full of shit.)
It is rather frustrating to find people making the same old claims over and over again when they are simply ludicrous!
My guess is that it is at some point beyond where the highest-taxing European countries are. Those countries might have reached a point where the taxes are causing some significant hits on productivity but I don’t know of any evidence that they have gotten to a point where the hit is so great that they would have higher revenues with lower taxes. If there is such evidence, I would like to see it.
[I’d also tend to be a bit leery of your 40-60% number for tax burden barring some actual data on that, at least for median income people.]
By the way, you also have to remember that the Laffer curve is oversimplified at any rate because it plots tax rates along just one dimension. In reality, there are infinitely many dimensions on which you can alter the tax structure. As I have pointed out in other threads, my wild-ass guess is that poor and middle income people are probably more sensitive to tax rates than the wealthy because incentive-wise at some point money becomes more of a way of keeping score than anything else.
jshore, I agree that we cannot know what would have happened to tax revenues absent the Reagan tax cut. However, I have a problem with your choice of dates.
You seem to be blaming the Reagan tax cuts for failing to go back in time and increase tax revenues before they were fully in effect.
Seriously, you know that the economy doesn’t turn on a time. It takes time to change direction. One cannot prove that the Reagan tax cuts deserve credit for the economic turnaround. However, the timing of the recovery is certainly consistent with their efficacy.
Separate point: The government can improve the economy in other ways, which would cost no tax revenue. They could make it easier to conduct business. The steps I have in mind are tort reform and easing administrative burdens. Of course, these steps may have other downsides.
Um, just what taxes exactly are “the poor” paying now? If you are a family making less than $30K or so, you effectively pay zero federal tax. How can that be cut?
If you are cutting taxes, you are cutting the taxes of the people who actually pay them. Seems to me a simple concept.
And yes, if you check the facts you will see that the economy was definitely headed down long before Bush took office. You just won’t hear about it from Rather/Jennings/Brokaw/NYT/Washpost.
Someone correct me please if needed but didn’t Reagan initialy have a tax hike as an attempt to get along with the dems in Congress (I recall something like this but truly am not sure of it)? If so wouldn’t the decrease in revenue be the effects of the tax hike?
As for the timing of things, my recollection is that you have it backward, k2dave. The tax cuts came first, then later in his term there was a rise in payroll taxes. (There was also then some restructuring, essentially a rise, in at least the corporate part of Reagan’s tax cut…by imposing some sort of alternate minimum tax…as even he couldn’t stomach some of the excesses of corporations making huge profits and paying nothing that had resulted. This is alternate minimum tax for corporations is what Bush tried to repeal last year in the wake of Sept 11 but largely ended up backing off on.)
As for using 1982 as the first year, I actually don’t know what the phase-in was like and wasn’t able to track this info down, so my assumption was that Reagan’s tax cut which came in quite early in his presidency would have started with the first budget he would have control over which is FY1982. Actually, Bush even made some of his cuts retroactive to 2001.
Finally, as for the eventual economic turnaround, history with the exception of the Great Depression has been for the U.S. economy to always turn around a few years after a downturn. So, sure, one could posit that the downturn in the early 80s would have been a real depression if not for the wonders of the Reagan tax cut but such a scenario seems pretty implausible to all but true-believers…I mean some have tried to credit the boom in the 1990s to the Reagan but at some point we are getting beyond empirical evidence and getting into religious beliefs.
By the way, as an additional note, I personally am rather agnostic as to how much credit should be given to Clinton either for the boom in the late 1990s…I’d tend to go with “perhaps a little but not much.” However, I do think this boom, in light of the increases in marginal tax rates at the top that occurred during the 90s (starting under Bush I and continuing under Clinton, as I recall), gives one little room to argue that this increases hurt growth very much because then you have to argue that already very strong growth would have been even stronger! [Likewise, in order to argue that the 1997-ish rise in the minimum wage led to significant unemployment you have to argue that historic low levels of unemployment would have been significantly lower.]
Of course, the problem with macroeconomics is the lack of anything approaching a controlled experiment. So, true believers can continue to believe any sort of cause-and-effect that they want to believe. But, again, such belief isn’t based on empirical data…it is simply based on belief and sometimes seems rather implausible (although never provably wrong) in light of the empirical data.
Well, as I pointed out in the other threads on taxation lurking around, you can look at the total tax picture, e.g., include payroll taxes (and even consider what burdens people have from non-federal taxes like sales taxes) when deciding tax policy. By focussing on the two most progressive taxes that we have, the gift and estate tax and the federal income tax, when you consider cuts you have already biased things in favor of the wealthy. [It is now something like 40% of the population that pays more in payroll taxes than in federal income taxes.]
You can also cut only the bottom rates, which would still give top earners some cut in their taxes but cuts that would saturate at a certain dollar value so that the top 1% of earners, say, would not get much more than 1% of the total monies going to these tax cuts.
The justification for this approach is that the economic growth that has made the tax cuts possible has been distributed in a very unequal manner. The richest 1% have seen real incomes grow by something on the order of 150% over the last 20 years whereas the median folks have seem rather anemic gains (almost no gain at all in hourly real wages, but they now work more hours), and the poor seen almost nothing. Basically, we have structuured our economy in a way where almost all of the benefits of our growth goes to a rather small fraction of people.
To focus on the rhetorical devices, I have a new favorite in my collection of Republican spin-nuggets. I was once enamored of “death tax”. Such poetry is seldom heard from Republican mouths, and only then when the subject is money, and how them thats got it should have more of it, or at least keep it out of the grubby grasp of the undeserving.
But that pales in comparison to “double taxes”. Truly, the mot injuste. It shares the haiku-like succinctness of “death tax”, but manages to carry an extra burden of implied injustice. The tireless palladins of plutocracy weep that a corporation must pay taxes, and its stockholders, who are the corporation, must pay taxes on thier dividends, having endured the labor of buying and not selling.
Yet there are instances, are there not, of corporations who pay no federal taxes, indeed, some even recieve rebates, a kind of food stamps for an entity that doesn’t eat. Do they never declare dividends? Are they proscribed from doing so?
That said, there is one worthy aspect to it: that it encourages stock investment as investment, and not speculation. The stock market has become infected with tulipmania, “investors” watch every tick and tock with a wary eye. History has shown that when this becomes the prevailing attitude, disaster looms. I can see some sense to a proposition that would encourage investment and discourage speculation.
So this may not be snake oil. But it is being marketed like snake oil.
Why not? I recall Rather and Brokaw often commenting about the economy was cooling down during the last year of Clinton’s administration. I doubt that Jennings or the NYT or WP was any different. What are you suggesting? Even with that cooling down period, the previous administration still had a good enough year to bring in another budget that amounted to a surplus. I believe the Clinton administration had previously brought us a record four year budget surplus in a row with one of those years amounting to another record 250 billion dollar surplus. The Reagan administration gave us more debt than all of the other previous presidents combined. Bush Sr. followed in step, with his last year in office bringing us 330 billion dollars of debt. Give G.W. Bush another year or two at the helm, and let’s see if he surpasses that.
JZ
elucidator wrote:
But that pales in comparison to “double taxes”. Truly, the mot injuste. It shares the haiku-like succinctness of “death tax”, but manages to carry an extra burden of implied injustice.
I don’t know. Can’t you just picture a vulture hopping around picking at the bones when you hear “death tax”. Much more despicable than unjust, imho.
I also share jshore’s complaints including:
*You can also cut only the bottom rates, which would still give top earners some cut in their taxes but cuts that would saturate at a certain dollar value *
People promoting tax cuts often seem to act like it is physically impossible to only cut rates in one of the brackets(hyperbole, folks). The common ignorance that once you reach a certain income all your income is taxed at the new rate is often promoted as well(if we’re sharing rhetorical device complaints).
Yeah…Krugman’s article earlier this week in the NY Times made the same point. As you point out, it is often more of a double tax in principle than in practice. And, you don’t hear the complaints of how we have to eliminate sales taxes because the income used to buy things has already been taxed.
My problem with this is that if we really want to encourage the wealthy to use their money in productive ways…i.e., to have the right incentives…why can’t we do it in a way that doesn’t just cut their taxes more…E.g., we could combine the cut in dividend tax with a rise in the higher marginal income tax rates.
Also, isn’t part of the problem of wrong incentives caused by the fact that capital gains are taxed less…and wasn’t that reduction in capital gains tax brought to us by the same people who want to get rid of the dividends tax now!?! (How many years before they then kill the capital gains tax altogether after that?)
I think that’s an accurate characterization of the death tax. Despicable.
Well, it sure didn’t seem to satisfy everybody when Bush did precisely that with his rebate. The lowest tax bracket being 10% up to to 6k. What did you think of your rebate last year?
The distribution of income is also inverted with the preponderance of income being in the top few deciles, and the rates at the bottom are already very low.
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What person is saying such a thing?
We’re talking about ‘tax cuts’ as if they are a monolithic entity. They aren’t. There are different kinds of taxes, and cuts to them affect the economy differently.
For example, look at the luxury tax, signed into law by the first Bush administration and heavily supported by Democrats. That tax actually cost the government revenue, after the additional unemployment insurance and welfare benefits were factored in.
Some taxes are distortionary, and have disproportionate effects. One of those is the dividend tax. Under the current system, when a corporation pays out a dividend it is taxed, and then the people who receive it are also taxed. This distorts the behaviour of investors and corporations in a way that is not healthy for the economy. Investors move away from stocks that pay dividends, and focus on ‘growth’ stocks. That punishes blue chip stocks, and encourages stock speculation. It also encourages companies to hang on to cash rather than paying it out as dividends, which reduces the velocity of money and constricts the economy.
The dividend tax cut is a good idea because it removes an artificial bias that has had large distorting effects on the behaviour of companies. By treating dividends equally, it allows corporations to behave more optimally. That’s a good thing.
Jshore:
And often it is not. Moot point if the principle is wrong, it’s wrong.
Sure I do. In many cases they are valid. In others, like gasoline, cigarettes, or other things the complaints are not.
My problem is the idea that you seem like arbitrary confiscation of property is a good thing, and that you seem to think you have some right to other people’s money, or should have some say in how they use it. You don’t. Everybody needs to pay their fair share, and everybody should have their taxes be as low as is possible.
Which would make the tax cut pointless in the first place.
I should caution you about Mr. Krugman, he is Betty Noyer to, ah, certain persons. He is, after all, a liberal economist and lacks the objectivity and acumen of a conservative economist.
And I hasten to demur: I only pointed out what might be thought of as a “silver lining”, the one bright spot in an otherwise ignoble proposition. I think America’s quivering addiction to the stock market borders on insanity, I would look with favor on a measure that might correct that, but I havent the expertise to suggest what that might be.
How on earth was anyone able to properly “factor in” additional unemployment insurance and welfare benefits directly caused by the “luxury tax”?
Fine, Sam…But aren’t there other ways to get rid of these distortions, e.g., by raising the capital gains tax back up or by getting rid of the dividend tax but then rescinding the Bush rate cut to the two highest tax brackets? If we really want to remedy distortions, we can do it in ways that don’t just give net tax breaks to the wealthy!
I don’t think the complaints for the most part were about the rebate but the cut to the lowest bracket is only a fairly small fraction of the total cost of the Bush tax plan. And, in fact, the rebate (as the way to get the reduction in the lowest bracket to people right away) was originally a Democratic idea that got incorporated into the Bush plan.
You have to look at the whole plan. As I note above, I am even open to ideas like getting rid of the dividends tax if it is part of a package that is progressive rather than regressive overall.
Well, what we are arguing about is exactly what each person’s fair share should be. Throwing in rhetoric about “confiscation of property” and “other people’s money” hardly keeps this debate at a high level. (It almost implies that you know for a fact what the fair amount is.)
Yes, if the point is to lower taxes on the wealthy. But, no, if the point is to correct distortions in the stock market due to this taxation if dividends.
jshore:
It’s not rhetoric in the slightest. You seem to forget that taxation is confiscation, and that it is other people’s money.
You consistently argue that there has to be another way but tax cuts for the wealthy. What’s wrong with tax cuts for the wealthy?
The wealthy pay the bulk of the taxes, they should recieve the bulk of a cut.
The point is that double taxation is unfair, and decreasing rates will be a stimulous for the economy.
I doubt that it will do much to correct whatever distortions you think exist. All it will do is increase after tax yield of dividend paying stocks in certain circumstances, making them slightly more attractive.
The idea that this will correct “distortions” is highly simplistic.
Right – persons of integrity. Paul Krugman, by a wide margin, led the prestigous Lying in Ponds rankings for 2002.