# Do tax cuts help the economy? **URL:** \ **Category:** Great Debates\ **Created:** [May 10, 2006, 4:25pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234 "2006-05-10T16:25:29Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [May 15, 2006, 3:49am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/61 "2006-05-15T03:49:30Z")
> [@Measure for Measure](#): > > Ignoring float (which is temporary) Under such a scenario, [M2](http://research.stlouisfed.org/fred2/categories/24) would not change. Where that cite leads doesn’t say that. > [@](#): > > Drawing down your savings account and converting it to currency does not affect M2. Handing over your currency to buy (um) a new shirt won’t affect M2 either, since the Gap’s checking account will grow by a like amount. Well, no. They have to pay the schmuck who waited on me, and pay for the shirt, and the rent, so only a portion of my shirt purchase goes into their checking account. So, in the short run the money supply is decreased. But as all the vendors and all the people involved in selling me my shirt get paid, they all put a portion of their money into savings or checking and pay for goods and services with the rest. Ultimately the $30 I spent on my shirt may (through the inflationary nature of money) increase the money supply by $60. Whee. > [@](#): > > Now if you _borrow_ $1000 from the bank, that would be different: that does lead to money creation in the system. So does spending money. > [@](#): > > * * * > > As for “occuring”, you have a point: presumably there’s an equilbrium between money supply (set by the Federal Reserve) and money demand (set by consumer preferences). To confuse matters, I’ll assert without evidence that [the Fed cares a lot less about monetary metrics than they used to](http://www.federalreserve.gov/releases/h6/discm3.htm). The Fed doesn’t set capital gains tax rates, so that wasn’t what I was talking about. > [@](#): > > Still, tax cuts are not thought to produce an autonomous increase in the money supply, since for a given level of spending reductions in governmental revenue are offset by increased borrowing. Well, you’re making some assumptions. The first assumption is that the government has a deficit (Which is a pretty safe assumption, but if we are making bold statements of economic cause and effect than your statement only holds true so long as the government is operating at a deficit and won’t simply pay for a tax cut out of a surplus.) Secondly, you are making the assumption that tax receipts will decrease proportionately with the tax cut. This is a bad assumption. If tax rates are so high that they are stifling the economy, than a tax cut may stimulate the economy to such a point that tax receipts actually increase and the government is simply taking a smaller cut of a larger pie. If tax rates are moderate you may still stimulate the economy in the shortrun and get a tax windfall of people taking advantage of the cut. That may fall off and leave you in further deficits or the economy may grow and you may never see the short fall. If tax rates are low and the economy is ripping along, and you cut rates than nothing happens except maybe you overheat the economy. Clearly if you cut rates to zero you lose receipts. But, you get my drift. Lowering tax rates doesn’t automatically create a shortfall in tax receipts. In some circumstances it may increase them temporarily, or permanently. It is more dependant on the circumstances of the tax cut, so you really can’t generalize meaningully about it. > [@](#): > > Within the banking system, they wash out. (I confess to some background uncertainty about this paragraph. I can say with more confidence that “money supply” is a concept typically linked with monetary policy as opposed to taxing and spending).Increased tax revenue. I’m not sure what “typically linked” means in your context, but tax rates and spending habits clearly do affect the money supply. > [@](#): > > Sure, if people expect capital gains taxes to rise in the future, there will be a one-off burst of stock selling to lock in the lower rate. But that would still entail (categorically) lower tax revenue over even a medium-range time horizon. No. The circumstances will dictate whether or not this is true for a given scenario. Capitol gains aren’t just in stock, they are in all kinds of assets. What you need to think about is that lowering capitol gains tax rates increases the liquidity of appreciated assets. The increase in liquidity affects the money supply just as a lowering of interest rates would. It makes money easier, increasing the supply and increasing the amount that is available for spending and investment which is stimulative to the economy. If it all works (and it doesn’t always as all that this is is incentivizing economic growth not forcing it,) than the economy may indeed grow by enough or more than enough to offset the loss in revenue you posit. It also may not. I’m just pointing out that your idea that tax cuts equal a loss in tax revenue is not categorically true, and cannot be stated as a logical consequence. > [@](#): > > What I _think_ you’re arguing though is that the capital gains tax cut will produce so much economic growth, that it will compensate for the lower tax rates, resulting in higher governmental revenue on net. Yes. That can happen. > [@](#): > > Well, that dog won’t hunt anymore. It _never_ had any empirical evidence to support it and even in theory it relies on some rather extreme behavioral coefficients. Yes. That dog does hunt. When he feels like it. I do not categorically state that it always happens this way, only that it can depending on circumstances. It can certainly happen in cases where tax rates are stifling the economy and it is certainly less likely to happen in cases where rates are moderate and low. Again, my point isn’t that it always happens one way or the other, as it is more complex than an either or situation and is dependant on other factors. People who state it occurs one way or the other are oversimplifying. You’re stating that it creates a deficit. You’re wrong. You’re oversimplifying. > [@](#): > > The question though is whether a tax cut will tend to lead to less revenue _than would otherwise be the case_. With few exceptions, it will in practice. No. In many circumstances (as I’ve pointed out) it may and in others it may not. > [@](#): > > Incidentally, [here’s an introduction to macroeconomics](http://www.businessbookmall.com/Economics_12_Understanding_Keynesian_Economics.htm), pulled off of google. This is what I’m basing my reasoning on. It’s not all that controversial. I’m familiar. I work in Finance, have a postgraduate degree in the area. > [@](#): > > Er. What’s “lowering Japan”? I know you’re referring to the liquidity trap experienced by Japan during the 90s and 2000s. But I’m not certain what your argument is. No biggie, on the whole my language is more tortured than yours. Umm. Sorry, Lowering rates in Japan is what I meant to say. > [@](#): > > If I had to summarize my POV, I’d challenge conservatives to show empirical evidence of the benefits of these tax cuts. This is a heavily studied area; it shouldn’t be too hard _if their argument was based on empirical observation as opposed to pure ideology_. I’m not really arguing from a Conservative standpoint here, just an economic one. Like I said in my original post tax cuts are generally seen as stimulative towards the economy. Whether or not they are the most effective way to do so in a given circumstance or whether or not a given tax cut will actually work and stimulate the economy is subject to the specific circumstance and up for debate. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [May 15, 2006, 3:50am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/62 "2006-05-15T03:50:59Z")
> [@Measure for Measure](#): > > Hey **Magiver** why don’t we just drop taxes to zero? That would really get the economy moving right? :dubious: Maybe for the same reason we don’t raise it to 100%? That its logical to admit there is an optimal level of taxation as I’ve stated throughout the thread? > [@Measure for Measure](#): > > This has been a rather instructive thread. Note the absence of data in the last post. Note the wriggling away from the contention that tax cuts will pay for themselves. That’s a pretty big argument to walk away from without comment. How am I walking away. Tax refunds grow the economy and a bigger economy generates more taxes. Again, tax revenue is doing just fine. I won’t use the word record breaking because it upsets jshore but the money is coming in. How are you saying it won’t when it IS. Actual revenue now….today. Not your theoretical shortfall. > [@Measure for Measure](#): > > Unemployment and poverty rose after Bush took office. Following Clinton’s tax increase of 1993 --opposed by every single House Republican – the economy roared. Conveniently, I reported some of these figures this a couple of days ago [here](http://boards.straightdope.com/sdmb/showpost.php?p=7390166&postcount=108). Unemployment and poverty was predicted to rise toward the end of Clinton’s term and they did. That’s called a legacy and it occured during a term without any hardships comparable hardships to today’s. This happened well before Bush’s tax cuts. Looks like a trend to me. Taxes go up, economy shrinks over time. Taxes go down, economy improves over time. You’ve never explained why the economy is booming after 9/11 and the dreaded tax cuts. Fiscal elves? > [@Measure for Measure](#): > > Now I’m not claiming that tax increases automatically lead to economic growth – though a sloppy comparison of the 1990s with the 1980s and 2000s would suggest that. Economic processes are somewhat complicated, as **Scylla** notes. > > What I’m saying is that there’s evidence that tax cuts in certain contexts can have mildly positive effects on long term economic growth, but that the effect is too tortured and ambiguous for your typical conservative pundit to discuss. Well, that’s pretty much the opposite of what I was taught in school. Tax cuts are short term instruments used to jumpstart an economy. The opposite is also true. If the value of money is withdrawn from an economy then it will shrink. Stock market crashes being the most dramatic example. > [@Measure for Measure](#): > > ld school demagogues used to maintain that if you stated a lie often enough, it would be believed. > > Modern conservatives believe that if you repeat a contention loudly enough, _it becomes the truth!_ > > I wish P were true. > Therefore P is true. > > Tough minded liberals and moderates as well as solvent businessmen know better. Yah, businessmen think increases in taxes helps the economy. :rolleyes: As we speak General Motors is lobbying for tax increases. P already occurred, therefore P is true and theoretical forecasts were flawed. ---
**Author:** ![Snag](https://avatars.discourse-cdn.com/v4/letter/s/94ad74/32.png) [@Snag](https://boards.straightdope.com/u/Snag)\ **Post date:** [May 15, 2006, 5:05am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/63 "2006-05-15T05:05:09Z")
> [@Scylla](#): > > Well, no. They have to pay the schmuck who waited on me, and pay for the shirt, and the rent, so only a portion of my shirt purchase goes into their checking account. So, in the short run the money supply is decreased. But as all the vendors and all the people involved in selling me my shirt get paid, they all put a portion of their money into savings or checking and pay for goods and services with the rest. Ultimately the $30 I spent on my shirt may (through the inflationary nature of money) increase the money supply by $60. > > Whee. Hmmmm. I don’t quite buy the idea that spending $30 will end up doubling it’s value. Although I might do so if that notion is somewhat discounted. But, it’s been explained to me that an economy is much like a biological circulatory system with money as it’s lifeblood, and if it’s pumping through and recirculating sufficiently well through local markets before going beyond, you basically have a happy, healthy economy. However, at the point we are at now, I don’t buy into the idea that the best way to expand the money supply is by lowering taxes on capital gains. A much faster and sustainable way would be to lower the taxation on wages instead to at least the same rate as on capitol, and raise taxes on capitol, which are at a rate that’s about half of wages. Basically, split the difference and make them the same. Down about 25% of the difference on wages and up about 25% the difference on capitol. If you are correct, with the rising interest rates we have, we double the effective spending of wages within that range of tax savings. I don’t quite believe that is so, but I do believe our economy ultimately runs on essentially demand rather than this supply side stuff. And I do believe that we’re due for an increase in revenue before long (I don’t see anything resembling a rosy economy), so raising the capitol gains would keep revenues at something resembling where they are now. If we did it this week, by this coming Friday 200+ million people would start to spend more. Within a month, you might have that new set of tires, shoes for Susie, and let’s go out to dinner too. Wage earners would begin taking advantages of other services. Demand goes up immediately. They can more aggressively pay down other debt they owe, reducing the how much they pay per month in interest payments, eventually lowering them and freeing up more capital quicker as they gain liquidity. They also will start saving, to later provide more big ticket purchases or a buffer against unexpected setbacks so that they don’t lose much ground. Actually, raising wages would do much the same thing and a combination would increased the effect. And if you have 200 million people spending upwards of 15% or more a week, the job market would grow pretty rapidly. Hell, if we did that, I might even be for a somewhat smaller rollback on taxes at the highest 2% of incomes in the US. So long as the most people have the means to buy more and pay down debts faster and gain deferred payment for bigger items, we wouldn’t need to worry so much about business owners wondering where the money is going to come from to fuel expansion. Whee. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [May 15, 2006, 7:43am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/64 "2006-05-15T07:43:47Z")
**Scylla** ----- I’m familiar. I work in Finance, have a postgraduate degree in the area. Glad to hear it. Let’s try again, starting with Money and Banking. M2 is basically currency, checking accounts, savings accounts and individual money market funds. Shifting a dollar among those bins won’t affect M2. So when the Gap pays off its employees or its suppliers, the Gap’s bank balances go down to the same extent that the balances of the others increase. (Again, ignoring float). Result: no change in money supply. Now there is something called a “Money Multiplier”, which (with all due respect) I believe is confusing you. Fractional reserve banking implies that if a bank makes a loan, the money supply increases. I deposit $100 in the bank. The bank loan $90 of that to (say) the Gap, which places it in its checking account. The end result is $190 of deposits (before, that is, the bank loans at $81 of that Gap deposit). ## But that’s tied up with loans (and also open market operations by the Fed, but you knew that.) There’s a similar argument known simply as “The multiplier”, which is typically tied with an autonomous increase in governmental spending. But that relates to aggregate demand - not the money supply (which is properly thought of as a curve, as opposed to a level). (The final level of M2 in the economy may increase -as I note below - but that’s prompted by a change in money _demand_). * * * **Skipping down to more relevant stuff** --------- If tax rates are so high that they are stifling the economy, than a tax cut may stimulate the economy to such a point that tax receipts actually increase and the government is simply taking a smaller cut of a larger pie. See my discussion on the Laffer curve, 2nd post, page 2 of this thread. --------- If tax rates are moderate you may still stimulate the economy in the shortrun and get a tax windfall of people taking advantage of the cut. … Difficult to interpret. If the economy has slack in it, stimulating aggregate demand will lead to higher output. Higher output will lead to more transactions demand for money\* so, yeah, the equilibrium amount of money in the economy will tend to increase, Fed willing. But to say that lower taxes lead to an increase in the money supply is highly misleading, as it mischaracterizes the process and blurs the distinction between fiscal and monetary policy. At any rate, the preceding effect has nothing to do with the pre-existing level of taxes. ------ …That may fall off and leave you in further deficits or the economy may grow and you may never see the short fall. Still difficult to interpret. --------- The Fed doesn’t set capital gains tax rates, so that wasn’t what I was talking about. Right. But you used terms like “money supply”, IIRC, which led us down this cul de sac. I’m not trying to be picky. I tried to be brief on the preceding page. Getting back towards the topic ------- But, you get my drift. Lowering tax rates doesn’t automatically create a shortfall in tax receipts. In some circumstances it may increase them temporarily, or permanently. It is more dependant on the circumstances of the tax cut, so you really can’t generalize meaningully about it. I’m not sure what “shortfall in tax receipts” is. Shortfall relative to what? But no. In an earlier post I quoted 2 conservative economists, both appointed by the President to lead the Council of Economic Advisors. One called the concept of self financing taxes “unlikely”, the other called it “snake oil”. To take an example from introductory economics, it’s entirely fair to meaningfully say that demand curves slope downwards. Sure there are conceptual exceptions to this rule (Giffen goods et al) , but they are not especially relevant empirically. Same for taxes. Now certain sorts of tax cuts can be said to stimulate aggregate supply, empirically. But, aside from cases where taxes are near 90% or so, it’s fair to say that tax cuts will not (empirically) increase tax revenue. ------- I do not categorically state that it always happens this way, only that it can depending on circumstances. Give me an empirical example of higher tax rates leading to lower tax revenue (or visa versa) from the US experience. (You _might_ be able to generate an example from Sweden in the 1960s-70s). Put another way, show me an example where the Laffer Curve (not the debt Laffer curve) is empirically relevant. If you can find such an example within the US experience, I will note it with interest and probably retract my categorical statement. \*\* No need to beat around the bush. ----- Like I said in my original post tax cuts are generally seen as stimulative towards the economy. Whether or not they are the most effective way to do so in a given circumstance or whether or not a given tax cut will actually work and stimulate the economy is subject to the specific circumstance and up for debate. I agree here. Though I’ll add that stimulating the economy in non-recessionary conditions can be inflationary (though this problem can be offset with a vigilant Fed – subsequent higher interest rates can squeeze investment spending, which lessens aggregate demand.) **Japan** : It’s a really interesting tangent, but I think this post is long enough. Summary: 1. We may have had a linguistic problem with Money and Banking: I’m not sure. If you substituted “Aggregate Demand” for “Money Supply”, I may have been placated (but then you may have lost your main audience). 1. I maintain my categorical statement regarding the Laffer curve: it’s not empirically relevant for the US. \*\* ## I hope I’ve addressed your main concerns. - More transactions -\> more preference for liquidity = higher checking account balances etc. \*\* A possible US example might relate to WWII taxes. They were high enough to (IMHO) affect incentives meaningfully. But that’s a far cry from saying that lowering them would have increased tax revenue. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [May 15, 2006, 8:01am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/65 "2006-05-15T08:01:07Z")
> [@Magiver](#): > > How am I walking away. Tax refunds grow the economy and a bigger economy generates more taxes. Again, tax revenue is doing just fine. Magiver appears to miss the distinction between “tax cuts stimulating the economy” and “tax cuts generating more tax revenue”. If you cut taxes you get a smaller share of the economic pie. To say that the economic pie will grow sufficiently to give you higher tax revenue in the end is sheer fantasy, within the context of the postwar US. > [@](#): > > Unemployment and poverty was predicted to rise toward the end of Clinton’s term and they did. More modern conservatism. When cornered, just make shit up. Here’s a table of unemployment: ```auto Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual 1996 5.6 5.5 5.5 5.6 5.6 5.3 5.5 5.1 5.2 5.2 5.4 5.4 1997 5.3 5.2 5.2 5.1 4.9 5.0 4.9 4.8 4.9 4.7 4.6 4.7 1998 4.6 4.6 4.7 4.3 4.4 4.5 4.5 4.5 4.6 4.5 4.4 4.4 1999 4.3 4.4 4.2 4.3 4.2 4.3 4.3 4.2 4.2 4.1 4.1 4.0 2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9 ``` It drops from 1996- 2000. Now admittedly, unemployment went up in Jan 2001 when W took office. But tying that to a tax increase that occurred in 1993 is just silly. False claims undermine your credibility, **Magiver**. Now let’s look at the poverty rate: [http://www.census.gov/hhes/poverty/histpov/hstpov13.html](http://www.census.gov/hhes/poverty/histpov/hstpov13.html) ``` ............ Poverty ........... rate for ``` Year… families * * * 2003… 10.0 2002… 9.6 2001… 9.2 2000 12/… 8.7 1999 11/… 9.3 1998… 10.0 1997… 10.3 1996… 11.0 1995… 10.8 The rate declines until Clinton’s last year of office (2000) then increases under George Bush. Now Magiver has an edge here: he can make up facts faster than I can look them up. I call foul. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [May 15, 2006, 12:39pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/66 "2006-05-15T12:39:16Z")
> [@Magiver](#): > > Looks like a trend to me. Taxes go up, economy shrinks over time. Taxes go down, economy improves over time. I guess this falls into the category of making up the data to fit the theory. > [@](#): > > You’ve never explained why the economy is booming after 9/11 and the dreaded tax cuts. Fiscal elves? First of all, the economy goes in cycles. After a recession, it tends to recover and grow. It has been doing so long before George Bush came along and cut taxes. Second of all, between his tax cuts and spending, Bush has been injecting about 1/2 a trillion dollars into the economy each year (i.e., that is roughly the size of the deficit that we are running after running surplusses in the last few years of Clinton). Of course, that is going to stimulate the economy. The question, however, is whether it is the most effective way to do so and if it is sustainable. The answer to both is NO. The tax cuts were weighted too strongly toward the rich to be very efficient at stimulating the economy and running these sorts of deficits is not sustainable. For the Nth time, it is easy for me to improve my lifestyle in the short-term by maxing out my credit card. We have paid for the Rolls Royce of economic stimulus plans and you are asking us to be overjoyed with mediocre economic performance. (Good performance if you are wealthy and so-so if you are not.) ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [May 15, 2006, 6:02pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/67 "2006-05-15T18:02:39Z")
> [@Measure for Measure](#): > > Economic processes are somewhat complicated, as Scylla notes. Yes, very true. I will even go further and state that no sitting president can make any real claim about his effect on the economy. The more sophisticated we are about reporting metrics, the more complicated the economy becomes. Presidents can take some credit, I suppose, on his effect on the economy, but tax changes take a longer effect, particularly with the way it is implemented and how much of the population it effect (and which part of the population, e.g. cutting taxes to 0% income for everyone making less than $10k won’t have much of an effect at all). In addition, the Fed setting the interest rate (which it doesn’t do willy-nilly, but based on the economy), can also have a different effect on the economy. It’s all about balance, to put it simply. > [@Measure for Measure](#): > > What I’m saying is that there’s evidence that tax cuts in certain contexts can have mildly positive effects on long term economic growth, but that the effect is too tortured and ambiguous for your typical conservative pundit to discuss. > [@Magiver](#): > > Well, that’s pretty much the opposite of what I was taught in school. Tax cuts are short term instruments used to jumpstart an economy. The opposite is also true. If the value of money is withdrawn from an economy then it will shrink. Stock market crashes being the most dramatic example. These statements can be understood to be about the same thing. If there is an optimal tax on an area, activity, or good, then lessening the tax won’t create any more revenue; raising the tax won’t raise any more revenue, either, and will actually tend to prohibit that activity. Optimal tax rates aren’t some magic number either that one can find using calculus (believe me, I tried) or using a bell-curve. Optimal tax rates are different for each person, dependent also on how alternative activities are taxed, and the availability of those alternatives to each person. However, like the demand curve, the supply curve, the money supply, etc., we can talk about these things, and the effect of these things as being true, all else being equal. So, people like **jshore** look for hard data. However, as stated before, we’re really not that sophisticated in reporting. As someone pointed out before, you could destroy and build a town, infinitely, and you would always be increasing GDP. Economists still argue on what to put into a year’s basket goods to look at inflation (e.g. computers didn’t exist pre-1950; cars from the 1960’s are different from today). These measurements all tend to be lowest common denominator stuff. Additionally, you can have fun with numbers if you don’t show your metrics, or use different base numbers for your calculations. If anything, one should cite credible authority with a lengthy process of using consistent measuring criteria (I’ll get to my cites in a minute). So, to answer the OP’s questions: I) Do tax cuts really help expand the economy? The short answer, I argue, is yes, but it depends on where the tax cuts are, all things being equal. Our simple models in Econ show that this is true. This was taught to me by the most liberal econ professor in my department, and then she spent two days arguing against it. However, do note that this isn’t as simple a question to answer, and is more along the lines of increasing demand will increase price, all things being equal. The Joint Economic Committee, [for instance, has found that Reagan Tax Cuts did in fact stimulate the economy, and noted that Clinton’s tax hike failed to collect 40% of the projected tax revenues.](http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm) Similarily, the Cato Institute, in 1996, published a more comprehensive report concluding that [Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category. Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace.](http://www.cato.org/pubs/pas/pa-261.html) II) Do they actually help job growth? There is more dissenting opinion on this, because labor has more factors involved on the micro level than on the macro level. In general, I would argue yes. However, it is not the most efficent means of doing so. I say this b/c I took a labor class and I can’t readily find any studies which make the distinction of what method is more efficient. The second cite above clearly thinks so, but I think it’s a little more nuanced than that. > [@Measure for Measure](#): > > Now let’s look at the poverty rate: I wouldn’t look to something so politicized as the poverty rate to be a measure of anything. I forgot what the US measure was, but I remember my grandmother being in poverty, despite the fact that she owns two houses and 4 properties on 3 different continents, and has two drivers in two different countries. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [May 15, 2006, 8:14pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/68 "2006-05-15T20:14:49Z")
> [@mazinger\_z](#): > > Similarily, the Cato Institute, in 1996, published a more comprehensive report concluding that [Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category. Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace.](http://www.cato.org/pubs/pas/pa-261.html) I liked your post in general, but the Cato Institute!?! What they present will clearly be a cherry-picked case to prove their claim that supply-side economics is wonderful. And, in this case, their comparison is strongly hampered by the fact that they are making it in 1996…so they weren’t able to compare the entire 1980s and 1990s. As you know, the economy was roaring and even real incomes at the bottom of the scale were rising quite rapidly near the end of the 1990s. So, most of what they cherry-picked in 1996 was disproved by 2000 anyway. For example, look at their table 5 and now go to Table 1.3 in the historical tables of the federal budget. It turns out the projection of 0.7% real revenue growth for 1997 actually ended up being 6.6%. Whoops! Then it went up 7.9% in 1998, 4.6% in 1999, and 8.0% in 2000. [And, I’ll also note that by looking at total revenue rather than only income tax revenue, the Reagan years have benefitted from the strong rise in social security revenues due to hiking of the social security tax!] Oh, and check out this statement and prediction: > [@](#): > > The growth rate under Clinton has been 2.7 percent, half a percent below the 3.2 percent growth rate under Reagan and a full percentage point below the 3.8 percent growth rate during the 1983-89 expansion. Standard government forecasts predict a 2-2.5 percent growth rate through the end of the decade. Yet, if even the high end of that forecast proves to be accurate, the 1990s will be the lowest economic growth decade since the Great Depression and the second lowest in the 20th century. Now, let’s see [what actually happened](http://www.msnbc.msn.com/id/5474580/) under Clinton by the end of the term (and I believe that was after some addition evil tax increases!): > [@](#): > > Clinton campaigned on the economy and had remarkable success. GDP growth during his eight years averaged 3.5 percent per year, second only to the combined Kennedy/Johnson years and ahead of Jimmy Carter and Reagan. I have a feeling that Cato won’t bother to update that report with new data. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [May 15, 2006, 8:34pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/69 "2006-05-15T20:34:06Z")
Oh, by the way, I just realized that the other cite ot the Joint Economic Committee of Congress is no less biased. It is clear that their pronouncements are those of the majority party on the committee. And, their statement showed about as much prescience as the Cato Institute report. For example, they note: > [@](#): > > Moreover, according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89). If we look at Table 2.3 of the historical budget tables, it indeed seems to be true just barely if you use the years FY 93-96 for the first 4 years of Clinton (you get 8.15% for FY 86-89) vs. 8.05% for FY 93-96. However, to be consistent with how they accounted for Reagan’s last 4 years, you should really use FY 94-97 for Clinton’s first term, which would then make his revenues as a percent of GDP higher. And, if you then go to the future and look at what happened in Clinton’s last 4 years (FY 98-01 using the same definition as the last 4 years of Reagan), you get a whopping 9.85%! Whoops! ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [May 15, 2006, 8:46pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/70 "2006-05-15T20:46:15Z")
P.S. - I should also note that under Bush, the receipts from individual income taxes as a percent of GDP bottomed out at 7.0% of GDP, which appears to be the lowest percentage since 1951. And, they aren’t predicted to even reach 8.0% by the White House until 2007. (Again I don’t know what assumptions are being made there about tax cut extensions.) As Niels Bohr liked to say, “Prediction is very difficult…especially about the future.” ---
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [May 16, 2006, 4:26am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/71 "2006-05-16T04:26:31Z")
Measure for Measure: > [@](#): > > Give me an empirical example of higher tax rates leading to lower tax revenue (or visa versa) from the US experience. (You _might_ be able to generate an example from Sweden in the 1960s-70s). Put another way, show me an example where the Laffer Curve (not the debt Laffer curve) is empirically relevant. If you can find such an example within the US experience, I will note it with interest and probably retract my categorical statement. \*\* It’s late and I’m tired, so just let me hit this one for now. I’m surprised about the vehement denial of the Laffer Curve. Clearly, it seems to me that if tax rates are 100% there will be no incentive to work and no revenue. If tax rates are 0% there will be no revenue. Clearly it seems logical that for a given economy there is a bell shaped curve based on tax rates and revenue from and then back to zero. This does not mean that this is only or best way to manipulate things, but simply that such manipulation can occur. But you wanted domestic examples: Let’s ask Laffer. He gives us three: > [@](#): > > Over the past 100 years, there have been three major periods of tax-rate cuts in the U.S.: the Harding-Coolidge cuts of the mid-1920s; the Kennedy cuts of the mid-1960s; and the Reagan cuts of the early 1980s. Each of these periods of tax cuts was remarkably successful as measured by virtually any public policy metric. A bold statement. Can he back it up? > [@](#): > > During the Depression and World War II, the top marginal income tax rate rose steadily, peaking at an incredible 94 percent in 1944 and 1945. The rate remained above 90 percent well into President John F. Kennedy’s term. Kennedy’s fiscal policy stance made it clear that he believed in pro-growth, supply-side tax measures: > > “Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle–workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit–why reducing taxes is the best way open to us to increase revenues.3” > [@](#): > > President Kennedy proposed massive tax-rate reductions, which were passed by Congress and became law after he was assassinated. The 1964 tax cut reduced the top marginal personal income tax rate from 91 percent to 70 percent by 1965. The cut reduced lower-bracket rates as well. In the four years prior to the 1965 tax-rate cuts, federal government income tax revenue–adjusted for inflation–increased at an average annual rate of 2.1 percent, while total government income tax revenue (federal plus state and local) increased by 2.6 percent per year (See Table 4). In the four years following the tax cut, federal government income tax revenue increased by 8.6 percent annually and total government income tax revenue increased by 9.0 percent annually. Government income tax revenue not only increased in the years following the tax cut, it increased at a much faster rate. Theres data and tables. He does the same for the Harding-Coolidge cuts, and the Reagand cuts. Now, of course correllation does not prove causation, but they say once is happenstance, twice is coincidence and three times is enemy action. We are talking about the three largest tax reductions and in all three times there was an increase in tax-revenue in subsequent years. These are also good examples to look at because tax rates were much higher in them than currently and the examples could be expected to be more pronounced and noticeable. Personally, I would say that the efficacy of tax cuts on the economy and as a way to increase tax revenues would only make sense in extreme cases of very high tax rates. He also gives global examples. Here’s the cite. Interesting. [http://www.heritage.org/Research/Taxes/bg1765.cfm](http://www.heritage.org/Research/Taxes/bg1765.cfm) Does that suffice to make you reconsider that the effect has occured in the past? Please note that I’m not pointing to tax cuts as panacea for economic ills or as miracle drugs that automatically raise revenues. Simply, I am saying that in certain circumstances tax cuts can and do stimulate the economy and can increase tax revenue. If you so concede, you give away nothing to the current environment, as are tax rates are nowhere near as high as they were in those examples. One might hypothesize (and I do) that tax rate cuts would not be an effective way of either stimulating the economy or raising revenue and would probably have the opposite effect for the latter. IMO, the efficacy of the laffer curve exists at the extremes. We ain’t there. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [May 16, 2006, 12:50pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/72 "2006-05-16T12:50:06Z")
> [@jshore](#): > > P.S. - I should also note that under Bush, the receipts from individual income taxes as a percent of GDP bottomed out at 7.0% of GDP, which appears to be the lowest percentage since 1951. And, they aren’t predicted to even reach 8.0% by the White House until 2007. Of course, this is subject to the same sorts of caveats as tax cuts are, with the idea of a smaller cut of a bigger pie. The GDP has increased markedly under Bush, thus receipts could increase and still be a smaller percentage of GDP. From your cite: > [@](#): > > Clinton campaigned on the economy and had remarkable success. GDP growth during his eight years averaged 3.5 percent per year, second only to the combined Kennedy/Johnson years and ahead of Jimmy Carter and Reagan. GDP is growing by 4.8% for the first quarter of 2006. It grew by 3.5% in 2005, and unemployment is 4.7%, well below the average for the 90s (or the 60s, 70s, and 80s). [Cite.](http://www.whitehouse.gov/infocus/economy/) So, essentially, since the end of the downturn that [Bush inherited from Clinton,](http://money.cnn.com/2001/11/26/economy/recession/) , and despite 9/11, high oil prices, the bursting of the [dot.com](http://dot.com) bubble, and Katrina, the economy is doing as well or better under Clinton (depending on what you look at) as it did under Clinton. Regards, Shodan ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 16, 2006, 1:30pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/73 "2006-05-16T13:30:32Z")
> [@Shodan](#): > > So, essentially, since the end of the downturn that Bush inherited from Clinton, and despite 9/11, high oil prices, the bursting of the [dot.com](http://dot.com) bubble, and Katrina, the economy is doing as well or better under [Bush] (depending on what you look at) as it did under Clinton. Nitpick: but you’re comparing economic performance for less than **two years** under the current administration to the **average** of economic performance the whole of the previous administration. I don’t think they’re really comparable. If we could cherry-pick two years from the previous administration, we could make their figures look a lot better. (Remember that Clinton inherited poor economic performance from Bush I as well.) ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [May 16, 2006, 1:58pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/74 "2006-05-16T13:58:53Z")
> [@Shodan](#): > > Of course, this is subject to the same sorts of caveats as tax cuts are, with the idea of a smaller cut of a bigger pie. The GDP has increased markedly under Bush, thus receipts could increase and still be a smaller percentage of GDP. First of all, I was responding to the metric being used by the Republicans in that Joint Economic Committee statement. They were the ones who thought receipts as a percentage of GDP was a relevant metric. I was just seeing how things played out for their metric in the years that followed the release of that statement. They seemed to think that was a relevant metric at the time…although I imagine they might now decide it is a silly metric. Second of all, what **Kimstu** said. You are cherry-picking the years you want to consider for the GDP under Bush. And, as I noted in an earlier post, even if you look at receipts from the personal income tax in real terms but not as a percentage of GDP, you see a pronounced dip with the receipts not projected by the Bush Administration to recover to the 2001 values until something like 2008 (and I don’t know what assumptions are built in about having or not having extensions on the tax cuts). But, I don’t think anyone here is arguing that if one injects more than 1/2 a trillion dollars a year into the economy through spending and tax cuts, running huge deficits, one will not get some economic growth in return! Good ol’ Keynesian economics tells you that this will happen. You don’t have to invoke supply side mumbo-jumbo. Do conservatives now believe that current economic growth is so important that there is no limit on the amount that we should mortgage our future to pay for it? ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [May 16, 2006, 2:00pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/75 "2006-05-16T14:00:35Z")
> [@Scylla](#): > > Measure for Measure: > I’m surprised about the vehement denial of the Laffer Curve. Clearly, it seems to me that if tax rates are 100% there will be no incentive to work and no revenue. If tax rates are 0% there will be no revenue. Clearly it seems logical that for a given economy there is a bell shaped curve based on tax rates and revenue from and then back to zero. No one disputes the basic intuition of the Laffer Curve, just its relevance. It has so captivated the imagination because it is so easy to grasp and thus appears very convincing. It is a simple exercise in comparative statics: it ignores the feedback between expectation of tax rates and the labor/leisure tradeoff. It provides a momentary snapshot of revenue collection: it does not characterize the equilibrium that occurs after rates are raised or lowered. It is a nice picture on the back of an envelope, but in reality it is not all that helpful. A more nuanced model can be found [here](http://www.cbo.gov/ftpdocs/69xx/doc6908/12-01-10PercentTaxCut.pdf). It is a brief abstract of a report written by the Congressional Budget Office in 2005. There is no technical content here. They pose a very simple scenario: reduce all income tax levels by 10%. Their findings can be summarized as follows: > [@](#): > > The various economic estimates imply changes in government revenues and interest payments. As noted above, the conventional estimate (without macroeconomic feedbacks) is that the tax policy, if implemented, would reduce > revenues by a total of $466 billion over the first five years and an additional $775 billion over the second five years. Under various assumptions, the supply-side economic effects of the tax cut are estimated to offset between > 1 percent and 22 percent of that revenue loss over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years (see Table 3). **According to models that account for both supply-side and demand-side effects, those effects might offset somewhat less than 15 percent of the revenue loss over the first five years.** My emphasis. This is the **Congressional Budget Office** that reports to a Republican-dominated legislature, not a left wing blog. While it is certainly possible to quibble with some details of their proposed model, their analysis is quite convincing. I am going to see if I can acquire the full paper in order to look at the math. ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [May 16, 2006, 3:16pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/76 "2006-05-16T15:16:37Z")
> [@jshore](#): > > First of all, I was responding to the metric being used by the Republicans in that Joint Economic Committee statement. They were the ones who thought receipts as a percentage of GDP was a relevant metric. I was just seeing how things played out for their metric in the years that followed the release of that statement. They seemed to think that was a relevant metric at the time…although I imagine they might now decide it is a silly metric. I don’t necessarily say it was a silly metric, just not definitive. All other things never are equal. And sure, it’s cherry picking to some extent. But comparing what the economy did during a period when it didn’t have to deal with 9/11 and [dot.com](http://dot.com), etc., is still a fair point. > [@](#): > > Second of all, what **Kimstu** said. You are cherry-picking the years you want to consider for the GDP under Bush. Well, Bush’s terms aren’t over yet. But I certainly think it is fair to consider 9/11, the [dot.com](http://dot.com) bubble, and the recession Bush inherited as factors affecting economic performance that didn’t apply to Clinton. (The recession he claimed he inherited was over before he took office - Clinton lied about that, too, of course.) Another factor that Clinton had to deal with was that the other party controlled Congress thru out most of his terms. Bush may only have to deal with that for his last two years. Maybe that will lead to gridlock and thus a slowdown in spending. I doubt if Bush is enough of a convinced fiscal conservative to dig in his heels and veto and/or shut down the federal government to get control of spending, even if the Dems take over the House. Of course, maybe that bitch Pelosi will tie up Bush with impeachment as Clinton was, if the Dems take over. What effect that will have on the economy is hard to say. Regards, Shodan ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 16, 2006, 3:55pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/77 "2006-05-16T15:55:44Z")
> [@Shodan](#): > > Well, Bush’s terms aren’t over yet. But I certainly think it is fair to consider 9/11, the [dot.com](http://dot.com) bubble, and the recession Bush inherited as factors affecting economic performance that didn’t apply to Clinton. (The recession he claimed he inherited was over before he took office - Clinton lied about that, too, of course.) If you’re going to claim that Clinton didn’t “inherit” a recession from Bush I because it was over (in 1991) before he took office, then technically you can’t claim that Bush II “inherited” a recession from Clinton either, because it didn’t begin until March 2001. The 2001 recession, strictly speaking, lasted from the [March 2001 peak to the November 2001 trough](http://www.nber.org/cycles/july2003.html). If you want to count the years of slow recovery from then until 2005 as still part of the 2001 recession, then it’s reasonable to count the start of Clinton’s term as being still part of the Bush I recession. Again, you are kind of massaging your categories to give Bush as much credit as possible for a good economy, and Clinton as much blame as possible for a bad one. That isn’t really a fair comparison. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [May 16, 2006, 4:12pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/78 "2006-05-16T16:12:23Z")
Kimstu, correct me if I’m wrong here, but I think what Shodan is saying is that Clinton inherited an economy that was on the rise (i.e. the recession was mostly over and the economy picking up) when he took over, while Bush inherited an economy that was falling (i.e. the recession was just getting ready to happen and the economy slowing down) when HE took over. The economy goes in waves after all, rising and falling, and its the trend in the wave (up or down) that is relevant to the discussion (though for myself I don’t think the Prez has al that much to do with how well or poorly the economy does during his term…its mostly the luck of the draw IMHO). Now, perhaps my understanding of where we were on the recession curve when Bush I left office and Clinton took office, but my own recollection was that the economy was on an upturn when Clinton took over. Certainly when Bush II took office the economy was on a very definite downturn…big time. And the dual hits of first the DotCom bust and then 9/11 hammered the economy even further. I’m frankly surprised that the economy has picked up as much as it has in what seems to me to be a fairly short time (I don’t know how much of this has to do with the tax cuts…my own philosophy leans toward the fact that it helps when you cut taxes, but I’ve seen no definitive proof of this one way or the other, so its more ‘faith based’ at this point for me :)). BTW, if I’ve misrepresented Shodans position its my own screw up and I apologize. -XT ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 16, 2006, 4:24pm UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/79 "2006-05-16T16:24:21Z")
> [@Shodan](#): > > Another factor that Clinton had to deal with was that the other party controlled Congress thru out most of his terms. Bush may only have to deal with that for his last two years. Maybe that will lead to gridlock and thus a slowdown in spending. I doubt if Bush is enough of a convinced fiscal conservative to dig in his heels and veto and/or shut down the federal government to get control of spending, even if the Dems take over the House. That’s the understatement of the century, I’d say. What spending has Bush ever vetoed? In general, over the past several years it’s been the Democrats that have been advocating fiscal responsibility and the Republicans that have been piling up the deficits. (And considering how many conservatives seem to favor bipartisan gridlock as a spending-control measure (and I think to a large extent they’re right about that), I can’t help wondering why so many of them seem to keep voting for Republicans in a Republican-dominated government. Where were all these pro-gridlock fiscal conservatives in 2000, 2002, 2004? I didn’t see any conservative banners proclaiming “Prevent One-Party Government—Vote Democratic” or anything like that. If you really want gridlock, then I think you should vote for gridlock. If you don’t, then ISTM you’ve got only yourself to blame if your party goes on an unchecked spending spree.) > [@Shodan](#): > > Of course, maybe that bitch Pelosi will tie up Bush with impeachment as Clinton was, if the Dems take over. What effect that will have on the economy is hard to say. Well, Republican impeachment efforts didn’t seem to slow down the economy much in the late 1990’s. Or are you suggesting that they helped cause the 2001 recession? > [@xtisme](#): > > Kimstu, correct me if I’m wrong here, but I think what Shodan is saying is that Clinton inherited an economy that was on the rise (i.e. the recession was mostly over and the economy picking up) when he took over, while Bush inherited an economy that was falling (i.e. the recession was just getting ready to happen and the economy slowing down) when HE took over. The economy goes in waves after all, rising and falling, and its the trend in the wave (up or down) that is relevant to the discussion (though for myself I don’t think the Prez has al that much to do with how well or poorly the economy does during his term…its mostly the luck of the draw IMHO). […] Certainly when Bush II took office the economy was on a very definite downturn…big time. No, it wasn’t. The economy peaked in March 2001. That peak is considered, as my previous link noted, the beginning of the downturn that became the 2001 recession. So technically, what Bush II inherited from Clinton when he took office in January 2001 was still a rising economy. Now of course you’re right that the waves of the business cycle aren’t clearly linked to inaugural dates, and the end of an upturn already carries within it the seeds of a downturn. But if you’re going to talk about general waves and trends rather than sharply defined dates, you have to do so consistently. No fair saying that the slow economy of the recovery after 2001 was Clinton’s fault, while the slow economy of the recovery after 1991 was **also** Clinton’s fault. ---
**Author:** ![Scylla](https://avatars.discourse-cdn.com/v4/letter/s/a5b964/32.png) [@Scylla](https://boards.straightdope.com/u/Scylla)\ **Post date:** [May 17, 2006, 12:53am UTC](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234/80 "2006-05-17T00:53:37Z")
[QUOTE=Maeglin] No one disputes the basic intuition of the Laffer Curve, just its relevance. [/quote] It seems like **Measure for Measure** does, which is why I was challenged to show an instance where it was efficacious. > [@](#): > > It has so captivated the imagination because it is so easy to grasp and thus appears very convincing. You say “appears.” This suggests to me that you feel that it is somehow invalid. > [@](#): > > It is a simple exercise in comparative statics: it ignores the feedback between expectation of tax rates and the labor/leisure tradeoff. It provides a momentary snapshot of revenue collection: it does not characterize the equilibrium that occurs after rates are raised or lowered. It is a nice picture on the back of an envelope, but in reality it is not all that helpful. That’s fair, but it’s hardly an indictment. Most single variables are not particularly useful when they are examined in isolation. I am hardly arguing we worship at the altar of the almighty Laffer Curve, nor am I arguing that it is the best or the most powerful tool, nor that it is universally effective. I am simply pointing out that there is such an effect to those that would argue otherwise. > [@](#): > > A more nuanced model can be found [here](http://www.cbo.gov/ftpdocs/69xx/doc6908/12-01-10PercentTaxCut.pdf). It is a brief abstract of a report written by the Congressional Budget Office in 2005. There is no technical content here. They pose a very simple scenario: reduce all income tax levels by 10%. Their findings can be summarized as follows: I saw it and it doesn’t really run counter to anything I’ve said. In fact, I kinda predicted those effects when I hypothesized that an effect would only be useful in circumstances where tax rates were extremely high. > [@](#): > > My emphasis. This is the **Congressional Budget Office** that reports to a Republican-dominated legislature, not a left wing blog. While it is certainly possible to quibble with some details of their proposed model, their analysis is quite convincing. I am going to see if I can acquire the full paper in order to look at the math. I doubt we have any fundamental disagreement. I’m not sure why mere mention of the Laffer curve is so threatening. I get the feeling that the objections are more idealistic than pragmatic. Clearly there is a fear that a recognition of the Laffer curve’s validity (no matter how small or tenuous, or only in the most extreme circumstances) will be used as a justification to lower tax rates irresponsibly. If the tax rate were 90%, than I think I could make a reasonable argument using the Laffer curve to suggest that lowering taxes might stimulate the economy and increase tax revenue. Taxes being fairly low and moderate, I doubt I would care to make such an argument. [Previous page](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234.md?page=3) [Next page](https://boards.straightdope.com/t/do-tax-cuts-help-the-economy/356234.md?page=5)