Indeed, I’m thinking of the Laffer Curve. Excuse my faulty memory of it, I was thinking back to the single economics course I took as an undergrad. However, my professor did clearly state that there is indeed one optimal rate at which everyone should be taxed. Perhaps even he misunderstood the concept. Thanks for clarifying the matter.
UnuMondo
If he said “everyone” then he misunderstood the concept. The y-axis of the curve is the “average effective tax rate.” Usually expressed as total government tax revenue divided by the GDP. There is nothing in Art Laffer’s model that suggests any kind of “flat tax rate” among the entire population. The point of his model is actually very simple: if the tax rate is zero, the government gets zero dollars. If the tax rate is 100%, the government gets zero dollars because no one will bother to work for zero benefit. Note that this model assumes government spending is held constant. If 0% Tax Rate = $0, and 100% = $0, then there must necessarily be some maximum revenue amount between the two of them. And if there is some maximum, then there’s some point at which you’re above the maximum, and tax cuts would then result in more revenue. There is absolutely nothing in this that implies everyone’s tax rate be equal.
Most economists regard this as a logical tautology, since most agree that 100%=$0 (or something pretty close to $0). Most economists also agree that the model is pointless and doesn’t tell us anything useful in terms of American fiscal policy.
Incidentally, I seem to recall a series of interviews with Art Laffer in U.S. News & World Report back in the early 80’s where he explains all of this. At the time, I thought he vaguely looked like a game show host.
Let’s see, it is wrong to give the rich a tax cut. It is alright not to ask someone getting free money to prove they need it.
Someone define rich for me. Is the top 5% of all earners? Is it a family of 4 making 100,000 a year with 2 kids in college? Is it anyone above the median income?
Our regressive tax system has always been a tool to promote socio-economic equality. If you are going to use taxes for social engineering, watch out if your party isn’t in power. The same system that created the earned income credit is the one that can take it back.
I’m not Brutus, but I’m thinking school records might work. My stepson is living with us, and we enrolled him at school. If he actually stays here for more than six months, I’d be able to provide the IRS with school attendance records, if they insisted. As for parental relationship, I could always provide my husband’s child support papers.
Yeah, it’d be a PITA, but the boy is living with us now, and I wouldn’t mind being able to claim him, if I can.
I agree. The two biggest problems that I have with the way the Laffer curve was used is:
(1) Some (I’m not sure if this included Laffer himself) used it to claim that we would get more revenue by lowering taxes. This amounts to assuming that we are on the declining side of the curve, an assumption that there was 0 evidence for. And, indeed, when we went that route under Reagan, it didn’t work and we wound up with huge deficits. [Some claim this was due to uncontrolled spending, but in fact I think the revenue predictions out of the White House were so rosy as to become a joke.]
(2) At any rate, it is important to keep in mind that it is a simplification. I.e., in the real world there are different tax rates on different things (and on different levels of income) and it may be that we are close to the “peak” in the curve regards to some of them and nowhere close to the peak in regards to others.
You keep using that word. I do not think it means what you think it means.
**Brutus, **
My taxes are very simple (no kids, no real estate; my most elaborate deduction is for student loan interest), so I have no clue what documentation is required for many run-of-the-mill deductions.
But why would you need to provide where your kids lived or your custody arrangement for EITC purposes, if you don’t need to for purposes of pretty much any other deduction you make because of your kids? (education expenses, day care, family size, etc.) I don’t recall my parents having to file my birth certificate or their divorce degree with the IRS for any of the above. Why can’t the IRS require this information as an enforcement matter, as in the case of an audit? Why should the EITC start off with the presumption of wrongdoing? It just doesn’t make any sense, and is burdensome for the IRS as well as for all the people who would have to find, and in some cases have translated at significant cost, documents with little probative value. The translation could cost more than the stupid refund!
Stirring words indeed. And a nifty shortcut to political sloganeering.
Hmm, the purported intent of the Bush plan was to cut taxes for everybody, which sounded neat for about 3 microseconds, until the debate broke out about whether it was fair for the preponderance of the cuts to go to “the rich”, with added debate about who “the rich” are.
According to one group opposing the tax cut plan, over 20% of the cuts go to people earning between $29,000 and $77,000 per year. I suspect quite a few of those people would take issue with Reeder’s characterizing them as “rich”.
There are numerous logical reasons for opposing the plan, including the way in which the windfall is shared and the fact that we can’t remotely afford it. But assaulting the plan as “a tax cut for the rich” is counterproductive, because the mass of voters isn’t stupid enough to be deceived when the facts are so readily available for scrutiny.
And while an economist could best explain this, I believe it has been revealed repeatedly that you could chop virtually every bit of consensus pork out of the budget, but still not be able to afford massive tax cuts on top of all of our major budget obligations.
What the hell, this makes too much sense. Damn those tax cuts for the rich! Stop spending money to research flying cows over the Brazos!! Class Warfare!!! Arrrrghhh!!!
Yes, Jackmanni, it is true that not every penny is going to the rich. That would be too stupid an idea politically even for the Republicans to sell successfully! So, yes, according to CTJ, 22.5 cents of every dollar in tax cuts goes to those making less than $77,000, which means 77.5 cents goes to those families in the top 20% who make > $77,000 (with 47.5 cents going to those who are in the top 5% and make >$154,000).
I think people well understand that when the tax cut is assailed as “a tax cut for the rich” what is being said is that a lion’s share of the money goes to the rich, not that every penny goes to them. And, the question that Joe Average has to ask himself is whether it is worth having such a tax cut with the attendant deficits, government services cuts, and probable raise in other taxes (especially at the state level and local) which will likely cancel out most or all of his tax cut, when so much of the cost of this money just goes to financing the part going to the wealthiest in our society.
Mind you, I have nothing personally against those who make more than $77,000 especially being that I am one of them myself. However, to me it just seems like it is something we can’t afford. Furthermore when you look at who has gotten what in the last 20-odd years, you see that the wealthiest have seen a huge surge in their real after-tax incomes (by 150% for the top 1%) while those at the median have seen anemic growth and those at the bottom have lost ground. And, it wasn’t like our society was any sort of Marxist eutopia of equality back in 1980. So, I just don’t see the argument for why we need to give the wealthiest in our society such a huge share of a tax cut.
Um, Brutus, the quote squeegee gave you is from the article in the OP, which I assume you will eventually read. The quote is hypothetical itself.
Look, just go to this page. Click on the “view” link. Now imagine them all dead except Patricia and Jane’s cousin’s aunt.
No voodoo economics, no payroll tax increase, no Falcon Crest…
I’m sorry, was I saying something?
We agree.
I wish it wasn’t also clear to “Joe Average” that there are a fair number of left-of-center opposition folks who think that the taxes Joe pays are too low. I see a fair amount of commentary around tax time that goes on about what a great bargain Joe is getting, or how much more is paid in nations which are a veritable social services Utopia.
I wish there was more Democratic opposition to Bush’s tax plan based on many of the points you raised, and less on tax-cuts-for-the-rich sloganeering.**
Bloodsucker!! 
Excellent!
Well, I haven’t followed the major media closely enough on this to hear what the Democrats are saying, but I am willing to believe that they are not getting their message out very effectively. In their defense though, it is a sound bite society and I am not sure they get much of a chance to make 3 paragraphs of arguments as I have.
Yeah! 
Well, I didn’t ask them to pay me this much. But I guess that’s what happens when you’re a scientist and there’s no academic jobs when you get out so you sell your soul to corporate America! I figure it is the least penance I can do in return to proselytize for the goverment to not cut taxes on rich folks like me!
Goodness! You mean that roughly 90% of the American public will be seeing a whopping 20% of the tax cut? Outstanding! That George Bush, he’s a real friend of the working man.
Not.
A while back, I proposed the following tax cut. Though the numbers were pulled purely out of my butt, I don’t think they’re that far away from fiscal reality. Surprisingly, none of the conservative warriors in the thread had the tiniest thing to say about it:
And by “principle,” I mean it’s fun to listen to GOP donors squeal.
By the way, a progressive income tax is not a matter of promoting “socio-economic equality.” Screw that. Me and my bank account have no desire to be economically equal with the guy who supersizes my Extra Value Meal. A progressive tax structure simply recognizes that taxation becomes more and more morally and economically objectionable the less and less the taxpayer is able to afford the tax payment.
The earned income tax credit is a direct credit, not a tax break or a deduction.
This portion is a flat out untruth:
When one does their taxes one typically claims deductions. What this means is that you say “I have this this and this deduction.” The IRS typically takes your word for it, and you are hopefully kept honest by the threat of an audit where the givernment may double chack and ask you to prove what you claim.
Tax credits on the other hand are subject to a higher burden of proof. For example, if you have a child who is born and you wish to take the credit you are typically required to provide that child’s SS#. If you are a slum lord providing low income housing you have to jump through all kinds of hoops beforehand to prove you are eligible for the credit.
The earned income tax-credit is something above and beyond this. It gives an additional tax-credit to people who earn less than about $34,000 a year and are caring for children. What it amounts to is that basically the government will pay some of your payroll deductions for you, things like Social Security and Medicare. These things are not really taxes, they are mandatory programs to which the person making the payments is receiving or will receive benefits. Like most government programs instituted by liberal administations for the benefit of the poor, they suck ass, waste money and screw everybody over. So, this is different from a deduction. You are not telling the government that you only owe ____. You are telling the government that it owes you ____.
For most people asking for this tax-credit, it is not a problem. If you are raising your own kid, or you are the legal guardian the proof is simple and easy and you are probably providing it.
Even if you are raising somebody else’s kid and that other person is fradulently claiming credits or deductions for that child to which they are not entitled, the proof is also easy.
If, on the other hand, you are ripping the government off by claiming you are raising children who do not exist or are not residing at your residence the proof now becomes very difficult.
The people being targetted are those most likely to be engaged in this activity.
By making them prove their eligibility beforehand (just like somebody claiming the low income housing tax credit) the IRS is reducing fraud by placing the burden of proof on the people to whom they are writing checks and who are statistically likely to be asking for those checks under false pretenses.
It is a cheap and effective closing of an obvious fraudulent loophole. There are of course other larger frauds occuring. Closing this one is both easy and cheap. Most of them are both difficult and expensive.
If you are an aunt or an uncle raising a kid abandoned by its no-good parents you will have little or no difficulty with the increased filing requirements.
The standard of proof required is reasonable and easy for legitimate claimants and fits the standards of other tax-credits. The fraud in this area is high because it is a credit that once claimed can be claimed perrenially, and often is, even if the child is no longer being reaised by those who are claiming the deduction.
Personally, I think stealing money you’re not entitled to sucks, and if it can be significantly reduced easily and effectively the government should do it. Just because you make $34,000 or less doesn’t entitle you to theft.
Yes. For example. If you kept the child locked in the basement for 24 hours a day without schooling or medical care, or social activities you would have difficulty fulfilling the requirements to make your claim.
Failing that you would not.
These unspecified “other critics” are idiots.
Not to be a nitpicking swine, but that it is not what it does or recognizes.
What a progressive tax structure does is increase burden as income increases. It neither attempts nor makes any distinctions based on the affordability of taxes.
For example, the guy supersizing your value meal is likely not too able to afford the mere pittance in taxes he is paying.
A high powered lawyer such as yourself, zooming through the dirve-through in last year’s sports car may well be able to handle the higher percentage burden is paying.
For him, his taxes may mean the ability to afford preventative dental care. For you, it may mean you’re stuck with the Boxster instead of the 911.
Afford has nothing to do with it.
Perhaps you are pulling that 90% figure out of some bodily orifice, minty?
According to the latest U.S. census, approximately 13% of Americans are below the poverty line ($19,000 for a family of four in 1999). Add to that population the people making over $77,000 per year and minty’s 90% begins shrinking dramatically.
But that was sort of my point (not to defend GWB, minty, pay attention now) - both sides are playing fast and loose with the figures, and it would be better for the Dems to highlight the G.O.P.'s financial stupidity than to dive into inaccurate rhetoric of their own.
Such as “It is absolutely disgraceful that the Bush tax cut didn’t reduce taxes on the lowest incomes even one tiny bit.”
I think you mean to say, “It is absolutely disgraceful that the Bush tax cut didn’t sufficiently reduce taxes on the lowest incomes when compared to the reductions for the wealthiest Americans.”
See? Not so hard.
The proles are smarter than you think. And they vote.
Minty:
as for your tax-cut proposal, well:
Not to be nitpicky, but it’s important to get these things right. The government doesn’t cut marginal tax rates. The marginal tax rate is a hypothetical figure apllied to a specific taxpaying entity to determine the tax burden that will be incurred on the next dollar of income if it existed. That rate will depend on all kinds of things, such as what State one resides in, and what kind of income we’re talking about. Marginal tax rate is a personal measure.
For example, you can earn $500,000 and have your marginal tax rate be 10 or 20% depending on circumstances.
What you are after is real tax rates, meaning what percentage of a person’s income is being collected in Federal State and payroll taxes.
The first tax bracket isn’t 15% btw. It’s 10% for 2002.
The problem isn’t with the 15% tax bracket Minty. It’s with what actually gets paid. Your hypothetical tax payer in the 15% Federal bracket is probably paying very little, if any Federal taxes.
Our tax structure is actually regressive to progressive. Somebody earning very very little but nonetheless enough not to qualify for aid is being burdened heavily on a percentage basis relative to their income. Most of this is not Federal Income tax. It’s those payroll programs he’s forced to be a part of, and, it’s the fact that he is not receiving aid that places him in a lower standard of living than those who earn less than he, or in some cases nothing. Changing this rate doesn’t do a lot in real terms to the working poor. It does benefit certain individuals who may be quite wealthy though.
It is absolutely disgraceful that the Bush tax cut didn’t reduce taxes on the lowest incomes even one tiny bit.
[/quote]
It really wouldn’t help. The problem is not with the Federal tax brackets on the low end.
That’s the third tax bracket, not the second (assuming 2002 tax-law,) a married couple can make $112,000 in earned income and still be in this bracket, so I don’t see how this really helps the poor, or really the middle class either as this bracket place you in the top quintile of income earners, IIRC.
And FYI, things like the $300 give back are extremely progressive. This is not a matter of opinion it’s a matter of math. That $300 represents a bigger percentage of a lower income earners federal tax liability than a high income earner.
The increase in things like the personal exemption and the standard deduction also benefit those in the lowest tax-brackets to the largest degree, and those, among other things result in a significant easing of tax-burden upon low-income tax-payers, and particularly the low-income elderly.
I bring these things up because there is a myth.
The myth is not the that the poor have it easy or have a good system for bettering their station through incentive. They don’t. The myth is that the poor aren’t getting tax breaks. They are. It’s just not helping.
If you’re going to quote U.S. Census Bureau figures, the table relevant to the discussion is table P52, Summary File 3. This table shows that there were 44.705,108 households that earned between $30,000 and $74,999 in 1999, out of 105,539,122 total households in the United States, or 42.36%. Unfortunately better resolution isn’t possible from Census data. Note that long-form data is based on a 1/6 sample of households…
I’d argue that the “percent of the tax cut” going to households with incomes lower than $30,000 is pretty insignificant, probably less than 5% but I have nothing in particular to back that up. The total number of households earning less than $75,000 in 1999 was 81,767,338, or 77.48% of total households in the United States. Not a terribly far cry from 90%, but not exactly equal, either. This percentage has certainly dropped some since 1999, but there aren’t any terribly reliable estimates of this sort apart from the decennial censuses (I view IRS tax return data with a giant grain of salt). What with inflation and per capita GDP gains, the figure for 2002 might be more like 70% even or so.
It’s always great to hear from someone who can penetrate to the mysteries of table P52, summary file 3. 
So in fact, minty’s"roughly 90% of the American public" has shrunk to a figure much closer to 43%. But I can understand the hyperbole. It’s much less dramatic to say “Roughly 43% of the American public is getting only 20% of the tax cut goodies!”.
And much less exciting to simply say, “We can’t afford it.”