Obama freezes federal worker pay for 2 years

Great Debates
361

First, let me take this opportunity to say that I appreciate your (yorick73, if that’s not clear) following up. I wouldn’t mind terribly if you said my point was a digression of little substance, or a nitpick that doesn’t address your broader point(s) – with the walls of text you and Damuri Ajashi are posting (and I’m just as guilty), I’m only giving the debate-as-a-whole cursory attention. I don’t agree with you often, but I appreicate the dialogue.

Nothing there that’s different from what we’ve already discussed. I do not deny that higher tax rates may cause relocation. But I haven’t yet seen data that confirms a net loss in revenue due to relocation vs. raising rates. More importantly, I haven’t yet seen any figures that show the impact of the recession as the cause for lowered revenues; the higher rate/relocation calculus may be a wash that is totally obscured by the recession.

First, the WSJ link gives me an error message, but that shouldn’t be a concern if it matches the report.

Second, whether justified or not, I don’t trust research done with Laffer’s name on it. Picking out one example of why that I recognized while skimming, on p4 we get the following, cited to a Cato report:

But that’s a dishonest figure, as discussed at length in a recent thread (I’ll try to find it if you’d like). The ALEC has an agenda from which I doubt they deviate; they’re not necessarily wrong, but I would not accept that they’re right without further critical analysis (which I have neither the time, knowledge, nor desire to do).

Third, you’ll receive no argument from me that overspending is a huge problem (what seems to me to be the primary complaint in that report), nor that tax rates influence residents’ (re)location, nor that higher tax rates may very well lead to lower revenues. In fact, on a cursory reading, there’s much in that report with which I agree.

Fourth and finally, we get to the nut of it. The cite still doesn’t address my points. In fact, it simply reiterates what has already been said (specifically, the very cites you’ve already given from the WSJ and WTOP are cited as evidentiary support for their argument – endnotes 46-8, chapter one). More significant to me is the following quote from p8:

Yes, that’s exactly my original point. Now quantify that; we’ll then be in a position to judge the impact on revenue of the recession. We can then see if other explanations for revenue drops are the economic equivalents of mere argumentative quibbles.

I’m getting tired, so excuse me for not giving this cite its due respect. But I grew up in NJ…and got the hell out as soon as I was able. Believe me, there are plenty of reasons beyond high taxes to escape NJ. :smiley:

362

Oh, I doubt you have digressed more from the OP than the rest of us! :slight_smile:

I agree but, unfortunately, if the raw data (or any data for that matter) is available I have been unable to find it.

I found the following from the Laffer op-ed interesting. But, I know that this will not convince you. Perhaps I’m more willing to infer from the limited data presented because I agree with their conclusions:

Bolding mine.

I hear that a lot…so maybe NJ was not the best example :slight_smile:

363

Holy schmoley, I just now realized that when I referenced a thread about government workers being overpaid, it was this thread. :smack: Yes, this is quite the digression. :slight_smile:

Doesn’t that strike you as a warning sign of things not to be accepted on belief alone?

Convince me of what, exactly? It’s clear that high tax rates are a consideration for choosing residency – I certainly take them into account when deciding where I want to live, and you can be assured that I’m not in either of the top two quintiles. And there are clear anecdotal cases of people relocating, claiming to do so because of tax rates (your Rush Limbaugh example).

Not too oddly, though, as long as we’re speaking anecdotally, the three millionaires I know personally reside in either NJ, NY, or CT. Been there for years, doubt they’re leaving for years (at least not until their kids are post-college). Higher tax rates haven’t yet caused them to relocate. So, what am I looking to be convinced of? A refresher:

My specific point is that your cites don’t demonstrate what they claim (the relocation issue). My general point is that the recession is a much more obvious explanation for declining revenue, for which no data is presented. OTOH, your general argument is that raising tax rates is always bad. And in some cases, that’s likely true – taking the referenced Manhattan Institute’s paper at face value, 'cuz I’m tired of fact checking, that happened in NJ between '05-'08. But that’s not true universally, and IMO it wouldn’t be true when applied to current federal tax rates (particularly for incomes of >$250K). And that’s at least part of what Damuri Ajashi is arguing.

You readily admit there’s a “sweet spot”; yet, by my reading, you refuse to acknowledge the possibility that hitting that spot may be a matter of raising tax rates. By my reading, you stubbornly assume the result you seek, despite the fact that your cites are inconclusive on the point – for an arbitrary specific case, revenues may decline, increase, or be a wash. And in case it’s not clear, I should point out explicitly that I’m not advocating for higher taxes here, but am simply pointing at the unwarranted conclusion.

It’s very frustrating to not have these numbers, but continue to argue about them. That has the effect of entrenching me in a position that may be shown to be incorrect; it’s very difficult for me to switch gears at that point. I hate being in that position.

364

Hrmmm… OK, I agree the line is relatively smooth but I think the graph suffers from issues of scaling. Noone thinks that the total income tax revenues collected should closely track the top marginal tax rates. Here is a link to the raw data http://www.whitehouse.gov/omb/budget/Historicals

I think we are talking about the numbers in table 2.3 column B (some of the other columns are also sorta interesting).

I don’t know enough about the details of the tax systems at every point along the line to say anything for sure but federal income taxes as a percentage of GDP more than doubled when top marginal rates went from 88% to 94% in 1943 from 3.6% to 9.4%. The total tax burden has simply not changed very much (tax cuts in one part of the code are mitigate by tax increases in other parts) since the 1950’s.

The Reagan tax cuts were only supposed to equal 1.4% of GDP using static scoring (in practice it was more like 1% but there were enough positive effects from reducing rates from 70% to 50% that you probably got some Laffer effects). The JFK tax cuts were supposed to be 1.9% of GDP using static scoring (in practice they were about 0.5% because the 92% rate was undoubtedly on the right side of the Laffer curve). The Bush Tax cuts (combined) were supposed to equal 3.2% of GDP using static scoring and in practice they reduced taxes by about 3% of GDP, there was hardly any leffer effect because at the current rates there is no Laffer effect unless you start to raise top marginal tax rates a LOT higher.

Well, the thing is that those projected numbers assume that the recession is over. If you want to keep any of that stuff that they want to cut, you will have to find cuts elsewhere (and the CATO institute already proposed 150 billion in military cuts) or you will have to increase revenue.

[quote]
Sure do. Reagan increased taxes on business in '82, increased payroll taxes in '83, and higher energy taxes in '84. There is a chart on this Wiki page: Reaganomics - Wikipedia

I thought we were talking about federal income taxes. Or are you saying that increasing payroll tax rates did not result in greater payroll tax revenues?

[quote]
Who said they have to invest in anything. If the return is no longer worth the risk then they can stash their money under the mattress. At any rate, the 2003 capital gains tax cut resulted in a large increase in revenue. See table 4-3: http://www.cbo.gov/ftpdocs/77xx/doc7731/01-24-BudgetOutlook.pdf

Well, historically, they have invested at least in treasuries.

I am looking at your chart and I don’t think I see what you see. I see where the amount of capital gains realized increased in 2003 by 20% (there were $269 billion of capital gains realized in 2002 and $323 billion of capital gains realized in 2003) but the capital gains taxes collected seems to have gone down from 58 billion to 50 billion (presumably because of the lower rate that was being applied).

The concept of monopoly pricing (or in this case monopsony) can translate to this situation (or at least I think so). As to the whole “I can hide my income” argument, I don’t think there are a lot of legal ways to do that and I don’t think flat out tax evasion is a huge problem, we send people to jail for that every day and anyone with a lot of money knows it.

The effect is not pronounced enough at the sort of tax rates we are talking about for it to overcome the effect of the lower rates. It might work when youa re dropping the top marginal rate by 20% from 90% to 70% or 70% to 50% but it doesn’t have a significant effect when you increase rates from 35 to 39.6% or from 15 to 20%. The banker will still try to maximize his gross bonus regardless of a 4.6% increase in his marginal rate.

How do they dodge federal taxes?

Then how do they explain the prosperity of the 1990’s?

The heritage foundation puts forward three examples: The 1920’s under Hoover, the 1950’s tax cuts under JFK and the 1980’s tax cuts under Reagan.

The 1920’s culminated in the great depression

I can agree that the JFK tax cuts were probably a good idea.

I can even agree that the Reagan tax cuts from 70 to 50% were a good idea.

But how do they explain the prosperity that followed tax increases in the late 30’s and 40’s? How do they explain the prosperity under Clinton after he raised taxes?

Its not just that taking from rich peter to give to poor Paul will create more stimulus. Its not just a matter of putting money where it will create the most growth (increasing consumption when we need more consumption and increasing investment when we need more investment) I am talking about DEFICIT spending. Spending money you don’t have or investing money you don’t have. Eventually you will have to pay the money back but hopefully you will have a larger economy to pay it back from.

365

No amount of scaling issues can obscure the relationship.

You do realize what was going on during this period? Certainly you can understand that the GDP increased significantly during this period.

The recession ended some time ago.

Don’t put words in my mouth. I was talking about Reagan agreeing to tax increases on the condition that spending be cut. He got the tax increases but not the spending cuts. That is the only point I was trying to make.

What’s your point? They also can invest in tax free munis or bonds.

That is because you expect to see an immediate reaction. The cuts were signed into law in May of 2003. Look at the numbers for the next few years.

I don’t know if it is legal or illegal. The number of millionaires dropped 90% after Wilson raised the top tax rate. Surprisingly, they all reappeared when the Mellon tax cuts were enacted in 1925.

Cite?
Individual and corporate tax receipts following the '03 tax cuts increased 40% in the 3 following years

See above

The 90’s were a peaceful time and there were booms in the tech sector and housing market. The question is how much more the economy might have grown (and more tax revenue received) had taxes not increased.

366

It actually makes me wonder if the raw data is available. My guess is that, if it was, someone would have used the data (assuming it did not confirm the authors’ conclusions) to refute that piece.

The interesting point of that quote is that there were decreases in “rich” people filing taxes in the highest tax states and the reverse in the lowest tax states even during the economic boom. Here is a piece that attempts to quantify the amount of money that left certain states and relocated to others:
http://www.fiscalaccountability.org/?content=COGD1010

The piece doesn’t state exactly their methodology (other than citing the IRS as a source) and states lost revenue as AGI as opposed to lost tax dollars.

The simple fact that GDP increases as taxes are cut (yes, even after the Bush 2003 cut), combined with the fact that federal tax revenue collected correlates to GDP leads me to believe the sweet spot is lower instead of higher.

Here is an op-ed by Richard Rahn at Cato. He claims that tax rates above 30% and, maybe, above 20% result in lower tax revenue:
http://www.cato.org/pub_display.php?pub_id=12635

Here is the interesting part. I wish he had linked to some data but no luck…

367

Sorry for the late reply, but holidays, work, etc…ya know. But I bookmarked the link above 'cuz I thought – finally, some information on “appropriate” tax rates. Having just now read it, I have to comment:

What junk. Yes, you warned me, but I really was hoping for more than that. :frowning: If only it had started with the “The Pelosi Congress has been the most irresponsible — ever” line from the last paragraph, I could’ve had my hopes dashed quickly and cleanly, rather than

368

Well, that was weird…my keyboard kinda freaked out on me. Sorry about the aborted post; it nonetheless conveys my intent pretty accurately, if not precisely.

369

Yes I agree that there haven’t been dramatic shifts in total tax revenue as a percentage of GDP and as I explained there are reasons for that. The Reagan tax cut cut top marginal tax rates from 70% to 50% and it was supposed to lower total tax revenue by 1.4% of GDP (in fact it lowered revenues by 1% of GDP. Perhaps scaling isn’t the right word but you can’t point to the fact that tax revenues have been relatively steady between 15% and 20% and say that the marginal tax rates don’t make a difference.

The Bush tax cuts equaled 3% of GDP.

Our GDP is 14.5 trillion dollars, our tax revenue is about 2.6 trillion dollars or about 18.5% of GDP. If we increased our tax revenues by the 3% of GDP that Bush cut, our revenues would be $500 Billion higher or enough to cover the entire deficit after the stimulus has run its course. The difference between a balanced budget and what we will have in a few years are the Bush tax cuts. That 3% makes all the difference.

The relationship that you think is there doesn’t really exist. The tax code is a a LOT more complex than that. You can’t simply look at the top marginal tax rate and say “see, changing the top marginal tax rate doesn’t have that much of an impact on tax revenues”

Yeah, so? We are talking about tax revenues as a percentage of GDP. If tax rates don’t really affect the amount of tax revenue as a percentage of GDP then why are tax cuts that are supposed to reduce tax revenue by 3.2% cutting revenue by 3%?

OK, so? These numbers still assume a significantly more robust economy than we have today.

Sorry I got confused because we were talking about income taxes. Don’t forget that Reagan also got tax cuts and increasing payroll taxes was hardly something he fought tooth and nail to prevent.

That they don’t stick their money under a mattress to spite the IRS, they invest it even if the interest is taxed.

A couple of things.

First, you said that the capital gains rate cut resulted in “large increases in revenue” I don’t see a single year when capital gains receipts exceeded receipts during Clinton’s last year when capital gains were still taxed at 20%.

Second you seem to be attributing a lot of the increase in asset value during from 2005 and 2006 (no real increase in capital gains receipts during 2003 or 2004) to the lower capital gains tax rate.

I don’t know what you mean. Do you have a cite?

See, economy after Clinton raised taxes.

You realize that in inflation adjusted dollars, they ended up exactly where we were when Clinton left office?

In constant 2005 dollars, total tax receipts in Billions for 2000 through 2006 were:

2000: 2310
2001: 2215
2002: 2028
2003: 1901
2004: 1949
2005: 2153
2006: 2324

I mean by your rationale, I could claim that Clinton doubled tax receipts in 8 years while Bush increased tax receipts by 25%. Of course in constant dollars, Clinton only increased tax receipts by about 60% while tax receipts fell under Bush. This isn’t to say that maximizing tax receipts should be the goal but cutting taxes simply do not pay for themselves, not at these levels of taxation.

In other words you don’t know?

You have a cite for this phenomenon in the early 1900s? Because here is a chart for what happened to GDP after the Great depression when we raised tax rates from 25% (on all income above $100K) to 63% (on all income over $1,000,000, all those job creators must have been PISSED) in 1932.

What do you think happened to GDP during the Clinton years when he instituted the largest tax increase in generations?

I don’t say this to mean that higher taxes = higher GDP. I say this to point out that the correlation that you are looking for is not there. However I will note that the great depression followed a period of 8 years of very low taxation and similarly the great recession followed a period of 8 years of low taxation. Perhaps, there is some sort of connection between extremely low taxes and asset bubbles.

:smack:

I don’t know if you are being obstinate or if you really believe that just by happenstance, all the growth in the country occurred during periods of relatively high taxation and that every period of very low taxation culminated in a recession or depression.

370

Not in constant dollars they didn’t. In constant dollars the tax revenue dropped. The sweet spot for maximizing tax revenue (and once again that shouldn’t be the goal of tax policy) is probably a lot closer to 50% than it is to 20%.

He’s taking stuff out of context, he’s omitting data, he is hypothesizing something that no serious economist believes and he is simply wrong.

371

There is nothing even close to a consensus that lowering tax rates to 20% will increase tax revenues. People don’t want to raise taxes on those more able to pay purely for shits and giggles. They want to do it to raise revenue. I mean you would have to believe that Democrats in congress (most of whom are rich or at least know a lot of rich people) would rather screw over the rich than collect more money in taxes.