Reaganomics

[Neurotik]

I can agree with that, ElJeffe. Quite frankly, I don’t believe that changes in the tax rate do much of anything for the economy, except at extremes.

However, you also can’t discount the possibility that economic growth would have been higher without the tax cuts.

To be honest, there are so many factors going into the economy that you can’t really nail anything down to one factor. Or even three or four factors.

[Dave_D]

*Originally posted by Bryan Ekers *
**Apples and oranges. The fall of the USSR didn’t trigger the rise of Islamic fascism. Actually, Islamic fascism in Afghanistan, 1980-1987, helped accelerate the fall of the USSR.

You always have enemies, but at least the Islamists don’t (yet) have thousands of nuclear warheads pointed at North America. The threat level has not reached that of the Cold War, nor do I expect it to. **

True but one problem that may have occured is that Soviet Failures in Afghanistan might have increase the loons morale. I mean the way they talk you’d think they defeated the Reds all by themselves and it had nothing to do with all those lovely RPG’s the USA gave them.(And now they might believe that they can fight the USA even without American backing.)

[ISiddiqui]

I actually think that Reagan had in mind that his tax cuts would lead to deficit. But he thought that it would be mitigated because Congress would see the deficits and reduce spending. Of course, Congress NEVER cuts spending, so that never happened.

I assume that he believed the debt could have been much less, but Congress always screws things up ;).

[Ulterior]

Wow, a thread on Reaganomics, and I see not a single mention of the Laffer Curve, which was kind of integral to the idea of supply-side economics that Reagan pitched.

“No mention?” Now that hurts. See my post above.

The Laffer Curve is essentially an application of common sense that dictates that there is some tax rate that maximizes tax revenue - that, basically, you can’t necessarily create more revenue by raising taxes. Contrary to what anti-Reaganites will have you believe, no credible economist denies the existence of a Laffer Curve, only where that all-important maximum is. If we’re to the left of it, then we would gain more revenue by increasing taxes. If we’re to the right, we would gain more revenue by cutting taxes.

I think that the basic logic behind the Laffer Curve is not fundamentally incorrect. I think, though, that there are some rather obvious problems with its application:

1. This, I mentioned above–it isn’t really possible to figure out where you are on the curve without changing tax rates. And even then, a change in total revenue could be the result of some totally extrinsic factor (e.g. some foreign policy event which causes a spurt in patriotic fervor, ergo a feeling that one ought to pay one’s taxes in this fiscal year because it is good to do so.)

2. In general, as alluded to above, the difficulty in isolating variables. What makes more people pay taxes in a given fiscal year as opposed to another? Can we realistically determine people’s opinions on this matter? Will people be willing to admit to having refused to pay taxes in years past because of exorbitant tax rates?

These two problems make the Laffer Curve as difficult as any other economic model, if not more so, to apply to a real-life situation.

However, were the Laffer Curve conceptually unproblematic, any economist using it must acknowledge its limitations. It is not indicative of a stimulus to economic growth as such, just to government revenue.

Ulterior