Resolved: Tax cuts do NOT result in higher tax revenue

Great Debates
21

[quote=“xtisme, post:13, topic:546279”]

Wouldn’t a comparison of tax revenue (adjusted for inflation) between, say, the 50’s and the 80’s or 90’s pretty much demonstrate that your statement here is horseshit? I mean, we went from tax rates in the 90’s to tax rates in the 30’s to low 40’s, and tax revenue has certainly increased.

I don’t think the effect of tax cuts in a 90% environment is particularly relevant to tax cuts in a 35% environment. I can point to increased GDP and tax revenue during the 1990’s and say that demonstrates that tax increases increase GDP and tax revenue.

America cannot do what Ireland can do. Noone believes that ireland’s tax cuts created an organic doubling of irelands economy in 5 years (or do you think America could double its GDP in 5 years by cutting taxes?), the growth was made at the expense of the other EU nations as mobile business activity inside the EU relocated to Ireland. If America did the same thing, we would grow but it would be at the expense of other developed nations and they6 would respond by lowering their tax rates and there would be a race to the bottom that would leave us with really low tax rates without the organic growth in economic activity to make up for the lost tax revenue. In short a tax race to the bottom is not the answer for the largest economy in teh world.

You mean teh irrelevant historical evidence you mention above?

And oddly enough, contrary to YOUR intuition, no respectable thoughtful commentator thinks that we can increase tax revenue by lowering taxes in todays tax environement.

Well like I said, You might get a laffer effect at 90% tax rates, but you will not at 35% tax rates.

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Nor did I say we could. Re-read what I wrote there for clarity. The OP is stating that ‘Tax cuts do NOT result in higher tax revenue’ full stop. I’m saying that this isn’t the case, depending on what the tax rate is and what it’s being changed too. And I do believe that ‘thoughtful commentators’ would agree that there are instances when lowering the tax rate WOULD result in more tax revenue, especially after the effects of the tax cut start percolating through the economy.

No where did I mention that lowering taxes in the US today, given our current tax rate, would have a similar effect. That’s YOUR strawman, not my position.

Well, since I didn’t mention 35% nor claim that it would have that effect, you are just building men of straw and trying to fit me into the mold. I specifically mentioned the tax rates during the 40’s, 50’s, 60’s and 70’s.

If the OP was only about tax cuts not working in this current taxation environment then it should have said so…in which case I’d probably agree that tax cuts right now would almost surly have no beneficial effect at the federal level.

-XT

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Somalia for zero, Khmer Rouge Cambodia for one hundred.

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I clarified this statement in post 5. The OP was incomplete.

Well at least we all have agreement that the people who keep talking about tax cuts creating more revenue are cracked.

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Not sure if anyone remembers, but a couple of months ago Bricker starting a thread called, Study says: the more you lean left, the less you know about economics. It contained a series of questions designed to elicit a certain response from liberal minded students.

It seems we have another to add to the list: Tax cuts do not result in higher tax revenue [agree/disagree]

Would you be willing to elaborate and describe how you believe this would play out? I’m also curious which taxes you are referring to, or does it matter?

I see this has playing out one of two ways: if you lower income tax, that gives people more money to spend–but you have to hope they actually spend it. If you lower sales taxes, that has the effect of making goods and services seem cheaper, allowing people to buy them. But again, you have to hope they have the money to buy things.

Wouldn’t conventional wisdom tell us that in either case, all we’ve done is shift the price level? We either make everyone a little richer, or everything a little cheaper. I can’t help but feel both scenarios encourage inflation.

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[voodoo economics hat on]“Since private enterprise is more efficient than government, shifting capital to private hands will encourage the rich to invest more, and thus grow the economy, resulting in more tax revenue in the long run.”[/voodoo]

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Cool, and without the voodoo hat?

Something doesn’t quite make sense to me: if we neglect deficit spending, a tax increase or a tax decrease to me is just shifting the money.

Efficiency shouldn’t matter. Does it really matter if the government buys toilet paper or an individual buys it?

Assuming the government isn’t hording the money in a giant tower that the president swims around in it’s still in the economy.

Think back to the massive military spending of WWII. That money drove the economy. The government took a percentage from everyone, and then spent it on stuff–which is what grows the GDP.

Again, conventional wisdom tells me that we’re better off with the government spending the money, because the government doesn’t save it under a mattress, or send it out of the country.

I probably shouldn’t admit this, but my wife and I got the $8,000 first time home buyers credit, and spent every dime of it in Australia. At best it got Delta Airlines two short haul flights. That did nothing for the US economy.

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Answer: It depends.

How would lowering taxes bring in more tax revenue once the effects start to percolate through the economy? How would that play out? I see it playing out much as it actually did, with taxes lowered from incredibly high levels (90%+) and this stimulating business.

I have to ask those of you who don’t believe that lowering the tax burden ever brings in more tax revenue (the obvious caveat being that lowering the tax burden must bring in less), regardless of circumstance, how did the US government not only survive but thrive by lowering the tax burden from 90+% to 35%?? That’s a substantial reduction in tax, and yet it’s not like we have less government or less services than we did in the 50’s, or 60’s or 70’s…quite the contrary. We have MORE government, and MORE services than ever before. So, how has the government not collapsed or been forced to bang those taxes back up to those lofty numbers?

On the other side of the coin, we’ve seen a huge economic expansion during the period of time since the lowering of those taxes. Even today, bad as this recession has been we aren’t having anything like the economic doldrums we were in during the 70’s. And, of course, during that period we also had the largest economic boom in our entire history. Why?

Why wouldn’t they spend it? In fact, isn’t that exactly what they did? And not only will individuals spend more, companies will expand and spend more as well. They might not hire more people (necessarily, though in many cases they do), but they will expand their business.

Spending and expansion are all about perception…if people (and companies which are run by people after all) THINK that things are going well, that then economy is rolling along nicely and that they perceive that they have more to spend, then they are going to spend it. They are going to buy that new computer, or purchase that new car or house. And companies are going to spend that additional money on new product lines or R&D or acquiring other businesses.

This can of course cause other problems (as we’ve seen in the last few years), but it seems to be basic human nature.

This type of thinking only works if there is a fixed pie. Since there isn’t a fixed pie it doesn’t have to be an either/or.

-XT

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Tax breaks to the poor will result in more spending. Tax breaks to the wealthy ,not so much. They are sitting on 10 trillion dollars. Tax cuts to corporations do not result in spending increases. Cuts to small companies, the ones that actually do hiring and expansion, may be somewhat effective. They actually may be interested in investing in getting bigger. Trickle down has been proven to be a fallacy
which is pushed over and over by those on top.

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:rolleyes: You keep saying this in thread after thread. It’s twaddle. Is the money stuffed into their mattresses??

:dubious: I’m not going to ask you for a cite, because you’d either do a drive by link to some loony whack-a-do web site or you’d link to something that would be out of date or completely unrelated to the question (if not both).

Again, what do the ‘corporations’ do with the money? Do they stuff it into mattresses? Use it to light their fine Cuban cigars?

Because large companies never expand, right? They never hire or anything like that. It’s how they stay large…they just keep laying off people, screwing over the little guy and then taking the money and stuffing it into mattresses. I mean, they don’t even buy blow and hookers with the money! The dirty bastards!

-XT

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First, by 90+% to 35% you mean marginal tax rate, right? And I presume you’re talking about federal income tax.

I need to ask again, how do you see it playing out (or how DID it play out)? What is the process involved? What would it look like in today’s terms assuming we’re at 35% {marginal} tax rate? And who are you cutting the taxes for, personal or corporate?

Isn’t it just as likely to have been the other way around. The GDP was going up when they cut the taxes, so they kept making more revenue as GDP increased.

Sorry, but one more question, if we had improvements from 90 to 35, is it possible we’re at the bottom, where more cuts won’t mean more revenue?

Isn’t it also possible that we have more government now because we have more GDP? And don’t we also have way more deficit spending?

I believe my point way back at the beginning was that the US hasn’t actually had tax cuts, because the government kept spending. All they did was increase deficit spending. So maybe the answer is that you need to increase deficit spending to increase GDP.

I don’t know, why? I know there was a long period of deficit spending. I know that consumer savings rates fell to negative levels. I know people were in debt up to their eyeballs. Perhaps what you see is just the result of a lot of borrowed money.

One reason that they wouldn’t spend it is if they are already to heavily in debt. The Bush Stimulus check failed because for one it was way to small, and also because it just got absorbed into consumer debt. As far as I can tell, the entire expansion over the past few decades has been entirely debt driven.

Sounds like my guns and home invasion thread. So what you’re now saying is that the tax cuts just give the perception the economy is improving, but don’t actually do anything.

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From the perspective of stimulating demand perhaps you are correct but from the perspective of sustained economic growth, having an overly large government is about as good for the economy as having an overly large toilet paper industry. The difference is that the profit motive and market pressures prevents the toilet paper industry from getting too big.

The problem is that the far right believe that the solution to the issues that are intrinsic in ALL governments is to have really tiny governments. They think its too tough to walk that tightrope between good government and bloated government so they trade the problems associated with governments for the problems associated with free markets and wave away the problems associated with free markets.

We might as well have driven those tanks into the ocean for all the value it injected into society but it does provide some support for the case for the stimulative effect of digging holes and filling them up.ate an economy by digging holes and filling them up. But at some point you have to start producing value.

You do realize that those were marginal taxes paid by a very small percentage of Americans. But I can see how confiscatory taxes end up reducing tax collection.

Who do you think believes that cutting taxes can NEVER increase revenue? Straw man much?

Do you know what the truly rich do with their money? They buy Treasuries. Sure they may give a bit of it to Madoff but generally they are far more interested in wealth protection than growth. So when you give them a tax cut, the money frequently ends up right back in government hands but this time in the form of a loan instead of tax receipts.

JFK cut taxes when our receipts were significantly in excess of our expenditures. We were paying back the WWII debt and JFK lowered taxes and as a you can see it did not really affect the rate at which we repaid our WWII debt. Nixon lowered taxes on earned income and the debt started levelling out. Ford and Carter both left taxes alone and things were moving along merrily and then Reagan came along and he wanted to reduce the size of government and cut taxes. he couldn’t get the votes to cut spending but he was able to line up a LOT of votes to cut taxes to 50% so he took what he could get and we had a huge round of deficit spending (about 25% of GDP during his presidency), he never managed to cut spending but cutting taxes was such an electoral boon for the Republicans that they came up with a rationale for cutting taxes even further and eventually got taxes down to 28% (all without noticably reducing spending).

All this is just to say that cutting taxes is fine AS LONG AS YOU CUT SPENDING FIRST. But cutting spending is politically hard to do and cutting taxes is really easy to campaign on.

The Bush stimulus was about as poorly constructed a stimulus package as you could imagine. Half of it was accelerated depreciation which has a multiplier effect of about 0.3.

Sounds like my guns and home invasion thread. So what you’re now saying is that the tax cuts just give the perception the economy is improving, but don’t actually do anything.
[/QUOTE]

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As Lending To Small Businesses Plummets, Bernanke Implores Banks To Do More | HuffPost Impact Here a twaddler Bernanke saying banks should invest in small business loans. They have been sitting on tons of cash and are just hanging onto it. That is the banks.
Scorpio Management made the 10 trillion dollar claim today. The fact is the super wealthy are not investing right now. They are screaming to try and get them to let loose.
I know you are stuffed with 9th grade cliches about things like "supply and demand’ and other ideas sold to kids in school. But that is not the real world.
Corporations have been proudly closing American plants and cutting workers for decades. We even gave them tax breaks to do so. That does not mean 100 percent of every corporation has not expanded one job. If thats the depth of your arguments, you win. But the cold fact is off shoring of jobs and closing of plants is what corporations have been doing in massive amounts.
Sending money to the Caymans and other foreign banks, investing in foreign lands , does not help our economy. i never suggested they put piles of cash in mattresses. Never.

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http://uk.finance.yahoo.com/news/wealth-market-has-10-trillion-up-for-grabs-study-reuters_molt-8a69d46d1baa.html Here is a relevant article. Yes they are sitting on 10 trillion. no they are not investing it, and investment companies are trying to shake it loose. No they probably do not have it in their mattresses., although some may. I do not know and never made the claim.

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You didn’t actually read or understand either of those articles, did you? Well, it’s a rhetorical question, since the answer is pretty obvious. You really must think that they have the money stuffed into mattresses, since you don’t seem to understand what ‘investment’ actually means.

-XT

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Tax cuts increase tax collections Heres tha chart showing that every tax cut gave us smaller amounts of revenue. You have to be desperate to believe in sophistry that tax cuts increase revenue. they do not and have not.

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You have overwhelmed me with your evidence. I mean, if you can’t trust huppi.com (with a /kangaroo tossed in), who can you trust?

(At least the site was good for a laugh, I’ll give it that)

-XT

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Is this the one about how we should be grateful to rich folks because all their money is invested and that trickles down on the rest of us? I’ve heard. What I don’t get is why its necessary for so few people to have great slobbering gobs of money to invest, how thats any improvement on a whole bunch of us having money to invest. Same money, isn’t it?

If a rich guy invests a million bucks, how does that improve the situation more than if me and a hundred thousand other guys all invest ten dollars? And you know whats even better? That a hundred thousand guys have money they don’t have to spend on gruel!

Besides, what else are they gonna do with it?

[Aside]
God Bless You, Mr Rosewater, by Kurt Vonnegut, just about the most intelligent book on the subtle moral corruption of wealth evah! Fitzgerald took a pretty good swipe at it, but Kurt nailed it. Joe Bob 'luc says “Check it out!” [/A]

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I’m still waiting for some answer about what we are specifically talking about, and how it’s supposed to work.

I’ve always seen this in the most basic sense like first year micro economics. Businesses work to adjust the price of an item to maximize their revenue. Lowering it will increase demand, meaning more sales, meaning more revenue. Until you go too low, at which point you are losing money on each sale.

Go the other way, raising the price means more profit off each sale, but might reduce sales, meaning lower revenue.

**Adding ** the luxury tax discouraged people from purchasing those luxury items.

I have no doubt that if the government added a new tax to people making $140-150k, they might get a few the first year, but after that no one would earn $145k a year.

So if we’re talking about taxing the rich, which is what I think we’re doing, what happens with the money.

Take an example: people making $2mil are taxed at 35%, so right now government revenue is $700,000. What happens if we change that to 30% of 40%? Government revenue initially goes up or down $10,000.

What is the next step? If that person has an extra $10,000 next year, how does the government eventually get it back. And that’s the important point, xtisme’s argument is that some how the government will make MORE than $10,000 within a year (or some other time frame).

Help me out here. Where does that $10,000 go, and where does the $10,000 in revenue get made up?

The liberal argument is that if the government takes an extra $10,000, they can spend it in a way that won’t mean $10,000 lower revenue revenue from some where else. The government has raised the tax rate, and expects to make more than $700,000 at the end of the year.

Like I said, the money is still there. The millionaire could invest the $10,000 or the government could invest the $10,000. What is the difference? As I said, both could invest it in toilet paper.

What is the actual justification for giving it to one or the other? And how does tax revenue CHANGE as a result.

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There is deadweight loss with government expenditure. Government is a lot like societal transaction costs. The more you have the less efficeint the market mechanism becomes.

Outside of special circumstances (like we see these days), you don’t want your economy to filter through the government. With that said, lowering taxes in the current tax rate environment, does not increase government revenue in the short, medium or long term, it merely transfers money from future taxpayers to today’s rich taxpayers.