Check out this video: The Great State Migration Continues | Fox Business Video
The speaker of the house from OK says that every time they lower taxes, they end up collecting more tax revenue? Has he got his facts wrong?
Because 5% of $100 brings in more than 20% of $10.
If you raise the tax on cigarettes, fewer cigarettes are sold legally. If you raise the tax is on work, less work is done legally. The more you tax something, the more you discourage it.
Simple, really.
Your link did not take me to any statements by the Oklahoma governor.
Beyond that, he is simply repeating the Right wing trope about the Laffer Curve.
The real (if there is such a thing) theory posits that tax revenue will rise, then fall, over a lengthy projection of taxation so that at certain points on a graph, lowering tax rates result in greater tax revenue.
Various Right wing pundits have seized on a truncated version of the curve to claim that lowering tax rates always increase tax revenues.
It ain’t so and it is a distortion of statistics and an ignoring of reality to make that claim. Making the claim that lowering rates always results in higher revenue is called lying.
There are cases where it has happened, but outside variables play a large part (the curve is a hypothetical) and the location of a government on the curve at the point where rates are changed plays a very large part.
Are there any statistics proving this one way or the other (keeping in mind that statistics can be cherry-picked).
My intuition on this is that, like so much in economics, it all depends on where you are on the curve. Suppose you have an activity that is currently taxed at 5%. If you raise the tax to %105 percent, you will likely put a damper on that activity. If you raise the tax to 6%, any effect will be much less.
So the question is, what point, or range of points, on the curve maximizes tax revenue? (I realize that this is way to simplistic as there are many other considerations when deciding if something should be taxed and if so how much it should be taxed, but we have a simplistic claim here.)
On Edit: Ninjaed by tomndebb
You are incorrect here. Right wingers use the Laffer curve to show liberals that their obsession with raising tax rates is NOT going to bring in more tax revenue. No con or libertarian has ever argued that tax cuts always brings in more tax revenue. that would be an absurd statement to make. The argument is that raising taxes will not bring in more tax revenue.
In the video I posted, the guy from OK says that every time they cut taxes, they saw an increase in revenue. and who can forget Gibson’s take down of Obama’s nonsense: http://taxfoundation.org/blog/obama-and-gibson-capital-gains-tax-exchange during the 2008 campaign.
GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton,” which was 28 percent. It’s now 15 percent. That’s almost a doubling, if you went to 28 percent.
But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.
OBAMA: Right.
GIBSON: And George Bush has taken it down to 15 percent.
OBAMA: Right.
GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down.
So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.
Sure, if you ignore what basically every republican has been saying for the past 30 years.
The problem with these statements is that if you try to look at “tax rates” you have to figure out how you’re going to apply all of the various tax rates to the big picture. Do you, for example, use the max tax rate or the effective tax rate? How much do you adjust for corporate vs personal?
If you look at total combined taxes as a function of Percent GDP, the picture (source data) is clearer. The higher the percent of GDP we tax at, the more the federal government rakes in. I’m very comfortable applying that to income taxes in general. Note that drops in the 80s are recessions and that drops in the 2000s are from the tax rate lower AND recessions. The economy, in general, destroys your tax receipts far worse than any tax hike would.
There IS a Laffer curve that exists, but we aren’t incredibly exposed to it as a whole. Tax rates increase slowly over time so the frog doesn’t jump out of the boiling pot. Even the soda tax in New York isn’t discouraging soda consumption. Sales taxes are just as ineffective at curbing behavior, despite people’s high hopes. By the same vein, if you need a data entry person, you’ll hire one. If you can foist the work to be done on your current staff, you’ll do that first. Just like you did before you paid 2% extra.
People who go “BUT paying 2% more in taxes will DESTROY MY BUSINESS!” are being disingenuous.
That being said, I’m all for making the government efficient and transparent with the money they collect (and even reduce rates if we can slim down some signficant cash that way). But no one should be saying that decreasing taxes increases revenue.
To put this another way, for every 1% added to your company’s tax burden, you pay $10 more for every $1,000 in payroll. So, the $25,000 27 year old the ACA is fond of would cost a company $250 a year extra. If you have that slim of margins, you should probably accidentally set fire to your business after getting fire insurance, because you weren’t going to make it anyway.
Now, if we jump that up by 15%, or something, yes. We would probably see a labor shock. But no one that I have heard has seriously suggested we jump the tax rates up on everyone that much.
But that last sentence is just as absurd. If it’s absurd to claim that lowering rates will ALWAYS raise revenues, it must be equally absurd to claim that raising rates will ALWAYS lower revenues. You can’t have it one way but not the other.
There obviously are points on the Laffer curve where increasing taxes will raise revenues. In fact that is self evidently the case, since the United States does in fact gather revenues from the income tax, where before its introduction - when it was, in effect, 0 - the United States raised nothing. So raising rates clearly increased revenues.
Furthermore, your characterization of Gibson and Obama’s conversation as being a “Take down” is absurd; indeed, the person WHO POSTED THIS CONVERSATION points out that Gibson is being a little silly.
Not so much …
there’s a lot of variables that you’re not accounting for,
not least of which (and I’m blanking on the economic term) inflexibility of demand…
From the OP:
Do you have a text or non-Fox source? I’m with the large number of people here who view Fox News as a toxic, dishonest source, and I’m not about to watch a video from them. Read an article, maybe, but I really don’t care. The effect you’re talking about is, as previously stated, called the “Laffer Curve”. It doesn’t work. Take a look at how well the reality matches the curve: it’s pretty terrible.
The speaker of the house from Oklahoma is most likely misinformed (like most republicans) or lying his ass off. Or maybe this is a case where a lot of businesses are fleeing into Oklahoma because taxes there are so low. But I’m not going to entertain your source, as it’s a Fox News video.
If you simply want to go on a partisan rant, take it to The BBQ Pit. Snide comments such as “misinformed (like most republicans)” are simply going to derail the thread into partisan sniping without debating the accuracy of the the Laffer Curve or its use in politics.
Similarly, an entire paragraph bashing Fox News does nothing to promote the discussion. Asking for a separate citation and mentioning a distrust of Fox is fine. Ranting on for multiple lines is off track.
[ /Moderating ]
That wasn’t a snide comment, I think it is fair to say that most republicans are misinformed on the issue of the Laffer Curve - i.e. they think it’s anything but junk economics which fails mildly at a conceptual level and severely at an empirical level. If that felt like it was intended as an “in general” manner, i.e. most republicans are misinformed, period, then I apologize for not making that clearer. Also, if someone takes a Fox News video as their only source, I feel it’s reasonable to bring up why it’s a bad habit that should be broken. But okay, I’ll try not to get quite so bashy on Fox in the future.
OP: Could you please provide another source? Fox is terrible.
I think the term you are looking for is elasticity, or actually inelasticity.
If the notion was true we could lower the tax rate to zero and we awash in tax revenue. Tax revenue depends on several variables and the tax rate is but one. We can’t do a controlled experiment and tinker with one variable and see its effect in isolation. To suggest that people and businesses make all of their decisions based on tax rates alone is ridiculously simplistic. Even Reagan realized that he had cut taxes too far and raised them back up. Did Reagan do that to lower revenue? Of course not. Even he learned not to believe the Laffer curve.
Without knowing what period he’s talking about, it’s hard to say (sorry, I’m not watching videos posted by you or anyone else) but it’s most likely that he is confusing cause and effect. Oklahoma generates nearly an eighth of its revenue from oil production taxes and benefits from the sharp rise in oil prices from 2000 to 2010 or so.
The Laffer Curve is quite simple, really. On the left, a 0% tax rate would result in no revenue. On the right, a 100% tax rate would result in no economic activity and thus no revenue. Since we know that less extreme tax rates generate revenue, there is a local maximum between these points where the tax rate is optimal for generating revenue. If you have a tax rate below this, increasing taxes will generate more revenue. If you are above it, increasing taxes will decrease revenue.
The trick is figuring out the exact nature of the curve and where you are on it. Conservatives mostly ignore this part, and act as if the curve says decreasing taxes will always increase revenue, which is stupid. Example: Colbert tried to get a tea party leader to say that increasing taxes to save a city would be justifiable. She wouldn’t say that. So say the extremists.
And as Bright notes, you have to consider the underlying economic conditions. California just increased taxes and has seen an increase in revenue. But this is far more the result of the recovery than the tax increase.
Sort of. Even in a real Marxist economy, where you’re getting from each according to his ability and giving according to his needs, there would probably be some economic activity. You wouldn’t really get from according to ability, but you’d probably get something. Isn’t North Korea pretty close to this? It’s a hellhole, but the government doesn’t generate zero revenue, right?