# Why do lower taxes bring in more revenue? **URL:** \ **Category:** Great Debates\ **Created:** [October 22, 2013, 1:46am UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894 "2013-10-22T01:46:59Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [October 22, 2013, 3:33pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/21 "2013-10-22T15:33:30Z")
It depends how you define “revenue”. The North Korean government is funded by user fees and the revenues of state owned enterprises and the like. There is essentially zero taxation (there are some fees that are sales taxes in all but name). ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [October 22, 2013, 4:09pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/22 "2013-10-22T16:09:38Z")
> [@BobLibDem](#): > > If the notion was true we could lower the tax rate to zero and we awash in tax revenue. And if it were entirely false, we could raise the effective tax rate to 100% and have all the money we need. Regards, Shodan ---
**Author:** ![The\_Lurker\_Above](https://avatars.discourse-cdn.com/v4/letter/t/dc4da7/32.png) [@The\_Lurker\_Above](https://boards.straightdope.com/u/The_Lurker_Above)\ **Post date:** [October 22, 2013, 4:22pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/23 "2013-10-22T16:22:15Z")
> [@Voyager](#): > > 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. There’s no reason that there has to be only one local maximum. You could have multiple regions where increasing rates decreases revenue and vice versa. ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [October 22, 2013, 6:41pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/24 "2013-10-22T18:41:53Z")
There’s also the problem that the curve itself is time-varying. The same taxation rate wouldn’t produce the same revenue at different points in history, which implies the curve depends on more variables than just some single nominal tax rate variable. I suppose you could get around this by claiming there’s a “steady-state” Laffer curve given a bunch of assumptions held constant over time, but that’s pretty useless if you want to apply it in the real world. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [October 22, 2013, 7:37pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/25 "2013-10-22T19:37:21Z")
> [@cornopean](#): > > 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](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. Well, in the case of capital gains taxes, the GOP are conflating cause & effect. The truth is that capital gains, mostly from stocks, has been hugely increasing. Thus, even lower taxes on much more income yields higher net taxes. Thereby lower tax rates did not cause higher collections. If the tax rate had stayed the same, the collections would have been much higher. ---
**Author:** ![Hentor\_the\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/h/8edcca/32.png) [@Hentor\_the\_Barbarian](https://boards.straightdope.com/u/Hentor_the_Barbarian)\ **Post date:** [October 22, 2013, 8:08pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/26 "2013-10-22T20:08:16Z")
[http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm](http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm) > **[ES1124.pdf](https://files.stlouisfed.org/files/htdocs/publications/es/11/ES1124.pdf)** > > 229.76 KB > **[Testimony on Trends in Federal Tax Revenues and Rates](https://www.cbo.gov/publication/21938)** > > Testimony before the Committee on Finance, United States Senate They don’t. They clearly, demonstrably, unequivocally do not. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [October 23, 2013, 1:57am UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/27 "2013-10-23T01:57:33Z")
**cornopean** , for someone who asks whether lowering taxes always raises revenue in the OP you seem awfully opinionated - and downright informed - in your follow up posts. If you knew the answer, why’d you ask the question? ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [October 23, 2013, 2:38am UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/28 "2013-10-23T02:38:29Z")
> [@cornopean](#): > > Check out this video: [The Great State Migration Continues | Fox Business Video](http://video.foxbusiness.com/v/2348872463001/) > > 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? [Yes, he apparently does.](http://mercatus.org/publication/tax-rates-vs-tax-revenues) According to these charts, there is little to no correlation between revenue as a % of GDP and tax rates. [And furthermore, this Business Insider article states that there is no correlation between tax cuts and GDP growth.](http://www.businessinsider.com/study-tax-cuts-dont-lead-to-growth-2012-9) ---
**Author:** ![davida03801](https://avatars.discourse-cdn.com/v4/letter/d/b5e925/32.png) [@davida03801](https://boards.straightdope.com/u/davida03801)\ **Post date:** [October 23, 2013, 3:19pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/29 "2013-10-23T15:19:24Z")
I have no dog in this fight, sitting in the middle of political spectrum. To me this is one of those questions in which both sides are right ……….up to a certain point. Look at it this way. A tax rate of 0 and a tax rate of 100% will both produce $ 0 revenue to the government. As the tax rate gradually increases from 0 % up the government is getting more revenue …….up to a certain point. On this the liberal side of the argument is correct. On the other side as the tax rate gradually decreases from 100% down the government is also getting more revenue ……again to a certain point. On this the conservative side of the argument is correct. So each side of the argument is correct up to a certain point, then it becomes incorrect. The problem is neither side will acknowledge the point at which their assertions become false. ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [October 23, 2013, 3:32pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/30 "2013-10-23T15:32:33Z")
> [@Dbgb4](#): > > I have no dog in this fight, sitting in the middle of political spectrum. To me this is one of those questions in which both sides are right ……….up to a certain point. Wow, you’ve just strawmanned both liberals and conservatives. Neither side (with a few really exceptionally stupid exceptions) thinks you can either raise or lower taxes indefinitely. The real argument is where, if anywhere, the turning point is. There’s no firm evidence where that point is or even if it actually exists. It doesn’t appear you’ve read most of the thread, but if you had, a good number of posters are more or less saying there is no “pivot” point. There’s no single effective tax rate that maximizes revenue and that using the Laffer curve as more than a 0-th order approximation is a mistake. Also, is your period key stuck? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 23, 2013, 3:55pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/31 "2013-10-23T15:55:11Z")
> [@The\_Lurker\_Above](#): > > There’s no reason that there has to be only one local maximum. You could have multiple regions where increasing rates decreases revenue and vice versa. That’s true - though I’d be interested in seeing the mechanism - but there is at least one. ---
**Author:** ![Hentor\_the\_Barbarian](https://avatars.discourse-cdn.com/v4/letter/h/8edcca/32.png) [@Hentor\_the\_Barbarian](https://boards.straightdope.com/u/Hentor_the_Barbarian)\ **Post date:** [October 23, 2013, 3:55pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/32 "2013-10-23T15:55:30Z")
> [@Dbgb4](#): > > I have no dog in this fight, sitting in the middle of political spectrum. To me this is one of those questions in which both sides are right ……….up to a certain point. > > Look at it this way. A tax rate of 0 and a tax rate of 100% will both produce $ 0 revenue to the government. > > As the tax rate gradually increases from 0 % up the government is getting more revenue …….up to a certain point. On this the liberal side of the argument is correct. > > On the other side as the tax rate gradually decreases from 100% down the government is also getting more revenue ……again to a certain point. On this the conservative side of the argument is correct. > > So each side of the argument is correct up to a certain point, then it becomes incorrect. The problem is neither side will acknowledge the point at which their assertions become false. This provides nothing of any utility to the discussion. First, it contains nothing but fact-free assertions. Secondly, it’s dramatically overly simplistic. See the cite I provided above from the CBO for a very brief description of the potential different types of effects that lowering the marginal tax rates can have on people. In short, if taxes are lowered, on the one hand, people have greater incentives to work because they get to keep more of what they make from working. On the other hand, people are able to reach their particular consumptive goals more rapidly, which might have a countervailing effect. Like your post, this is largely conjectural. The long and the short of it is found in the actual data. And the actual data clearly show that historically tax cuts do not precede increases in revenue. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [October 23, 2013, 4:01pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/33 "2013-10-23T16:01:27Z")
> [@Dbgb4](#): > > I have no dog in this fight, sitting in the middle of political spectrum. To me this is one of those questions in which both sides are right ……….up to a certain point. > So each side of the argument is correct up to a certain point, then it becomes incorrect. The problem is neither side will acknowledge the point at which their assertions become false. See post 19. I am unaware of any liberal who says that it is never right to lower taxes. I know of some conservatives (not Reagan) who seem to think it is never right to raise them. As I said, the trick is knowing where you are on the curve. Since conservatives agree about the end points, but think that lowering taxes will always raise revenue, maybe they shouldn’t call it the Laffer Curve but the Escher Curve instead. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [October 23, 2013, 4:58pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/34 "2013-10-23T16:58:06Z")
> [@Great\_Antibob](#): > > Neither side (with a few really exceptionally stupid exceptions) thinks you can either raise or lower taxes indefinitely. The real argument is where, if anywhere, the turning point is. There’s no firm evidence where that point is or even if it actually exists. Your last premise directly contradicts your first. If you can’t raise taxes indefinitely there clearly _is_ a turning point somewhere. ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [October 23, 2013, 5:02pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/35 "2013-10-23T17:02:12Z")
> [@Really\_Not\_All\_That\_Bright](#): > > Your last premise directly contradicts your first. If you can’t raise taxes indefinitely there clearly _is_ a turning point somewhere. Sorry, to be less confusing, “if a single, maximizing/minimizing turning point exists or, even if a single turning point exists, it is fixed to a sufficient extent we can use it”. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [October 23, 2013, 5:02pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/36 "2013-10-23T17:02:58Z")
Better. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [October 23, 2013, 6:07pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/37 "2013-10-23T18:07:19Z")
> [@Voyager](#): > > Since conservatives agree about the end points, but think that lowering taxes will always raise revenue, maybe they shouldn’t call it the Laffer Curve but the Escher Curve instead. This comment is worth the price of admission to an otherwise banal thread. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [October 23, 2013, 9:06pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/38 "2013-10-23T21:06:07Z")
> [@cornopean](#): > > Check out this video: [The Great State Migration Continues | Fox Business Video](http://video.foxbusiness.com/v/2348872463001/) > > 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? Correlation /= causation. I can’t get a clear read onm the article but it seems like they are also saying that they are taking business away from other states. I don’t know if this is true or not but in then words of a wise tax lawyer: tax competition between nations is a race to the bottom, tax competition between political subdivisions of a country is a form of cannibalism. > [@cornopean](#): > > 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](http://taxfoundation.org/blog/obama-and-gibson-capital-gains-tax-exchange) during the 2008 campaign. That cite also says that Gibson is wrong. It also says “There is no doubt some revenue feedback will occur over the long-run from lower capital gains tax rates spurring investment, but most estimates would say that we are currently on the left side of the Laffer Curve with respect to capital gains.” So at least at the federal level, we would raise revenue by increasing taxes. > [@Shodan](#): > > And if it were entirely false, we could raise the effective tax rate to 100% and have all the money we need. > > Regards, > Shodan Let me know when liberals say that raising taxes will always raise revenue. > [@Great\_Antibob](#): > > Neither side (with a few really exceptionally stupid exceptions) thinks you can either raise or lower taxes indefinitely. The real argument is where, if anywhere, the turning point is. There’s no firm evidence where that point is or even if it actually exists. Are those really stupid exceptions equally divided between the two camps? Or, does one side seem to have a monoppoly on stupid exceptions on this issue? ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [October 23, 2013, 11:41pm UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/39 "2013-10-23T23:41:31Z")
> [@msmith537](#): > > [Yes, he apparently does.](http://mercatus.org/publication/tax-rates-vs-tax-revenues) > > According to these charts, there is little to no correlation between revenue as a % of GDP and tax rates. You’re using the wrong measure. The whole point to the Laffer Curve is that lower taxation increases GDP growth so that the absolute amount of revenue goes up even if the revenue as a percentage of GDP stays the same or even goes down. > [@](#): > > [And furthermore, this Business Insider article states that there is no correlation between tax cuts and GDP growth.](http://www.businessinsider.com/study-tax-cuts-dont-lead-to-growth-2012-9) This one is tough to prove or disprove because the effects would not necessarily be immediate. Plus, tax rates are often lowered during economic hard times, so they are conflated with lowering GDP. The major study that tried to separate all this out was Romer and Romer’s paper on exogenous tax change effects which tried to isolate the tax changes that didn’t coincide with economic downturns, and they DID find a pretty strong correlation between tax rates and GDP growth for the periods they looked at, Here’s my take on the whole issue: 1. The Laffer Curve describes a real effect, but it clearly doesn’t apply to every tax rate. 2. It also matters what kind of tax it is, as different taxes have different effects on growth. Consumption taxes, investment taxes, excise taxes… All affect an economy differently. 3. I think you could make a good case for Laffer-curve revenue gains when taxes were reduced under Kennedy and under Reagan, because they started from a pretty high place. I’m skeptical that current taxes are too high from a Laffer-Curve standpoint. I suspect not, and any tax reductions today would result in an absolute reduction in revenue. 4. Revenue maximization is not necessarily the right focus when considering tax reduction. For example, smaller government revenue coupled with higher private revenue seems just fine to me. ---
**Author:** ![PhillyGuy](https://avatars.discourse-cdn.com/v4/letter/p/ed655f/32.png) [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)\ **Post date:** [October 24, 2013, 12:19am UTC](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894/40 "2013-10-24T00:19:41Z")
> [@cornopean](#): > > 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? Since it is not clear what the starting point is for “every time,” I don’t know quite what fact we are talking about. Did T.W. Shannon do some study of all the tax decreases since Oklahoma statehood? His implicit claim that most Oklahomans believe in economic nonsense could be correct. Maybe someone could check the polling on that. As for economic science vs. the Laffer Curve, see this link: [http://economistsview.typepad.com/economistsview/2012/06/laughing-at-the-laffer-curve.html](http://economistsview.typepad.com/economistsview/2012/06/laughing-at-the-laffer-curve.html) Sensible conservatives should recognize that in the long run, there is no free lunch. One problem could be that in the term-limited OK legislature, there is no long run. [Previous page](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894.md?page=1) [Next page](https://boards.straightdope.com/t/why-do-lower-taxes-bring-in-more-revenue/671894.md?page=3)