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).
And if it were entirely false, we could raise the effective tax rate to 100% and have all the money we need.
Regards,
Shodan
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.
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.
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.
http://rricketts.ba.ttu.edu/Tax%20Rates%20and%20Revenues.htm
They don’t. They clearly, demonstrably, unequivocally do not.
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?
According to these charts, there is little to no correlation between revenue as a % of GDP and tax rates.
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.
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?
That’s true - though I’d be interested in seeing the mechanism - but there is at least one.
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.
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.
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”.
Better.
This comment is worth the price of admission to an otherwise banal thread.
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.
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.
Let me know when liberals say that raising taxes will always raise revenue.
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?
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.
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:
- The Laffer Curve describes a real effect, but it clearly doesn’t apply to every tax rate.
- 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.
- 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.
- 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.
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
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.