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(Washington Post)   A recent paper suggests a 50-70% high-income tax is the maximum revenue point on the laugher curve. Laffer. Sorry   (washingtonpost.com) divider line 269
    More: Interesting, income taxes, George H. W. Bush, Randy Levine, maximum, tax rates  
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2717 clicks; posted to Politics » on 17 Apr 2012 at 3:39 PM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-04-17 10:29:57 AM
We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

upload.wikimedia.org
 
2012-04-17 11:42:33 AM

NowhereMon: We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

[upload.wikimedia.org image 400x246]


There's too much noise in the history. The question is one of theory, with the simplest taxes. With no other taxes, such as sales, gas, etc, and just having an income tax, the curve is a downward parabola. The question is where the peak is in that case.
 
2012-04-17 12:13:26 PM
That's nonsense. Everyone knows that the maximum revenue stream is always 2 percentage points lower than whatever the current tax rate currently is, provided the tax rate is greater than 2 percent.
 
2012-04-17 12:34:00 PM
If this analysis stands up to mathematical scrutiny, the immediate conservative response will be, of course, to jettison the Laffer curve as "totally unworkable". And socialist.

/and probably Muslim
//and Kenyan
 
2012-04-17 12:34:29 PM
the peak is lower than where we are now? (GOP)
the peak is higher then where we are now? (DEM)
 
2012-04-17 01:12:07 PM
The Job Creators are just taking their time, subby! It's like art; you think the Sistine Chapel was painted in less than 32 years?

/Or something
 
2012-04-17 01:27:14 PM

Snarcoleptic_Hoosier: The Job Creators are just taking their time, subby! It's like art; you think the Sistine Chapel was painted in less than 32 years?

/Or something


The Sistine Chapel ceiling, painted by Michelangelo between 1508 and 1512
so 4-5 years ....

so yah, time to toss out the GOP tax ideas as a failed experiment starting with saint ronnie and ending with bush the lesser
 
2012-04-17 01:32:27 PM
Doesn't matter what rate maximizes revenues. Only matters what rate maximizes re-electability.
 
2012-04-17 01:36:17 PM

SlothB77: Doesn't matter what rate maximizes revenues. Only matters what rate maximizes re-electability.


whatever happened to getting rid of earmarks ???
bwhahahahahahaha
 
2012-04-17 01:45:00 PM

namatad: Snarcoleptic_Hoosier: The Job Creators are just taking their time, subby! It's like art; you think the Sistine Chapel was painted in less than 32 years?

/Or something

The Sistine Chapel ceiling, painted by Michelangelo between 1508 and 1512
so 4-5 years ....

so yah, time to toss out the GOP tax ideas as a failed experiment starting with saint ronnie and ending with bush the lesser


The funny thing (pure coincidence) about my previous post was that the Sistine Chapel was consecrated in 1480 and the ceiling was painted in 1512. 32 years from the Catholic Church taking the dilapidated old building and completely fixing it up to a Renaissance icon - a project which was funded by selling indulgences to sinners (taxing the faithful).

But, 500 years later, the lesson that taxing people to build greatness seems to be lost.

/Vote Republican anyway
 
2012-04-17 02:05:04 PM

Lando Lincoln: That's nonsense. Everyone knows that the maximum revenue stream is always 2 percentage points lower than whatever the current tax rate currently is, provided the tax rate is greater than 2 percent.


Provided the tax rate is equal or greater than 2 percent, you mean.

Actually, that just brings to mind companies like GE that paid an effectively negative tax rate.
 
2012-04-17 02:15:02 PM
Discussions like this always worry me. We're still going to funnel billions in tax money to profitable oil companies, right? If they don't receive that free money, then they won't have any motivation to run their businesses.
 
2012-04-17 03:44:31 PM

NowhereMon: We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

[upload.wikimedia.org image 400x246]


Those brackets where at different income points and the brackets below where all changed. You can't make apples to apples comparisons when 90% of the variables are different.


Either you think we are all very dumb or you are a complete idiot.
 
2012-04-17 03:44:56 PM
So, if we cut taxes to 0%, we'll have infinite income? We should do that.
 
2012-04-17 03:48:15 PM
ftfa: "Some of the fastest economic growth of the post-war period came in the 1950s, when the top tax rate was above 80 percent."

seriously? there were more pirates back then too and less CO2 in the air. Doesn't mean that is why the economy grew.

(hint: europe in shambles so US could fill a huge void, US selling off assets and factories to businesses at bargain basement prices to spur growth, government spending, etc).
 
2012-04-17 03:48:19 PM

NowhereMon: We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

[upload.wikimedia.org image 400x246]


Those are nominal rates, if all income were subject to the maximum tax, disregarding marginal brackets, and no deductions or exemptions. That has never been the case.

It would be better to show actual tax collection rather than a hypothetical.
 
2012-04-17 03:49:46 PM

namatad: SlothB77: Doesn't matter what rate maximizes revenues. Only matters what rate maximizes re-electability.

whatever happened to getting rid of earmarks ???
bwhahahahahahaha


That was an earmark, and they got rid of it.
 
2012-04-17 03:50:47 PM
 
2012-04-17 03:52:29 PM

MadUncleEoin: The Laffer Curve Shows that Tax Increases Are a Very Bad Idea - even if They Generate More Tax Revenue (new window)


Cato? The most math-impaired of any major think tank. Really?
 
2012-04-17 03:53:22 PM

tenpoundsofcheese: Doesn't mean that is why the economy grew.


The other side of that coin is that it also means those high tax rates didn't inhibit the economy from experiencing that growth. Which is the exact opposite of what we're told would happen by those in Grover's corner.
 
2012-04-17 03:54:27 PM

namatad: the peak is lower than where we are now? (GOP)
the peak is higher then where we are now? (DEM)


both...


sidess.....


badddddddd
 
2012-04-17 03:55:00 PM
Economic theory is generally made on the micro level and then applied to macro because of the difficulties in created control situations in macro economics. Try taking any experimental economics courses, they are micro focused and generally dont touch macro issues.
 
2012-04-17 03:58:07 PM
img208.imageshack.us

Guess they didn't teach that one to you dims in 'liberal elitist ivory tower school', huh? It's OK, you'll learn the hard way in DECEMBER, when we usurp the usurperer.
 
2012-04-17 03:58:19 PM
Article fails:

First off, there were numerous deductions and exclusions that adversely affected the tax code pre-Reagan. So his 28% isn't equivalent to the 70% of the 1960s.

Secondly, the economy did well in the 1950s partially because we had an economic hegemony and the rest of the world was still in shambles, not because of tax rates - there are external variables that need to be adjusted for in any era.

Third- the 15% rate this guy pays is on corporate investments, which were already taxed at the corporate level (avg corp effective tax rate is in the high 20%s). For christ sakes, he knows this which means he's lying, not stupid.

Fourthly - his 7% effective rate reflects the lower 15% rate above (that is already not truly reflective of his real rate because of the additional level of corporate tax), as well as him giving half his money away to charity. Of course that is going to lower his all-in rate! Should we penalize people for giving away half their income to charity? No, so we shouldn't look at the lower tax rate that results as if it is some way of gaming the system. If your tax rate is 15%, you only get 15 cents in tax benefits for every dollar you donate. If it is 35%, you only get 35 cents back in taxes for every dollar you donate.

Fifth - social security tax shouldn't be considered the same way other taxes do. Social security is a successful program because it is a self financed disability, longevity, and life insurance program - your benefit is determined by how much you put in. He's not paying in any SS taxes on any of the income he made above $100k, but his benefit didn't increase for any amounts he made over $100k. He knows this also and is just being disingenuous.


That all said, I have no problem believing that the inflection point on the laffer curve is somewhere between 50 and 70 percent, and that tax increases from current levels will increase revenues. But keep in mind that the goal shouldn't be to just maximize tax revenues full stop, as a goal unto itself.
 
2012-04-17 03:59:39 PM
Some other Farker said it well - Republicans always think we're on the other side of the Laffer Curve, and it can never occur as a possibility to them that we are below the peak.
 
2012-04-17 04:00:55 PM

Dusk-You-n-Me: tenpoundsofcheese: Doesn't mean that is why the economy grew.

The other side of that coin is that it also means those high tax rates didn't inhibit the economy from experiencing that growth. Which is the exact opposite of what we're told would happen by those in Grover's corner.


Well, you don't know what would have happened if tax rates were different. Grover could presumably retort that growth would have been much higher than what we saw if tax rates had been lower, and that the high tax rates reduced our growth to what was actually observed.
 
2012-04-17 04:02:20 PM

MadUncleEoin: The Laffer Curve Shows that Tax Increases Are a Very Bad Idea - even if They Generate More Tax Revenue (new window)


They may be right in their basic premise but wrong in the i plication that it would happen at our current rate.

Democrats actually do not, a priori, believe in maximizing government revenue. They just argue that the Republicans who whine that we're on the right side of the peak are full of it.
 
2012-04-17 04:02:21 PM

Debeo Summa Credo: Well, you don't know what would have happened if tax rates were different. Grover could presumably retort that growth would have been much higher than what we saw if tax rates had been lower, and that the high tax rates reduced our growth to what was actually observed.


Same argument is used in favor the stimulus.
 
2012-04-17 04:02:56 PM

Dusk-You-n-Me: Same argument is used in favor the stimulus.


Or against, if need be.
 
2012-04-17 04:03:22 PM

sprawl15: [img208.imageshack.us image 455x270]

Guess they didn't teach that one to you dims in 'liberal elitist ivory tower school', huh? It's OK, you'll learn the hard way in DECEMBER, when we usurp the usurperer.


That's certainly how Republicans view it.
 
2012-04-17 04:05:57 PM
But the job creators?
 
2012-04-17 04:06:50 PM

Dusk-You-n-Me: tenpoundsofcheese: Doesn't mean that is why the economy grew.

The other side of that coin is that it also means those high tax rates didn't inhibit the economy from experiencing that growth.


It doesn't say anything about causality.
You could say it didn't inhibit growth, or equally, you could say that it suppressed even more growth.
 
2012-04-17 04:07:44 PM
What I find extraordinarily interesting, is that the three economists, Saez, Piketty, and Diamond have not written a paper together. Unless the Washington Post got some sort of advanced copy of a paper before NBER has put it out, I can't find the original research. If anybody finds the academic article the link talks about, that would be fantastic.
 
2012-04-17 04:12:54 PM
Another guy trying to forget that "marginal" and "effective" tax rates are very different things.

If your marginal tax rate is 90%, but you can write off pretty much EVERYTHING, plus get huge benefits from your high-paying job for free (including homes and meals), then you get a tax situation like the 1950s. In 1955, the US collected about 16.5% of GDP as tax revenue.

If your marginal tax rate is 30%, but your tax writeoffs are tiny in comparison, plus have to pay taxes on a lot of the freebies your company gives you, then you get a tax situation like the one we have now. In 2008 (the last year before the recession kicked in), the US collected about 17.6% of GDP as tax revenue. Yes, the "Bush tax cuts" were in full effect that year.

Link (new window)
 
2012-04-17 04:13:16 PM

NowhereMon: We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

[upload.wikimedia.org image 400x246]


Taxes don't really work that way. When we were at 92%, the tax rate was in today's dollars on people making more than $4,000,000 a year, not $250,000 like today's top rate. Also the nature of loopholes and shelters then is such that almost nobody paid it. That graph is kind of apples to oranges.
 
2012-04-17 04:14:36 PM

Dusk-You-n-Me: Debeo Summa Credo: Well, you don't know what would have happened if tax rates were different. Grover could presumably retort that growth would have been much higher than what we saw if tax rates had been lower, and that the high tax rates reduced our growth to what was actually observed.

Same argument is used in favor the stimulus.


Yes it could, which is the fallacy of arguing any what ifs.
 
2012-04-17 04:15:17 PM
static.guim.co.uk

That's not true, you liberal poors. Trust me, my dad was rich.
 
2012-04-17 04:15:37 PM

cirby: Another guy trying to forget that "marginal" and "effective" tax rates are very different things.


He posted yesterday about effective rates. Link (new window)
 
2012-04-17 04:15:39 PM
The laffer curve is an oversimplified shorthand only good for explaining massively complicated tax interactions to drunk people. Any other use is masturbation.
 
2012-04-17 04:15:56 PM
Pop quiz. What supply side economist said this?

When, on the contrary, I show, a little elaborately, as in the ensuing chapter, that to create wealth will increase the national income and that a large proportion of any increase in the national income will accrue to an Exchequer, amongst whose largest outgoings is the payment of incomes to those who are unemployed and whose receipts are a proportion of the incomes of those who are occupied...

Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more--and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.
 
2012-04-17 04:17:12 PM
Higher Marginal Tax Rates don't improve Revenues (new window) (as percentage of GDP)
 
2012-04-17 04:19:10 PM
*sigh*

another Laffer curve post, another excuse to post this gem:

economistsview.typepad.com
 
2012-04-17 04:19:14 PM
The important thing to always remember is effective rates are WAY more important than marginal rates, but since marginal rates are simpler to portray. It is also amazing to see how little people know about how taxes work: I had a coworker who has grandkids and still worried last year that she might have made too much money and would end up bumped up a tax bracket and end up with less net pay as a result of a payraise.

We really need to pursue tax simplification (not necessarily a flat tax; brackets are not what makes the tax code complex) but it won't happen anytime soon. Sad fact is the only thing both parties can agree on are passing more tax credits (tax cut for Republicans + social policy for Democrats) so we end up having to raise marginal tax rates to obtain the same per capita revenues and people get to pretend they have more than a third of their paychecks stolen by the government when no one pays the marginal rates.
 
2012-04-17 04:20:27 PM
Presumably, subby is insinuating that Laffer is apologizing for reducing conservative economic policy to a 'curve' that has two data points on it.
 
2012-04-17 04:29:20 PM

astro716: *sigh*

another Laffer curve post, another excuse to post this gem:

[economistsview.typepad.com image 295x359]


I... I... What?

That's amazing. I can practically feel the stupid emanating from that.
 
2012-04-17 04:29:36 PM

NowhereMon: We have data on tax rates as high as 90% down to about 25%. It should be fairly trivial to see where the maximum revenue was generated as well as where compliance was maximized.

[upload.wikimedia.org image 400x246]


We can clearly see the devastating effects of the tax increases under the Democrat Woodrow Wilson, which led to the Great Depression. Fortunately, the tax cuts of Warren Harding and Calvin Coolidge gave the economy the boost it needed to recover, but the LIEbrals ruined it all when they kept taxes high, which is how we ended up in the mess we're in today. Fortunately for 0Bama, the policies of St. Reagan the Communicative and his disciples George Bush the Prudent and George Bush the Decider laid the groundwork for the recovery that he's reaping the benefits of now.
 
2012-04-17 04:30:14 PM
EWreckedSean:
Taxes don't really work that way. When we were at 92%, the tax rate was in today's dollars on people making more than $4,000,000 a year, not $250,000 like today's top rate. Also the nature of loopholes and shelters then is such that almost nobody paid it.

Well, it's true that the wealthy would be idiots to actually structure their income as "income". Better to pay themselves in stocks for consulting with their own company, then write off their own compensation as a business expense, or some devious thing like that. Or, you know, just stop doing anything except live off of capital gains, and pay a lower % than a dishwasher in East Armpit, Idaho does on his $20,000/year.

/don't actually understand how the rich avoid taxation, but the gov't is awfully eager to ding that dishwasher the minute he deducts an invalid medical expense, while the rich generally avoid scrutiny indefinitely.
 
2012-04-17 04:30:45 PM

namatad: the peak is lower than where we are now? (GOP)
the peak is higher then where we are now?Supply-side economics is retarded (DEM)

 
2012-04-17 04:32:58 PM

astro716: *sigh*

another Laffer curve post, another excuse to post this gem:

[economistsview.typepad.com image 295x359]


If you're gonna put a Laffer curve on that graph, here's how you do it.

i285.photobucket.com
 
2012-04-17 04:35:45 PM

astro716: another Laffer curve post, another excuse to post this gem:


[wtfamireading.jpg]
 
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