Quote:I'm betting that the GDP pie will get very big, and a small sliver of the big pie will be larger than the 30% slice of the smaller pie.That's a bet I'd lay pretty big money down on. If you recouped half your tax cut, you'd be lucky. If you got 75%, I'd say that'd be darn near miraculous. If you got 100% or more, then I'd have to pay up. :rolleyes:
I suspect the actual multiplier at current tax rates is somewhere in the ballpark of 0.4. If you cut taxes by a dollar, government revenue goes down by 60 cents.
Quote:Finally, the Laffer curve is not a stable line, which means that depending on the economy the point where taxation becomes a disincentive to invest will move up and down. I intentionally aim at a point lower than the peak point (28%) identified by Laffer, but high enough to collect a reasonable revenue stream for
funding government services.
I think the CATO graph (does that actually come from Laffer?) is dreaming in technicolour. They themselves admit that it is a rare case that a tax cut would pay for itself, yet according to their own graph, that would happen at rates lower than current rates, which are themselves vastly lower than the rates for most of the last half century! Well, which is it, is it rare, or is it what's been happening since the new deal?
Their peak is extremely low at 28%; I suspect, while there is probably a substantial flattening after 50% or so, that the graph does not actually pass the peak until a very late point. This is the point where adding a % of tax earns the government *nothing*. They do not collect a single red cent from a tax hike.
In order to justify this kind of thinking, they give examples, but I'm really not all that convinced. Some of their examples are questionable at best. Ireland's corporate tax revenue went through the roof when they dropped their corporate tax rate, but that's because corporations flooded into Ireland to take advantage of the low rates. You can't replicate this kind of increase on a regular basis, you can only do it once, and only when your neighbours have comparatively higher rates. Just like there can only be one Delaware, there can only be a handful of Irelands. Corporations find the best place to locate for their needs. They do not spring up like flowers following tax cuts. The example of Russia is simply ridiculous; you're talking about the shift from Yeltsin to Putin, the shift from anarchy to order, from poverty to oil wealth. No kidding tax revenue went up.
The Reagan (and Mellon) tax cuts are more complex, and a more compelling argument, but I think the general story there is not that reducing taxes raises tax income, but that plugging tax loopholes makes your tax system stop leaking.
I just don't buy it. The extreme opposite case is certainly incorrect: you cannot simply tax without limit and expect no repercussions on the economy. Every dollar you tax costs the economy more than a dollar. But the laffer extreme is equally wrong. Raise taxes, raise revenue. Lower taxes, lower revenue. And when you're eleven thousand thousand thousand thousand dollars in debt, with wars to fight and bills to pay, I don't think it's a great time to be experimenting.
-Jester