will health care bill affect November elections?

[nathanm]

You offer opinion, and your contribution to the discussion is valuable, but don't fight the BASIC laws of economics.  It's like fighting the laws of physics, eventually you get hurt.

You're presuming the Chicago School is correct, which they've proven not to be over the years. (See: Most of South America while they still were listening to the IMF)

The point is that a tax cut today is unlikely to be revenue-positive as it was in 1981, precisely because the economic elasticity is lower due to the lower top marginal rate.

Besides, how can you yell about deficits out one side of your mouth while the other screams "tax cut!" (Which you already received thanks to Obama's stimulus package)

FFS, even Milton Friedman agrees with me on this. He predicted that the 2003 tax cuts would lead to larger deficits. (He was in favor of them on the grounds that government spending would have to be cut..as if, but agreed that they would be revenue-negative even over the longer term)

[Gaspar]

You're presuming the Chicago School is correct, which they've proven not to be over the years. (See: Most of South America while they still were listening to the IMF)


Besides, how can you yell about deficits out one side of your mouth while the other screams "tax cut!" (Which you already received thanks to Obama's stimulus package)

Because tax cuts have shown to increase tax revenue by spurning economic growth. The fact is that it works every time it has been done.  Tax revenues correlate with economic growth, not tax rates.  Tax cuts support incentives for productive behavior. 

Most liberals site the Bush tax cuts as the prime example of why tax cuts don't work, but they worked beautifully, the problem is that the base-line spending under Bush was rising faster than revenue.  Revenue increased, but the Bush admin was spending like drunken sailors.

Now when you look at the system under Regan, the cuts were more substantial, and the growth in revenue was also more substantial.


In total there have been 19 major tax cuts in our history, and each has produced increased revenue and economic growth.  The two major cuts prior to Bush produced expected results.  Had the Bush administration been responsible for spending, the Bush tax cuts would have had a more pronounced effect.

Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

Quote from Kennedy:
Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits... In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

Daniel Mitchell, Ph.D.
McKenna Senior Fellow in Political Economy

As for our current administration. . .Tax cuts may not be a good idea.  They currently have no control over spending and additional revenue would mean the birth of more programs.  Much like the Bush administration, I think President Obama and Pelosi would find more license to spend.

[Conan71]

You're presuming the Chicago School is correct, which they've proven not to be over the years. (See: Most of South America while they still were listening to the IMF)

The point is that a tax cut today is unlikely to be revenue-positive as it was in 1981, precisely because the economic elasticity is lower due to the lower top marginal rate.

Besides, how can you yell about deficits out one side of your mouth while the other screams "tax cut!" (Which you already received thanks to Obama's stimulus package)

FFS, even Milton Friedman agrees with me on this. He predicted that the 2003 tax cuts would lead to larger deficits. (He was in favor of them on the grounds that government spending would have to be cut..as if, but agreed that they would be revenue-negative even over the longer term)

Milton Friedman could have flipped a coin and figured that one out, so could most Americans with high school educations who have never taken an econ class.  You can't ramp up government spending to the historic highs Bush did while cutting taxes without creating a deficit.  He, and the GOP Congress should have exercized more fiscal restraint, and Iraq should have been thought through a whole lot better. 

IMO, as a net effect on the economy, I don't think Bush's tax cuts were near as imperative as the cuts Reagan enacted.  I think Reagan's cuts did, in fact, create a better shock to jump-start the economy.  There was a whole lot of lending going on in the late 1990's and early 2000's which was keeping the economy flush.  We know where that finally ended up.

However, there is undeniable data that reducing taxes coincides with a rise in total tax revenue.  We can sit here and argue the point of whether or not it's a coincidence or a direct result until we are blue in the face, but I don't really see the point.

[nathanm]

However, there is undeniable data that reducing taxes coincides with a rise in total tax revenue.  We can sit here and argue the point of whether or not it's a coincidence or a direct result until we are blue in the face, but I don't really see the point.

I think what you're missing is that I agree with the premise. I've looked at the data. Reducing the top marginal tax rate from 70% to 28% increased tax revenues somewhat. (it's not as much as it looks like at first thanks to inflation, but there is indeed an inflation-adjusted increase)

In the case of the 2003 tax cuts, looking purely at revenue growth (what little there was) is not as illustrative. In 2003, the increase in revenue was caused by the housing bubble, not by the tax cut.

The reason the tax cut strategy worked is that there was high employment elasticity. At the lower marginal rates we have today, there is much less elasticity to fuel an overall revenue increase.

[Conan71]

In the case of the 2003 tax cuts, looking purely at revenue growth (what little there was) is not as illustrative. In 2003, the increase in revenue was caused by the housing bubble, not by the tax cut.

Prove it.

[nathanm]

Prove it.

If you look at the graph of federal revenue as a percentage of GDP, it's all very clear. The increases do not correspond well to the timing of the tax cuts, they are farther off than with the 80s tax adjustments.

[Conan71]

If you look at the graph of federal revenue as a percentage of GDP, it's all very clear. The increases do not correspond well to the timing of the tax cuts, they are farther off than with the 80s tax adjustments.

Nathan, that's not proof, that's a supposition.  Why not simply say it coincided with an increase in the Monarch population in California?

[nathanm]

Nathan, that's not proof, that's a supposition.  Why not simply say it coincided with an increase in the Monarch population in California?

You honestly expect me to dig up economics papers because you refuse to believe even the people who came up with the idea of supply-side economics?

If you'd take a moment to understand the basics of the theory, it would become patently obvious why there is a difference in economic response to tax cuts when the pre-cut rate is different.

[JeffM]

You honestly expect me to dig up economics papers because you refuse to believe even the people who came up with the idea of supply-side economics?

He also wants an authentic copy of Obama's birth certificate in his hands by end of working day tomorrow..... chop-chop....  

[JeffM]

Prove it.

Arthur Laffer, Reaganomics magician extraordinaire, gets it wrong on the economy.....

8/28/2006-Arthur Laffer debates Peter Schiff

The four pillars of Reaganomics
The following is Arthur Laffer's November 13 address to members of The Heritage Foundation's President's Club at the fall 2006 President's Club meeting, held at the Ronald Reagan International Trade Center in Washington, DC.
http://www.heritage.org/Research/Reports/2007/01/The-four-pillars-of-Reaganomics

And Reagan couldn't hold the comment back and he said, and I'm going to quote it, and I think this is a direct quote, he said, "Well, Dick, I guess we're just going to have to reverse those policies, now aren't we? We're going to have to scare the bajeebers out of our enemies with Star Wars and we're going to have to make our friends stinking rich with supply-side economics."

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Do you realize-I mean, it's just amazing that I'm going on 67 years old today and the taxes on the ownership of capital are the lowest they have been in my lifetime. [Applause.] And that is because of Ronald Reagan and the supply side move that he and others have done.

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But let me tell you that today, because of Ronald Reagan, the minimum wage in the United States-the minimum wage relative to the average wage in the United States is the lowest it's been in 50 years. It doesn't get any better. As all of you know, the minimum wage is the black teenage unemployment act.

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Another one that he did on regulations: do any of you remember the air traffic controllers? [Applause.] Do you remember what he did? He fired them. And he wouldn't let them work for government again. Since that time, union membership in the United States has gone from well above 30 percent to down around 12 to 14 percent. [Applause.] That is Ronald Reagan's legacy.

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Outsourcing is not new. Immigration is not new. Not only are these people the life's blood of America, they are, but let me just say to you tonight, on economic terms, the illegal immigrants are also the life's blood of this society. And I'm going to be hard core with you. They produce high quality labor at low cost and they cheat on their taxes. It doesn't get any better.

[heironymouspasparagus]

Gaspar,
What you forgot (giving you the benefit of the doubt that you did not intentionally leave out) were the three tax HIKES that Reagan also oversaw, starting in 1983-ish...about 18 months after the tax cut.

Then the tax hikes during George I.  And I think there was one by Billy-Bob.  And a growing, if somewhat anemic, economy during that time.  Well, after the oil bust, anyway.

And I guess I just flat out missed your praises for the largest tax cut in the history of the world.  Anywhere.  Anytime.  You know, that $288 billion cut last year that we got with the Obama stimulus package.  Remember that one?


Probably more to the point, does anyone really think there won't have to be tax hikes in the future??  Really??
Since there ain't gonna be any spending cuts....

Pillars of economics...
To Democrats, low wages are the problem...
To Republicans, low wages are the answer...

(How is that for a sweeping generality?)

[fotd]

The Reagan Years in Tulsa were the worst economically speaking I ever witnessed. Bank failures, foreclosures, deflation coupled with very high interest rates...higher tax rates on capital gains...much worse than the past 2 years.

[Conan71]

The Reagan Years in Tulsa were the worst economically speaking I ever witnessed. Bank failures, foreclosures, deflation coupled with very high interest rates...higher tax rates on capital gains...much worse than the past 2 years.

And $40 a barrel oil which tumbled to $9 a bbl leaving many speculators suddenly unable to make payments on their mountain of debt they'd gotten into to finance business activities and lavish lifestyles predicated on $40 a bbl oil. That's not taking into account a lot of rampant loan fraud taking place in S&L's and their direct involvement in drilling and exploration.

An entire industry collapsed, FOTD. I don't disagree with your perception that the last two years have been nothing like that collapse for our state. It helps though to keep it in perspective. Ballsy entrepreneurs helped us diversify and move on in large part to lower taxes and lower interest rates.   

[nathanm]

Ballsy entrepreneurs helped us diversify and move on in large part to lower taxes and lower interest rates.   

I don't think taxes had much to do with helping the ballsy entrepreneurs. Interest rates, on the other hand...

Maybe if I had actually met an entrepreneur who refused to expand his or her business because of high taxes, I might actually believe that line of reasoning. The ones I work for are much more concerned with interest rates, energy prices, and the overall economy.

Maybe it's different in larger business, as the biggest client I have only employs a few thousand people in his many entrepreneurial endeavors.

[Red Arrow]

I don't think taxes had much to do with helping the ballsy entrepreneurs. Interest rates, on the other hand...

Maybe if I had actually met an entrepreneur who refused to expand his or her business because of high taxes, I might actually believe that line of reasoning. The ones I work for are much more concerned with interest rates, energy prices, and the overall economy.

Maybe it's different in larger business, as the biggest client I have only employs a few thousand people in his many entrepreneurial endeavors.

I got some nice interest on CDs and a money market account in the 80s, mostly above 6%, a little over 10%.  I recently closed out the money market account because it paid 0% for several months.  I sometimes kept the minimum amount in the account just to keep it open but no interest was just unacceptable.

My turn to play semantics.  I don't believe an entrepreneur would refuse to expand because of high taxes either.  I believe they refuse to expand because they didn't have the money to expand due to high taxes.  They also refuse to expand due to poor economic forecasts, the most probable reason, probably caused by high taxes.