Re: Tax Cuts Don't Boost Revenues

Ernst Blofeld wrote:

> On Feb 22, 4:14 pm, Jeffrey Turner <jtur...@[EMAIL PROTECTED]
> wrote:
> 
>>Ernst Blofeld wrote:
>>
>>The Laughable curve isn't based on real economics.
> 
> You're saying John Keynes isn't a real economist? He described the
> phenomena in _General Theory of Employment, Interest, and Money_.
> 
>>You've never explained how Lockheed/Martin, for example, would get by
>>if they didn't pay taxes.
> 
> Who says the tax rate is zero?

At 100% they would still pay taxes if they expected any gov't contracts.

> The Laffer curve at its most basic
> simply argues that revenues go down when rates are jacked high
> enough.
> 
> Do you think tax revenues would increase if the marginal tax rate went
> from 95% to 100%? Why or why not?

It depends on the level of gov't spending.  Here's a good explanation:

http://www.angelfire.com/planet/dragonomics/laffer_ruminations.pdf

I'll just give you one of the highlights, without trying to reproduce
the graphs and equations.

Government is not a money pit. The biggest part of the money government
collect as taxes is spent back into the economy (Social Security,
welfare, Medicaid/Medicare, infrastructure projects and so on). Let call
the percent of the money gov. recirculate in the economy Z-factor.

A very interesting analyze however, will be to study how the tax revenue
is going to variate based on variation of Z factor, keeping in mind that
all the governments of today are working with Z factors larger than 0.1.
In the following graph, the Deficit is kept at 10% and Z factor
(involvement of government in economy) is studied from 0.1 till 0.9.

Surprise, surprise, surprise. If the Z-factor is over 0.5 the top of the
revenue curve is getting out of the graphic. That means there is not
going to be any more a point over which increasing the tax rate is going
to reduce the tax revenues.  And, well, most of governments actually
operate with a Z-factor over 0.5.

I'll be the first to admit that the author's economics is better than
his/her English.

--Jeff

-- 
It is only those who have neither
fired a shot nor heard the shrieks
and groans of the wounded who cry
aloud for blood, more vengeance, more
desolation.  War is hell.
--William Te***seh Sherman