Re: Tax Cuts Don't Boost Revenues

Ernst Blofeld wrote:
> On Feb 23, 4:00 pm, Jeffrey Turner <jtur...@[EMAIL PROTECTED]
> wrote:
 >>Ernst wrote:
 >>>
>>>Actually, you can see something similar at low ends of the
>>>income distribution.
>>
>>>http://economics.about.com/b/2008/02/10/marginal-tax-rates-of-over-10...
>>
>>>Welfare recipients have at least some incentive to work because of the
>>>future prospect of rising above a welfare existence.
>>
>>Maybe.  But with "outsourcing" and "downsizing" and dead-end jobs it
>>isn't too much of a surprise - especially with tax rates _above_ 100%.
>>And it's much worse psychologically, because we were discussing
>>everyone having to pay 100%
> 
> No, that's not a necessary condition for the Laffer curve to be true.
> As a thought experiment, imagine 100 people at 50K/yr and a constant
> tax rate, and one person at 1 million per year and a marginal tax rate
> that suddenly increases to 100% for incomes above $500K. That one
> person will rationally choose more leisure over working for nothing
> (or less), and cut back his work activities to decrease his income to
> $500K in exchange for more free time. Which also reduces overall tax
> revenue.

If there's half a million in work to be done, someone - probably plural
- will do it.  Maybe ten more people at 50K each.  And they'll consume
more than that one person ever would have.  So there'll be jobs created
taking care of their wants.  All of them making money and paying taxes.

>>(I want to interject that the other lie in
>>the Laughable curve is that it obfuscates the difference between total
>>and marginal tax rates.  A marginal tax rate of 100% on income over
>>five or ten million might also have a salutary effect further down the
>>income scale).
> 
> The supply siders constantly harp on marginal rates. You can hardly
> accuse them of obfuscating marginal tax rates when that's a major part
> of their spiel.

They postulate, without evidence, that the top marginal rates are too
high.  Judging from the historical evidence, that doesn't seem to be the
case.

> It's unclear why you think capping high incomes would have a positive
> effect down the income scale. The more likely outcome would be more
> lavish non-monetary compensation for executives and stockholders,
> combined with decreased economic activity that hurts working stiffs.

Stocks and bonds as compensation should be just as heavily taxed.
Other non-monetary compensation would require hiring people to provide
the goods or services.

> If you're making $5 million a year, but want a few million more
> because you've got your eye on a tropical island, odds are you're
> going to have to go out and earn the money, probably by hiring people
> to help you. If your income is capped there's absolutely no reason for
> you to do that. Another likely outcome would be capital flight.

I think domiciling is, in economic terms, sticky.  And if there's a
market out there that will generate that kind of profits then someone
will fill it.

>> The marginal tax rates in the U.S., where health
>>insurance is an issue, are probably worse than in Canada.  But if
>>everyone was taxed at 100%, job duties might be spread more evenly and
>>pointy-haired bosses would soon find themselves outside of management.
> 
> Getting a job very often includes health benefits (about 70% offer
> them.) Getting health insurance via the employer is actually an
> artifact of an earlier attempt to limit market-priced wages during
> WWII. The government instituted wage controls in an attempt to keep
> inflation down, so employers tried to attract employees via non-
> monetary compensation such as health benefits.

Yes.  But (I'll use your figures) the 30% that don't offer health
insurance are clustered in the jobs one is likely to move off welfare
into.

>>I'm going to guess that the top-down, authoritative structure of many
>>workplaces might have to change if there were 100% taxation, and that
>>wouldn't be such a bad thing.
> 
> That's just goofy. The jobs would be a lot more unstructured in the
> sense that many wouldn't exist anymore, I'll give you that. But why on
> earth would you think that the structure of the workplace would
> change? All the socialist paradises out there are run pretty much the
> same way as capitalist workplaces, only badly.

Because a workplace that eliminates pointy-haired bosses would attract
more workers than one which doesn't.  And cooperatively run enterprises
often do quite well.

--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