2005 Budget Laffers Last

Federal tax receipts are growing in response to a tax cut. Again.

Again. As always. As JFK, RWR, and GWB knew they would. And the pathetic RINOS that want to raise taxes need to be slapped down.

One glance at the chart, and WOW!

It's not entirely sustainable, though. The repatriation of offshore profits is a one-time pop that bumped the corporate tax receipts and the lower cap gains rate incentivized taking the gains now rather than later.

Laffer curve BUMP!

"And it turns out that these numbers paint a fairly encouraging picture. Perhaps that’s why they didn’t get much coverage.

The deficit dropped by 23 percent in the latest fiscal year, down to $318.6 billion. This occurred because the economy is booming. Personal income tax receipts are up 14.6 percent, which obviously points to higher overall income growth."

Somehow, this simple message needs to be sent to the Ameican people through the "media wall."

The deficit dropped by 23 percent in the latest fiscal year, down to $318.6 billion. This occurred because the economy is booming.

Two things.

One is that I propose that once and for all we drop this nonsense about having to "pay for a taxcut" by raising taxes. That kind of dribble is like saying we should use a spending cut to finance an increase in spending.

The other is that it's high time we dropped the 'ain't it awful' hand-wringing. 'Concern' only makes sense if it leads us to work it out like an adult; otherwise we're just wallowing in it like a child.

It's not entirely sustainable, though. The repatriation of offshore profits is a one-time pop that bumped the corporate tax receipts and the lower cap gains rate incentivized taking the gains now rather than later.

You can only say it's not sustainable if you show us how much of the increased receipts were from repatriation and how much were from cap gains.

Federal tax receipts are growing in response to a tax cut. Again.

And the supply-side roosters are claiming credit for the dawn. Again. See the analysis at http://home.att.net/~rdavis2/taxcuts.html. If you have specific disagreements with any of the numbers or conclusions, please post them. Alternately, please post a link to a budget document or credible economic study that purports to show that any major cut in income tax rates has ever paid for itself. I am more than willing to look at any serious evidence that any supply-sider is willing to present. But I have had a very hard time finding a supply-sider who will present any.

Alternately, please post a link to a budget document or credible economic study that purports to show that any major cut in income tax rates has ever paid for itself. I am more than willing to look at any serious evidence that any supply-sider is willing to present. But I have had a very hard time finding a supply-sider who will present any.

Except for a capital gains tax cut, I don't believe any tax cut "pays for itself". Do you dispute the fact that a cut in marginal income tax rates partially "pays for itself"?

In other words, if you cut the top tax rate from 70% to 50% you should reduce receipts by 28.5%. If you reduce the top rate from 50% to 28% you should reduce receipts by 44%. Does this actually occur?

I am more than willing to look at any serious evidence that any Concord Coalition member is willing to present.

"... show that any major cut in income tax rates has ever paid for itself...."

What you're saying is that everyone is supposed to accept high taxes, and that any reduction has to be justified to the satisfaction of the tax advocate. I prefer the idea that any taxes at all have to be justified before I'm willing to vote for them. Let's decide who has the burden of proof.

Who has to explain the need for taxes?	Taxpayer	Tax spender
expat_panama		x
Remember	x

So far it's a tie. Anyone else care to vote?

What you're saying is that everyone is supposed to accept high taxes, and that any reduction has to be justified to the satisfaction of the tax advocate.

This seems to be a common argument. Over the past decade, I've averaged an annual return of about 10% on my investments. Would I rather have the government take my money, that I can earn 10% on, to feed an insatiable beast or; would I rather they borrow money at 4% to meet their needs? Does anyone really doubt the answer to this?

I don't know that tax cuts can ever starve the beast enough to pay for themselves. However, the benefits of allowing American's to keep more of their money are self evident in the rapidly increasing household net worth numbers.

Here's an interesting (but older) article from Heritage that talks more about tax cuts and their many benefits. You might find chart 6, 7 and 9 interesting. I wonder if the tax cuts of the 80's would have paid for themselves if congress could have controlled their spending.

Class-Warfare Tax Policy: Myth and Reality

...an interesting (but older) article from Heritage that talks more about tax cuts...

My bet is that Remember will not accept the article as proof that that we can have a tax cut. I don't believe that there is anything that will ever be acceptable. We could cut the deficit --not enough. Eliminate the deficit --the debt is still there. Pay off the debt -- oops, now we have more spending to cover.

My point is that it's the taxes that are not justified and a justification for tax-cuts is never needed. Anyone who wants my money is going to have to ask me politely and be very convincing. I don't need to explain nothin'.

Except for a capital gains tax cut, I don't believe any tax cut "pays for itself". Do you dispute the fact that a cut in marginal income tax rates partially "pays for itself"?

If nothing else, some of the revenue lost in a cut in marginal income tax rates will come back to the government via other taxes. That is, some of that extra money in taxpayer's pockets will be invested or spent and incur other taxes. Likewise, much of the money spent by government is invested or spent by the recipients and incur other taxes. But these and many of the obvious motivational effects are factored into the revenue estimates.

Hence, in that sense, tax cuts (and spending) partially pay for themselves. Likewise, I would have had no problem if ChessExpert had said:

Federal tax receipts shrank less in response to a tax cut than one might expect. Again.

Then, I would have had no disagreement. The trouble is, he said something quite different. In any case, I'm happy to see that you are taking a reasonable view on this matter and not the "tax cuts = free lunch" view.

My bet is that Remember will not accept the article as proof that that we can have a tax cut. I don't believe that there is anything that will ever be acceptable. We could cut the deficit --not enough. Eliminate the deficit --the debt is still there. Pay off the debt -- oops, now we have more spending to cover.

My point is that it's the taxes that are not justified and a justification for tax-cuts is never needed. Anyone who wants my money is going to have to ask me politely and be very convincing. I don't need to explain nothin'.

I don't know why I answer your pings since, as often as not, you respond with exaggeration, if not outright insult. I have never stated that we should always have a balanced budget, much less that we should pay off the entire debt. Regarding tax cuts, I've simply said that I don't believe that the government should have implemented large, intended-to-be-permanent tax cuts in a time of war and when they are projecting that the public debt will reach 250% of GDP by 2075 (see the first table and graph at http://home.att.net/~rdavis2/pro2006.html). At the very least, they should reinstate PAY-GO and pay for any spending or tax cuts that they feel are necessary.

You, on the other hand, appear to have a truly extreme position. You state that "a justification for tax-cuts is never needed". Hence, if we each paid one dollar per year in taxes, a further tax cut would require no justification. How would we pay for our government, including our forces in Iraq? I assume that you would suggest that we just borrow it. How would we pay the interest on the exploding debt? Just borrow the interest payments, I assume.

Regarding whether or not I will accept the article as proof, please point out the proof in the article. Now, let's stay focused on the fact that I was asking for proof that "any major cut in income tax rates has ever paid for itself". The closest thing that I can see as "proof" is Chart 6. If this is the "proof", the analysis at http://home.att.net/~rdavis2/taxcuts.html deals with it.

I don't know why I answer your pings since, as often as not, you respond with exaggeration, if not outright insult.... ...You, on the other hand, appear to have a truly extreme position.... ...How would we pay the interest on the exploding debt? Just borrow the interest payments, I assume.

Yowsuh! Either you got up real early or were up way too late with that one --no matter. Good to hear from you and a very Happy Thanksgiving to you and yours.

As usual, I'm all confused. Do you accept the Laffer model or not? When I wrote my post 13 I was under the impression that you considered the max revenue/equilibrium idea to be free lunch/bogus and that there was absolutely no input that you'd ever accept as proof that the model was in fact, useful. However, from your post 15 I seem to gather that you feel I was judging you unfairly. I'd very much like to know which is what-- please tell me what you think of it and the article that started this thread.

Thanks for posting the Laffer curve. I find it highly plausible, consistent with economic theory, and with the facts. Economic theory is full of optimums, and they rarely correspond to maximum values for X. The optimum is at some point within a curve, as with the curve you posted. Any micro text is full of such relationships. In the real world, an auto dealer wanting to raise revenue would not simply increase the unit price of his cars without end. Depending on demand, he might raise the unit price, or lower it. Imagine that, reducing the price, maybe even advertising a sale, to increase revenues! Such a relationship seems inconceivable to many tax cut critics. The problem with "just running the numbers" is that it ignores human response to prices. Economic theory is sometimes called price theory since a response to price by buyers and sellers is so ubiquitous and essential. Why people think no one will react to varying taxes is a mystery to me. Back when Reagan was an actor, he would work two or three months, thereby entering the 90% tax bracket, and take the rest of the year off. Who wants work for a dime on the dollar?

National economic performance is even more important than government tax revenue. A casual recollection of US history reveals the following. Low taxes - Roaring 20s. Great Depression - high taxes. Kennedy tax cuts - economic boom. Tax, spend, regulate in the Carter years - economic malaise. Reagan tax cuts - the end of stagflation. The Clinton years seem a little mixed. I guess the conventional liberal wisdom is that Gingrich "slashed spending" and Clinton gave us a surplus.

Getting back to the posted article. Taxes were cut and the economy is booming without inflation. Federal tax revenues are even going up. We are even winning a war on the side. What a deal!

On the international scene the US has produced about 20 million new jobs in the last 20 years. France, Germany, and Italy together haver produced about 3 million new jobs in the same time frame. Unemployment rates correspond, with their's running about twice as high as ours. Their governments tax and spend more so than ours.

Who has done better? Well there is Hong Kong. In the last 50 years their growth rate has been much higher than ours. But they have laissez faire capitalism and we are socialistic by comparison.

Compare the Koreas. Compare the Germanys, when there were two. Compare Nationalist and Communist Chinas. Compare pre Thatcher Great Britain to Great Britain under Thatcher. The evidence is there. Free markets work. Socialism doesn't work as well.

Got to go. Enjoy Thanksgiving!

Supply-siders are madly clicking their heels to no avail. They're arguments are bankrupt, and their bookkeeping would make Al Capone proud.

Yowsuh! Either you got up real early or were up way too late with that one --no matter. Good to hear from you and a very Happy Thanksgiving to you and yours.

Sorry, it's possible that I misinterpreted your comments. My reply was in response to the following comment you made to Mase and me:

My bet is that Remember will not accept the article as proof that that we can have a tax cut. I don't believe that there is anything that will ever be acceptable. We could cut the deficit --not enough. Eliminate the deficit --the debt is still there. Pay off the debt -- oops, now we have more spending to cover.

That didn't sound to me like you are saying that we are having an honest disagreement. It sounded like you were saying that there was no reasonable fiscal policy that I would accept as responsible. We could be running a huge surplus and I would demand that it be bigger. And so on. So I responded by literally interpreting your comment that "a justification for tax-cuts is never needed" to mean you supported a tax rate of zero. Suffice to say that neither of us hold those extreme positions.

As usual, I'm all confused. Do you accept the Laffer model or not? When I wrote my post 13 I was under the impression that you considered the max revenue/equilibrium idea to be free lunch/bogus and that there was absolutely no input that you'd ever accept as proof that the model was in fact, useful. However, from your post 15 I seem to gather that you feel I was judging you unfairly. I'd very much like to know which is what-- please tell me what you think of it and the article that started this thread.

I believe that the Laffer model is correct at the endpoints. A tax rate of zero will bring in zero revenues as will a tax rate of 100 percent (ignoring a few already wealthy people who might still work). However, I don't believe that it is a nice normal curve reaching the maximum close to the midpoint. The "free lunch" that I referred to is the belief that cuts in the top marginal rate in the current 30 to 40 percent range will pay for themselves. Every one of Bush's budget documents that has addressed the matter has projected that the tax cuts will cause revenues to be lower, at least in the short to mid-term (the long-term is not projected). Nothing that I saw in Heritage document suggested, much less proved, Bush to be wrong on that estimate. In any case, I hope that you and yours had a Happy Thanksgiving as well!

I believe that the Laffer model is correct at the endpoints.... ...I don't believe that it is a nice normal curve reaching the maximum close to the midpoint.

Let me know if you'd be willing to accept the model if you could reserve the right to add your own scales (log/liniar, log log, trigonometric, whatever). I had understood that the model only required a maximum revenue point between 0 and 100%, increasing revenue between 0 and the max, and decreasing revenue between the max and 100. Perhaps you'd be willing to accept a curve described in those terms.

If you do, please tell me where on the curve you'd want to plot current revenue. If you don't, I'd be grateful if you could tell me where and why the plot would show reversing/negative slopes.

The "free lunch" that I referred to is the belief that cuts in the top marginal rate in the current 30 to 40 percent range will pay for themselves.

Do you believe that Reagan's first tax cut paid for itself? Did reducing the top rate from 70% to 50% cause more revenues to come into the government's coffers? Did that reduction in taxes help the economy to grow faster and did it result in higher after tax income for America's citizens?

"The "free lunch" that I referred to is the belief that cuts in the top marginal rate in the current 30 to 40 percent range will pay for themselves."

This can be argued in the context of the Laffer curve by saying that the 30 to 40 percent range is close to point A shown in post 5. The Laffer curve, and supply siders, do not deny point A, they affirm it. At some point, tax rates are too low to generate maximum government revenues.

"Every one of Bush's budget documents that has addressed the matter has projected that the tax cuts will cause revenues to be lower, at least in the short to mid-term (the long-term is not projected)."

I think the problem here is that almost all analysts simply "run the numbers." Someone goes to their spreadsheet, reduces a tax rate factor and tax revenues go down correspondingly. If you double the rate, you double the revenue. It would be like going to a car dealer's spreadsheet, doubling unit price, and computing a doubling of revenues.

"Supply-siders are madly clicking their heels to no avail. They're arguments are bankrupt, and their bookkeeping would make Al Capone proud."

Advertising a 25% off sale, filling the store, and increasing revenues is not bookkeeping. It's economics.

Similarly, reducing the cost of economic activity (tax cut), and getting more economic activity is not bookkeeping. It's economics.

Almost all budget analysis (from either party) is bookkeeping. It's not economics. Incorporation of a sensible economic response to tax cuts is sometimes called voodoo economics, because it is not the simplistic bookkeeping that is almost universally practiced by budget analysts.

Bookkeeping and green eye-shade accounting is fine. But sometimes, it's not enough. It's not realistic. People respond to changing prices. This includes the after-tax price of their time, or the after-tax return on their investments. The bookkeeper does not consider these responses.

They're arguments are bankrupt, and their bookkeeping would make Al Capone proud.

The author of this post should not accuse others of phony bookkeeping!!!

$2,300,000,000,000.00 ($2.3 Trillion) just is not enough for one year. Let's find more ways to give them more of our money. =^(

Supply-siders are madly clicking their heels to no avail. They're arguments are bankrupt, and their bookkeeping would make Al Capone proud.

I do find it strange how many (not all) supply-siders seem to believe that recent cuts in the marginal rate have increased revenues when I can find no budget document or credible economic study that purports to show that to be the case.

Let me know if you'd be willing to accept the model if you could reserve the right to add your own scales (log/liniar, log log, trigonometric, whatever). I had understood that the model only required a maximum revenue point between 0 and 100%, increasing revenue between 0 and the max, and decreasing revenue between the max and 100. Perhaps you'd be willing to accept a curve described in those terms.

Even in those terms, I think that the Laffer curve is too simplistic to describe the economics of taxation with very much accuracy. For one thing, there are other factors besides the top marginal tax rate that effect revenues. Some of those factors include the the lower income limit to which that top marginal rate applies, the other tax brackets in effect, and the ease with which taxpayers can take advantage of various deductions and tax loopholes to avoid higher rates. None of these other factors are indicated by the Laffer curve.

If you do, please tell me where on the curve you'd want to plot current revenue. If you don't, I'd be grateful if you could tell me where and why the plot would show reversing/negative slopes.

Because of the above listed limitations of the Laffer curve and the lack of enough historical data for any serious statistical analysis, I don't think it possible say exactly where we are on the curve. However, all of the data in the aforementioned analysis suggests that the Reagan and Bush tax cuts caused revenues to be lower than they would have been and that the Clinton tax hike caused revenues to be higher. That would suggest to me that, under our current tax structure, a top marginal rate in the 30 to 40 percent range is to the left of the "Equilibrium Point" in the Laffer curve shown in post #5, at least in the short to medium-term.

Do you believe that Reagan's first tax cut paid for itself? Did reducing the top rate from 70% to 50% cause more revenues to come into the government's coffers? Did that reduction in taxes help the economy to grow faster and did it result in higher after tax income for America's citizens?

Given the limitations of the Laffer curve that I listed in the previous message, I don't think there is enough historical data to answer those questions. Individual income tax revenues did drop sharply from 1982 to 1984 so they did not appear to increase in the short-term. Then the 1986 tax cut further reduced the top rate to 28% and changed the tax structure (reducing many deductions) so it's difficult to make any judgment about the medium-term.

This can be argued in the context of the Laffer curve by saying that the 30 to 40 percent range is close to point A shown in post 5. The Laffer curve, and supply siders, do not deny point A, they affirm it. At some point, tax rates are too low to generate maximum government revenues.

I agree. However, any supply-sider who argues that the Bush tax cut increased revenues would presumably believe that we are closer to point B.

I think the problem here is that almost all analysts simply "run the numbers." Someone goes to their spreadsheet, reduces a tax rate factor and tax revenues go down correspondingly. If you double the rate, you double the revenue. It would be like going to a car dealer's spreadsheet, doubling unit price, and computing a doubling of revenues.

I do know that the government's process of "running the numbers" is much more accurate than simply doubling the revenues to estimate the result of a doubling of the tax rate. For example, the following graph shows the results of a CBO study that estimated the cost of Bush's 2004 budget proposals using the conventional "running of the numbers" and various supply-side models:

As you can see, there was not that huge of a difference. In any case, the actual numbers and sources can be seen at http://home.att.net/~rdavis2/cbobud04.html

"the following graph shows the results of a CBO study that estimated the cost of Bush's 2004 budget proposals using the conventional "running of the numbers" and various supply-side models:"

Are any of these models supply-side models? If so, which ones?

"I do know that the government's process of "running the numbers" is much more accurate than simply doubling the revenues to estimate the result of a doubling of the tax rate."

I will grant that there is some access to, and reliance upon, economic models. Though I think most budget analysts still fall back to a simple toting of sums. The assumptions of the economic models are critical. I saw no evidence that suppy-side assumptions were incorporated in any of the projections shown in the charts. This may pertain to your observation that:

"As you can see, there was not that huge of a difference."

Thanks for providing the information. Frankly, it seems designed to impress, and had somewhat the opposite affect on me. It is my understanding that neither CBO forecasts, nor econometric models, have a great track record. I enjoyed your discussion of the Laffer curve. I gather you think we are to the left of the maximum revenue point. I think it would be very hard to sort this out using econometric models. How much of today's prosperity, and tax revenue enhancement, is due to an increase in entrepreneurial activity fostered by the Reagan tax cuts? This is not so easy to test or "prove" one way or the other. The big picture is easier to see. Low tax eras and countries tend to outperform high tax eras and countries. Control of Government spending is a big help too!

Post 5 identified the maximum revenue point as the "Equilibrium Point." This suggests that there is a tendency to adjust tax rates until we reach that point. Once at the Equilibrium, we would try to remain there. Perhaps. Some view this point as "optimal." If it is optimal, it is optimal from the vantage of Government. Not everyone believes the purpose of life, or economic behavior, is to maximize government revenues. If point A gives us greater economic growth and freedom, I might prefer point A. If point B gives us greater economic equality, even at the cost of depressed growth, some would prefer point B.

Individual income tax revenues did drop sharply from 1982 to 1984 so they did not appear to increase in the short-term.

Really? You have the actual revenue numbers for this period?

Given the limitations of the Laffer curve that I listed in the previous message, I don't think there is enough historical data to answer those questions.

You're kidding about this part, right? Did that reduction in taxes help the economy to grow faster and did it result in higher after tax income for America's citizens?

You want to try again? I don't think you even need to know what the Laffer Curve is to admit that lower tax rates would increase after tax income.

               RECEIPTS BY SOURCE AND SELECTED TAX RATES: 1940-2011
                             (in billions of dollars)

                                               Estate  Customs                           Top
        Individ Corporate    Social               and   Duties      Misc     Total  Marginal     FICA
 Year    Income    Income Insurance   Excise     Gift   & Fees  Receipts  Receipts      Rate     Rate
----- --------- --------- --------- -------- -------- -------- --------- --------- --------- --------
  1979   217.841    65.677   138.939   18.745    5.411    7.439     9.252   463.302               6.13
 1980   244.069    64.600   157.803   24.329    6.389    7.174    12.748   517.112               6.13
 1981   285.917    61.137   182.720   40.839    6.787    8.083    13.790   599.272        70     6.65
 1982   297.744    49.207   201.498   36.311    7.991    8.854    16.161   617.766        50      6.7
 1983   288.938    37.022   208.994   35.300    6.053    8.655    15.600   600.562        50      6.7
 1984   298.415    56.893   239.376   37.361    6.010   11.370    17.060   666.486        50      6.7
 1985   334.531    61.331   265.163   35.992    6.422   12.079    18.571   734.088        48     7.05
 1986   348.959    63.143   283.901   32.919    6.958   13.327    20.008   769.215               7.15
 1987   392.557    83.926   303.318   32.457    7.493   15.085    19.518   854.353               7.15
 1988   401.181    94.508   334.335   35.227    7.594   16.198    20.259   909.303        33     7.51
 1989   445.690   103.291   359.416   34.386    8.745   16.334    23.328   991.190               7.51
 1990   466.884    93.507   380.047   35.345   11.500   16.707    27.978  1031.969        33     7.65
 1991   467.827    98.086   396.016   42.402   11.138   15.949    23.623  1055.041        31     7.65
 1992   475.964   100.270   413.689   45.569   11.143   17.359    27.284  1091.279        31     7.65
 1993   509.680   117.520   428.300   48.057   12.577   18.802    19.465  1154.401        31     7.65
 1994   543.055   140.385   461.475   55.225   15.225   20.099    23.164  1258.627        31     7.65
 1995   590.244   157.004   484.473   57.484   14.763   19.301    28.561  1351.830      39.6     7.65
 1996   656.417   171.824   509.414   54.014   17.189   18.670    25.534  1453.062      39.6     7.65
 1997   737.466   182.293   539.371   56.924   19.845   17.928    25.465  1579.292      39.6     7.65
 1998   828.586   188.677   571.831   57.673   24.076   18.297    32.658  1721.798      39.6     7.65
 1999   879.480   184.680   611.833   70.414   27.782   18.336    34.929  1827.454      39.6     7.65
 2000  1004.462   207.289   652.852   68.865   29.010   19.914    42.826  2025.218      39.6     7.65

 2001* 1072.927   213.069   689.656   71.148   31.072   21.442    37.632  2136.946
 2002* 1078.789   218.786   725.798   74.020   28.699   22.537    43.105  2191.734
 2003* 1092.290   227.293   766.045   76.254   26.639   24.281    45.438  2258.240
 2004* 1117.881   235.497   806.049   78.300   28.297   24.961    47.831  2338.816
 2005* 1157.044   244.152   855.842   80.543   24.897   25.989    49.316  2437.783
 2006* 1196.607   252.159   896.367   82.346   22.498   27.724    51.010  2528.711
 2007* 1255.200   259.900   942.000   84.800   20.400   29.300    51.600  2643.300
 2008* 1330.400   268.100   984.400   87.300   15.700   30.700    54.100  2770.600
 2009* 1410.200   275.800  1030.800   90.000   13.400   33.000    56.800  2909.900
 2010* 1499.600   283.500  1087.900   92.800    0.700   34.500    59.500  3058.400
 2011* 1598.200   294.300  1145.100   95.700    0.700   36.200    62.400  3232.600

Individual income tax revenues did drop sharply from 1982 to 1984 so they did not appear to increase in the short-term.

You do have the actual revenue numbers for this period. You want to revise this answer? Or do you believe that going from $297.744 billion to $298.415 billion is a sharp drop?

The source you cite states:

"The argument that the near-doubling of revenues during Reagan's two terms proves the value of tax cuts is an old argument. It's also extremely flawed. At 99.6 percent, revenues did nearly double during the 80s. However, they had likewise doubled during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION!"

Why leave out the Great Depression? Doesn't revenue always double every ten years? Does this not apply worldwide? France, Italy, Russia? South Africa? Wouldn't an extension of Carter's stagflation for 10 or 20 years would have produced successive doubling of tax revenues? Is this not an immutable law of nature - tax revenues double every decade, day follows night?

Tax revenue growth is not due to the calendar. It's not something that we should take for granted. I would like to see evidence that high sustained tax rates yield permanently high tax revenues. I think FDR, and various socialist countries have tried and failed.

I think it important to note that, by and large, the US is a low tax environment. Our economy grows, even tax revenues. It's no coincidence.

27 ...the Laffer curve is too simplistic to describe the economics of taxation with very much accuracy."

We don't need accuracy. Another word for simplicity is elegance.

You said the endpoints are correct. There are two possibilities for the points in-between, one is that there is at least one maximum revenue point greater than zero; the second possibility is all in-between revenue is zero or negative. I can demonstrate historical cases where the first possibility is more realistic. Unless you can explain the how the second possibility exists, then current federal revenue has to be

1.		way to the left of the max
2.		near the max
3.		far to the right.

Bowyer shows how increased revenue has followed tax-cuts. This suggests that revenue rates have been in excess of maximum. While it is always possible to offer conjecture for alternate causes, serious fiscal policy must conform to observable reality and not to conjecture.

Consider also the consequences. We can cut tax rates more; if revenue continues to increase then we are successful. Even if revenue were to decrease then we can always tax the increased wealth. However if we were to increase tax rates and find revenue falling with shrinking wealth, then we're stuck with a larger deficit and a savaged economy. The responsible, sensible choice is a further reduction in tax rates.

Individual income tax revenues did drop sharply from 1982 to 1984 so they did not appear to increase in the short-term.

Really? You have the actual revenue numbers for this period?

I see that you posted those numbers from a table that I posted at http://home.att.net/~rdavis2/recsrc02.html. No fair using my own numbers against me! The fact is, in trying to answer all the questions from you, expat, and ChessExpert, I got a little sloppy in my answer to you. I looked quickly at the following graph and saw that individual income tax revenues did drop sharply from 1982 to 1984 as a percentage of GDP:

The actual numbers and sources are at http://home.att.net/~rdavis2/recsrc.html. I also glanced at the second graph at that URL and noted that, corrected for inflation, total revenues dropped for two years (though I see now that it was from 1981 to 1983). In any case, I didn't qualify my statement as a percentage of GDP or corrected for inflation. So you're correct that, in current dollars, individual income tax revenues only dropped from 1982 to 1983, not 1982 to 1984. Still, the graphs and numbers do not suggest to me that Reagan's first tax cut "paid for itself" in the sense of tax revenues being higher than they would have been otherwise.

Given the limitations of the Laffer curve that I listed in the previous message, I don't think there is enough historical data to answer those questions.

You're kidding about this part, right? Did that reduction in taxes help the economy to grow faster and did it result in higher after tax income for America's citizens?

You want to try again? I don't think you even need to know what the Laffer Curve is to admit that lower tax rates would increase after tax income.

Once again, in answering your message too quickly, I misread your question about "did it result in higher after tax income for America's citizens" as "did it result in higher tax revenues". Of course, a tax cut will result in higher after tax income. That's its chief goal. It's not a free lunch but it is a lunch, so to speak.

Anyhow, I cannot keep up with all of the questions from you, expat, and ChessExpert. If you have any questions you really want answered, perhaps the three of you can confer and put one or two questions or points into a common posting. Otherwise, I'll just have to pick and choose among your questions and answer a few of them as I have time.

One is that I propose that once and for all we drop this nonsense about having to "pay for a taxcut" by raising taxes.

How about we pay for a tax cut by cutting spending?

I see that you posted those numbers from a table that I posted at http://home.att.net/~rdavis2/recsrc02.html. No fair using my own numbers against me!

Yeah, sorry about that.

The fact is, in trying to answer all the questions from you, expat, and ChessExpert, I got a little sloppy in my answer to you. I looked quickly at the following graph and saw that individual income tax revenues did drop sharply from 1982 to 1984 as a percentage of GDP:

Just because we're all nipping at you shouldn't cause you to rush your answers. Relax. This isn't homework. There's not a deadline.

I also glanced at the second graph at that URL and noted that, corrected for inflation, total revenues dropped for two years (though I see now that it was from 1981 to 1983).

How much of the tax revenue during Carter's term was due to inflation pushing people into higher brackets? Reagan fixed that and now you blame him for indexing?

Still, the graphs and numbers do not suggest to me that Reagan's first tax cut "paid for itself" in the sense of tax revenues being higher than they would have been otherwise.

I have a different definition of "paying for itself". If you cut the rate from 70% to 50% and don't lose money, it's "paid for itself". I never claimed a tax cut would raise more revenues, except for capital gains tax cuts.

Of course, a tax cut will result in higher after tax income. That's its chief goal.

Now you're beginning to understand!! So, Reagan cut rates, people kept more of their own income and tax revenue didn't drop by 28% (even though rates did, from 70% to 50%). You'll have to agree that if no one changed their behavior in reaction to the rate cut, revenues should have dropped close to 28%.

Anyhow, I cannot keep up with all of the questions from you, expat, and ChessExpert.

I apologize again if we've been too rough on you.

Otherwise, I'll just have to pick and choose among your questions and answer a few of them as I have time.

No hurry. Take your time. How about answering this one?

Did that reduction in taxes help the economy to grow faster?

I never claimed a tax cut would raise more revenues, except for capital gains tax cuts.

I have. I can give you historical examples where taxation, which had been so close to 100% that revenue was nil, was lowered and revenue was restored.

have. I can give you historical examples where taxation, which had been so close to 100% that revenue was nil, was lowered and revenue was restored.

Yes, tax cuts can increase revenue. I just never claimed it :^)

ROTFALMAO!

I never thought I'd have to parse words with you!

If I claimed tax cuts would raise more revenue, poor remember's head might explode. I was thinking of him.

I also glanced at the second graph at that URL and noted that, corrected for inflation, total revenues dropped for two years (though I see now that it was from 1981 to 1983).

How much of the tax revenue during Carter's term was due to inflation pushing people into higher brackets? Reagan fixed that and now you blame him for indexing?

Maybe you should likewise take a little more time with your answers. How would fixing the bracket-creep problem cause revenues to drop? As the second table at http://home.att.net/~rdavis2/recsrc.html shows, inflation-adjusted individual income tax revenues dropped from $514.05 billion in 1981 to $455.25 billion in 1984 (figures are in 2000 dollars). That's a drop of 11.4 percent in real revenues over three years. Furthermore, according to page 12 of the Treasury document at http://www.ustreas.gov/offices/tax-policy/library/ota81.pdf, indexing of individual income tax parameters did not begin until 1985.

I have a different definition of "paying for itself". If you cut the rate from 70% to 50% and don't lose money, it's "paid for itself". I never claimed a tax cut would raise more revenues, except for capital gains tax cuts.

Revenues need to keep up with inflation. In addition, services to individuals need to keep up with population. Both of these can be accomplished by revenues keeping up with GDP growth. As you can see from the graph in post #35, individual income tax revenues have generally done this since 1952. You seem to be saying that we can ignore inflation. If that is the case, then you can be the one who explains to our soldiers in Iraq why their salaries cannot at least keep up with inflation.

Did that reduction in taxes help the economy to grow faster?

The following is from the analysis at http://home.att.net/~rdavis2/taxcuts.html:

The only remaining argument in favor of the Reagan tax cuts, at least from a revenue point of view, would seem to be that they permanently raised the level of the GDP, thus bringing in slightly higher revenues far into the future. According to the graph and second table, the GDP reached a high 8-year growth rate of 34.3% from 1982 to 1990. However, the GDP seems to have reaching a similar high about every ten years over the past several decades. It reached a high of 41.57% from 1958 to 1966, 29.20% from 1971 to 1979, and 32.58% from 1992 to 2000. Hence, these figures don't provide any strong evidence that the Reagan tax cuts permanently affected the GDP one way or the other.

Now, it does make sense that pumping borrowed money into the economy would cause some short-term increase in the GDP. However, that is likely to be offset by additional interest costs in the long-run. In any case, the figures don't reveal any lasting increase in GDP growth.

Maybe you should likewise take a little more time with your answers. How would fixing the bracket-creep problem cause revenues to drop?

You're joking, right? 2 taxpayers, taxpayer 1 makes $50,000, taxpayer 2 makes $100,000. One bracket, 20% and no deductions or exemption. Year one, tax revenue $30,000.

Year 2, 6% inflation, incomes rise 6%. Incomes now $53,000 and $106,000. Tax revenue $31,800. Real tax revenue $30,000. No change.

Same scenario, now with 3 tax brackets. $0-$40,000 15%, $40,001-$90,000 20%, $90,001-$150,000 30%. Revenue year one, taxpayer 1 pays $8,000. Taxpayer 2 pays $19,000. Year 2, 6% inflation, incomes rise 6%. Taxpayer 1, income $53,000, pays $8,600, real tax $8,113. Taxpayer 2, income $106,000, pays $20,800, real tax $19,623.

The government gets 2.7% more revenue. Taxpayer 1 pays 1.4% more, taxpayer 2 pays 3.3% more.

Revenues need to keep up with inflation.

During bracket creep revenues grew too much. It's only fair that they grow slower than inflation for a while.

inflation-adjusted individual income tax revenues dropped from $514.05 billion in 1981 to $455.25 billion in 1984

Without the tax cuts and considering the 2 recessions, how much should revenues have dropped?

You seem to be saying that we can ignore inflation.

Not at all. Do you have any info on real after tax income over this time frame?

Maybe you should likewise take a little more time with your answers. How would fixing the bracket-creep problem cause revenues to drop?

You're joking, right? 2 taxpayers, taxpayer 1 makes $50,000, taxpayer 2 makes $100,000. One bracket, 20% and no deductions or exemption. Year one, tax revenue $30,000.

Year 2, 6% inflation, incomes rise 6%. Incomes now $53,000 and $106,000. Tax revenue $31,800. Real tax revenue $30,000. No change.

Same scenario, now with 3 tax brackets. $0-$40,000 15%, $40,001-$90,000 20%, $90,001-$150,000 30%. Revenue year one, taxpayer 1 pays $8,000. Taxpayer 2 pays $19,000. Year 2, 6% inflation, incomes rise 6%. Taxpayer 1, income $53,000, pays $8,600, real tax $8,113. Taxpayer 2, income $106,000, pays $20,800, real tax $19,623.

Once again, according to page 12 of the Treasury document at http://www.ustreas.gov/offices/tax-policy/library/ota81.pdf, indexing of individual income tax parameters did not begin until 1985. Hence, the 11.4 percent drop in real individual income tax revenues from 1981 to 1984 could not possibly have been due to the fixing the bracket-creep problem in 1985.

indexing of individual income tax parameters did not begin until 1985.

Yes, I saw that. I was answering your question in post #42:How would fixing the bracket-creep problem cause revenues to drop?

Hence, the 11.4 percent drop in real individual income tax revenues from 1981 to 1984 could not possibly have been due to the fixing the bracket-creep problem in 1985.

I didn't say that it was. You never answered my question. With the double dip recession and without the tax cut, how much should revenues have dropped? You can't blame a tax cut for revenues that were lost because of a recession, can you?

You can't blame a tax cut for revenues that were lost because of a recession, can you?

True. But neither can you credit a tax cut for revenues that increase due to the recovery from a recession. The following graph shows receipts, outlays, and deficits since 1981:

The actual numbers and sources are at http://home.att.net/~rdavis2/mts.html. As you can see, the recovery from the 1980-82 recession was no more impressive that either of the recoveries that we've had since then. In addition, the graph shows two problems with the original article by Jerry Bowyer that started this thread. As you can see from his chart in post #7 above, Bowyer did not correct his revenue numbers for inflation. In addition, he was very selective in showing only the last four years. As the graph above shows, inflation-corrected revenues are still well below their 2000 highs. Hence, Bowyer is bragging about a partial recovery from a very deep drop in revenues.

As you can see, the recovery from the 1980-82 recession was no more impressive that either of the recoveries that we've had since then.

How about compared to recoveries before 1980-82?

OUTSTANDING CONSUMER CREDIT AND PERSONAL SAVING: 1959-2003
                         (billions of dollars)

              Personal Disposable    Total                Non-
     Personal  Current   Personal Consumer Revolving Revolving Personal
Year   Income    Taxes     Income   Credit    Credit    Credit   Saving
-----------------------------------------------------------------------
1959    392.8     42.3      350.5     56.0       0.0      56.0     26.7
1960    411.5     46.1      365.4     60.0       0.0      60.0     26.7
1961    429.0     47.3      381.8     62.2       0.0      62.2     32.2
1962    456.7     51.6      405.1     68.1       0.0      68.1     33.8
1963    479.6     54.6      425.1     76.6       0.0      76.6     33.3
1964    514.6     52.1      462.5     86.0       0.0      86.0     40.8
1965    555.7     57.7      498.1     96.0       0.0      96.0     43.0
1966    603.9     66.4      537.5    101.8       0.0     101.8     44.4
1967    648.3     73.0      575.3    106.8       0.0     106.8     54.4
1968    712.0     87.0      625.0    117.4       2.0     115.4     52.8
1969    778.5    104.5      674.0    127.2       3.6     123.6     52.5
1970    838.8    103.1      735.7    131.6       5.0     126.6     69.5
1971    903.5    101.7      801.8    146.9       8.2     138.7     80.6
1972    992.7    123.6      869.1    166.2       9.4     156.8     77.2
1973   1110.7    132.4      978.3    190.1      11.3     178.7    102.7
1974   1222.6    151.0     1071.6    198.9      13.2     185.7    113.6
1975   1335.0    147.6     1187.4    204.0      14.5     189.5    125.6
1976   1474.8    172.3     1302.5    225.7      16.5     209.2    122.3
1977   1633.2    197.5     1435.7    260.6      37.4     223.1    125.3
1978   1837.7    229.4     1608.3    306.1      45.7     260.4    142.5
1979   2062.2    268.7     1793.5    348.6      53.6     295.0    159.1
1980   2307.9    298.9     2009.0    351.9      55.0     297.0    201.4
1981   2591.3    345.2     2246.1    371.3      60.9     310.4    244.3
1982   2775.3    354.1     2421.2    389.8      66.3     323.5    270.8
1983   2960.7    352.3     2608.4    437.1      79.0     358.0    233.6
1984   3289.5    377.4     2912.0    517.3     100.4     416.9    314.8
1985   3526.7    417.4     3109.3    599.7     124.5     475.2    280.0
1986   3722.4    437.3     3285.1    654.8     141.1     513.7    268.4
1987   3947.4    489.1     3458.3    686.3     160.9     525.5    241.4
1988   4253.7    505.0     3748.7    731.9     184.6     547.3    272.9
1989   4587.8    566.1     4021.7    794.6     211.2     583.4    287.1
1990   4878.6    592.8     4285.8    808.2     238.6     569.6    299.4
1991   5051.0    586.7     4464.3    798.0     263.8     534.3    324.2
1992   5362.0    610.6     4751.4    806.1     278.4     527.7    366.0
1993   5558.5    646.6     4911.9    865.7     309.9     555.7    284.0
1994   5842.5    690.7     5151.8    997.1     365.6     631.6    249.5
1995   6152.3    744.1     5408.2   1140.6     443.1     697.5    250.9
1996   6520.6    832.1     5688.5   1242.2     498.9     743.2    228.4
1997   6915.1    926.3     5988.8   1305.0     521.7     783.4    218.3
1998   7423.0   1027.0     6395.9   1400.3     562.8     837.5    276.8
1999   7802.4   1107.5     6695.0   1512.8     590.5     922.3    158.6
2000   8429.7   1235.7     7194.0   1686.2     658.9    1027.4    168.5
2001   8713.1   1243.7     7469.4   1822.2     703.9    1118.3    127.2
2002   8910.3   1053.1     7857.2   1902.7     716.7    1186.0    183.2
2003   9208.0    991.4     8216.5   1998.5     744.9    1253.6    173.5



Great table. You have this data in real dollars? If so could you chart it versus the individual real income tax revenue numbers in post #42?

If so could you chart it versus the individual real income tax revenue numbers in post #42?

Just the disposable personal income numbers that is.

As a % of GDP. :^)

My point is, I guess, that if tax revenues drop from 9.36% of GDP in 1981 to 7.77% of GDP in 1984 is the 1.59% drop in revenues offset by a larger increase in disposable income?

A "Laffer Curve" is really just a simple elasticity curve applied to taxes, useful in demonstrating a theory but having no predictive value. There is no way to know where you are on the curve, or what its shape is. Reagan's economists never claimed that lowering marginal rates would increase the yield to the Treasury. That's why President Reagan asked for budget cuts from Tip O'Neil, which O'Neil reneged on.

The Reagan economists' actual prediction was that economic growth, stimulated by lower rates, would recoup much of the revenue loss forecast by static analysis. And that is what happened. Some 66 cents of each dollar cut was regained from growth. The data can be found in Lawrence Lindsey's study "The Growth Experiment".