Posted on 11/21/2005 8:39:22 PM PST by ChessExpert
The final budget numbers got very little attention. .... And it turns out that these numbers paint a fairly encouraging picture. ... Perhaps thats why they didnt get much coverage
(Excerpt) Read more at nationalreview.com ...
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 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. =^(
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.
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.
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.
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
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?
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.
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.
How about we pay for a tax cut by cutting spending?
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 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!
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