Debunking One of the Worst Ideas in Economics (The Naked Economist)

Yahoo! ^ | May 3, 2006 | Charles Wheelan, Ph.D

[facedown]

Another theoretician unencumbered by real-life results.

[Jibaholic]

Two points:

1. The marginal tax rate was 70% under Carter. The laffer curve certainly applied when cutting taxes then.
2. Even if the revenues of cutting lower marginal rates do not offset, the economy still grows. That means more jobs.

[rhombus]

State income tax revenue runneth over

http://www.freerepublic.com/focus/f-news/1625981/posts

[Excellence]

Shouldn't this be about a governments "right" to seize the private property of its citizens?

[the invisib1e hand]

...assume...

there's the rub...

[Ramius]

$1 trillion in new economic growth (a Herculean assumption, by the way).

Ten percent growth in an economy is "Herculean"??

I think I've spotted his problem...

[On the Road to Serfdom]

If Laffer were right, lower taxes would never require any spending sacrifice.

Wow, what a bold face lie.

[G-Bear]

This goof looks at it as a simple mathematical equation.

He takes no account of entrepeneurism.

Besides which, when observable reality contradicts your theory, you should change your theory, and not conclude that reality is wrong.

[edsheppa]

According to The Economist -- my former employer and no bastion of left-wing thought --

Right.

[Logophile]

The economy grows, government revenues shrink.

That sounds good to me.

[staytrue]

The economy grows, government revenues shrink.

And a GROWING ECONOMY IS BAD ?

It seems to me the way to go is to cut govt. spending, cut taxes and sit back and watch the economy go roaring ahead and everyone gets rich.

[MHGinTN]

Do you know what you get by lots of assuming?... Full of donkey meat.

[r9etb]

The problem with the article is that it doesn't actually provide any actual data on the effects of changes in the marginal tax rate, even though such data are presumably available.

If I'm not mistaken, I believe that federal revenues increased (as predicted) after marginal rate decreases.

So Wheelan's hypothesis/complaint seems to have a serious empirical problem.

[staytrue]

It seems to me that with a growing economy, govt spending should shrink because of the lesser spending on welfare.

The real question is why this does not happen.

[cpdiii]

0% tax = no revenue
100% tax = no revenue as people would not work.

What the author fails to address is what is the top of the Laffer Curve where tax revenues are max. He fails to address this because he believes in high taxes and a ever expansive government. His article is pure BRAVO SIERRA!

If my memory is correct the Laffer curve top is around 37%. This is for all taxes combined i.e. state, local, federal, social security etc. Someone correct me if I am wrong on the percentage.

[ConservativeMind]

This column should give you a hint of why economics is called the dismal science -- it's all about tradeoffs.

That isn't necessarily true of the science of economics and it is especially not true of real life.

Economics is not a mere zero-sum game. In other words, if one person wins, the other MUST lose something. In fact, I don't recall any economics professors I've had that thought zero-sum reflected reality; instead, it could only be used to illustrate simple relationships.

There are times that a synergy is created; in effect, both parties get something much more than they could realize apart. One example many have is that of a good marriage.

On another note:

His attempt at debunking the use of the Laffer Curve is pretty lame. Even he admits the Curve effect is real (and then provides no basis for a 'place' on the curve taxes ought to be). The Laffer Curve is real and can show how taxes prevent a greater good from being achieved by all.

I agree spending must be cut, but not because the Laffer Curve theory 'fails'.

[lepton]

Let me be perfectly clear: I'm not arguing that tax cuts are bad. I'm simply pointing out that we can't pretend that tax cuts won't require reductions on the spending side to balance the budget. In fact, you can disregard every other argument in this column and think about one thing: If Laffer were right, lower taxes would never require any spending sacrifice. We could pay a mere one percent of our income in taxes and still fund all of our government spending -- and maybe more! Do you think that's really possible?

This section demonstrates that he is not simply wrong, but is utterly clueless in what the Laffer curve says/is. What is his Ph.D. in? Art Education?

[youngjim]

So why does Laffer's sketch on Dick Cheney's cocktail napkin rank near the top of my list of bad economic ideas? Because, when applied to the U.S., it's intellectually dishonest. The Laffer Curve offers the false promise that we can cut taxes without making any sacrifice on the spending side, and that's simply not true. It's the economic equivalent of arguing that you can lose weight by eating more.

Between total confiscation and no taxes the law of diminishing returns dictates that govt revenues will indeed go down if taxes are cut beyond some level. The writer projects his own intellectually dishonesty by omitting mention that in a discussion of the curve, i.e., it's not the Laffer straight line.

Ironic that this guy wrote this column for 'yahoo.'

[coon2000]

The Laffer curve does not indicate that always lowering taxes increases revenue to the government. There is a point at which revenues are maximized, going below that point will mean less revenues to the government. We need to find that point, and at the same time reduce government spending. As spending falls we can further reduce the tax burden on the citizens who pay taxes.