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Arthur B. Laffer: The Tax Threat to Prosperity
The Wall Street Journal ^ | January 25, 2008 | Arthur B. Laffer

Posted on 01/25/2008 1:00:25 AM PST by Aristotelian

Over the past 30 years, the U.S. has seen large changes in income tax rates as well as other tax rates. And, as would be expected, the budgetary implications of these tax changes have once again become a hotly debated partisan issue.

But missing from the discussion are the huge differences in how the top 1% of income earners respond to changes in tax rates versus, say, the bottom 75% or 80% of taxpayers -- the so-called middle class and lowest income groups. The "rich" quite simply are not like the rest of us.

(snip)

The important point here is that, over the last 25-plus years, the only group that experienced an increase in income taxes paid as a share of GDP was the top 1% of income earners. Even the top 2%-5% of income earners saw a decline in the GDP share of their income taxes paid.

(snip)

the very highest income earners are and have always been able to vary their reported income and thus control the amount of taxes they pay. Whether through tax shelters, deferrals, gifts, write-offs, cross income mobility or any of a number of other measures, the effective average tax rate barely budges. But this group's total tax payments are incredibly volatile.

(snip)

Mark my words: If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Politics/Elections
KEYWORDS: laffer; laffercurve; napkin
If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.

Raising marginal tax rates on the rich will result in a huge fiscal deficit at a time when the baby boom generation will be retiring, putting the nation's fiscal house under additional strain. This year's election will have big consequences.

1 posted on 01/25/2008 1:00:26 AM PST by Aristotelian
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To: Aristotelian

Thanks for posting. This has happened to me my whole life. Every time the Democrats raise taxes on the rich, I end up paying more. At least now I have an explanation for why that happens.


2 posted on 01/25/2008 3:55:39 AM PST by Morgan in Denver
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To: Aristotelian

What nobody seems to want to talk about is how the income tax has created our oligarchy. When 5% of the country pays 60% of the taxes..those 5% have bought the government.That is why we have a Republicrat government....who selected Hillary as their next leader...


3 posted on 01/25/2008 4:00:27 AM PST by mo
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To: Aristotelian

The current taxes are set up to control the masses.
Raise public debt with control thru taxes.
Dumb down the masses, then import workers with no schooling.

Not the 1% who know or have the money to control their taxes.


4 posted on 01/25/2008 4:19:13 AM PST by Bibman (Still American and still here.)
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5 posted on 01/25/2008 4:57:04 AM PST by A.A. Cunningham
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To: Aristotelian
Exerpting this article just can't do it justice. Laffer make the point that the top 1% of earners have paid the same average rate on the income they reported, no matter how the tax rate has changed over the past generation. The reality is that the top earners can arrange their affairs to see that that is what happens - and they always do it.

He also asserts that throughout the past generation the middle/lower income groups have been paying a lower and lower tax rate , and paid less revenue to the government. Whereas the revenue from the top 1% of earners has gone up or down inversely as the top tax rate has gone down or up. The clear (but unstated) implication of which is that a flat tax would do wonders both for government revenue and for the economy.

If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.
Stack this issue on top of the looming expense of retiring the bonds in the Social Security Trust Fund, to pay Retirement Boom Social Security, and you have a recipe for a Perfect Storm of uncontrollable budget increases, tax rate increases, and a resulting collapse of government revenue.

6 posted on 01/25/2008 1:16:12 PM PST by conservatism_IS_compassion (The Democratic Party is only a front for the political establishment in America - Big Journalism.)
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To: Aristotelian
Mark my words: If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.

Nah. It will just be some malaise that can be overcome by wearing sweaters and turning down thermostats by 5 degrees.

7 posted on 01/25/2008 1:18:57 PM PST by TChris ("if somebody agrees with me 70% of the time, rather than 100%, that doesn’t make him my enemy." -RR)
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To: Aristotelian

Didn’t Clinton Raise the Taxes on “the Rich?”


8 posted on 01/25/2008 1:57:43 PM PST by Philly Nomad
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To: Aristotelian
As a concept, the Laffer Curve simply asserts that the higher the price (i.e., the higher the tax rate) that the government charges for reporting income, the less income will be reported. In economist-speak, the demand for taxable income is elastic.

Laffer asserts in this article that throughout the past generation, whereas the middle/lower income groups have been paying a lower and lower tax rate and paid less and less revenue to the government, the revenue from the top 1% of earners has gone down or up inversely as the top tax rate has gone up or down. He asserts,

IOW, that the peak of the Laffer Curve is somewhere between the rate that the middle class pays and the rate that the top 1% of income earners are, at least nominally, charged - but which they exert themselves to arrange their affairs not to pay.


9 posted on 01/25/2008 3:50:04 PM PST by conservatism_IS_compassion (The Democratic Party is only a front for the political establishment in America - Big Journalism.)
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