[Wayne07]

I agree with your analysis, including that the growth maximizing tax rate is most likely 0%. But remember, that's not the real question at hand. The question is whether cutting tax rates always generates enough growth to offset the revenue. The most obvious example is our agreed on 0% max growth tax rate, which obviously would kill all revenue. And at the opposite extreme, a 100% tax rate would severely damage both growth and revenue. It is unclear where we are on the curve now, but the results of the Bush tax cuts, and Clinton tax increases suggest that tax cuts now would help growth, but not enough to make up the lost revenue.

I'm fine with that, it just means we need to cut spending, and I don't see the political will to do that.

[conservatism_IS_compassion]

I agree with your analysis, including that the growth maximizing tax rate is most likely 0%. But remember, that's not the real question at hand. The question is whether cutting tax rates always generates enough growth to offset the revenue.

The issue, rather, is “What rate now would maximize the credit rating of the U.S. Treasury in the long run?” I put it that way because a paper dollar is a U.S. debt instrument bearing zero interest, and the only reason for any tax at all is to keep the value of the dollar stable.

Looked at that way, anything - even if it costs money - which improves the credit rating of the Treasury helps sustain the value of the dollar. And growth of the US economy improves the credit rating of the Treasury. Thus we have the conundrum that cutting taxes increases the US economy and thereby improves the credit rating of the Treasury, even as it may, to some extent, reduce current federal tax revenue and thereby tend to degrade the credit rating of the Treasury.

So the question is, how sensitive is the credit rating of the Fed to growth, and how sensitive is growth to tax rate? We should cut taxes at least to below the point of diminishing returns. Our tax rates should be low enough that we are sure of that. Especially since we might as some future time face an actual emergency and need to increase revenue.