[ancient_geezer]

What do marginal tax rates have to do with anything?

The higher the marginal tax rate, the cheaper the price of leisure, and the more valuable a tax shelter becomes. Why should anyone earn more when going fishing or golfing is more pleasurable than paying more taxes. Stick your investments into non-tax/low-tax cubbyholes as marginal tax rates rise, and go fishing instead of working or risking that additional dollar.

You know damn well you can't compare marginal tax rate to a flat tax rate.

Certainly you can by plotting the combined(income/payroll) marginal rates on what your income is and compare them to the marginal rate of the NRST with respect to total payments for what you spend:

 

The Reagan tax cuts is a flawed example.

LOL, your */~rdavis whoever he is, constructs a strawman, and does a lousy job of analysis. The base issue is one of tax avoidence behavior which increases with increasing marginal rates, and decreases with decreasing marginal rates.

Marginal tax rates matter as they effect the tax avoidance actions of those who pay the most taxes, seen by evaluating the effect of the '86 and subsequent tax law changes on the income producing/reporting behaviour of the highest tax brackets.

As marginal rates increase, tax reportable income decreases(folks move income production towards non taxable gains & returns and sheltering income) as marginal rates decrease tax reportable income increases(folks move income production toward more profitable taxable ventures outside of tax shelters.)

http://www.ncpa.org/ea/eamj94/eamj94o.html

Laffer Curve Redux

The increases in marginal tax rates imposed by the Clinton administration and Congress are likely to raise little or no additional revenue. Instead, the high-income people subject to the higher rates will reduce the amount they work, take more of their pay in fringe benefits rather than in taxable income, increase their deductions and invest their income in tax-free municipal bonds rather than taxable bonds. All of these measures will reduce taxable income, and thus the expected revenue will not be forthcoming.

How do we know this? Because when the top marginal tax rate was cut, going from 50 percent in 1986 to 28 percent in 1988, high-income people did the opposite. As a result, the taxable income of people who were in the 49 percent and 50 percent marginal tax brackets in 1985 rose by 20 percent relative to overall income growth for the economy.

If high-income people did not change any of their behavior, then the tax rate increases of 1993 would generate additional tax revenue of $25.8 billion. But taxpayers will respond to the disincentives in the law. Economists have used computer simulations to estimate that:

• A couple whose taxable income would have been $180,000 will respond in ways that reduce it by 12 percent.
• If that happens, instead of paying $3,305 more in taxes, the couple will pay about $4,864 less.
• A couple whose taxable income would have been $500,000 will respond in ways that will almost wipe out any additional taxes.
• The couple's tax bill will increase by only about $1,460 rather than the $37,585 of additional taxes they would have paid if they had not changed their behavior.
• Overall, the tax increase will generate at most only $3.4 billion in revenue rather than the $25.8 billion. - David R. Henderson.

Source: Martin Feldstein, "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," NBER Working Paper No. 4496, October 1993, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, (617) 868-3900.

[Your Nightmare]

LOL, your */~rdavis whoever he is, constructs a strawman, and does a lousy job of analysis.

rdavis is a fellow Freeper named Remember (AFAIK). You can take up his analysis with him. He seems to have done a good job to me.


"The increases in marginal tax rates imposed by the Clinton administration and Congress are likely to raise little or no additional revenue." Martin Feldstein - 1993

Well that prediction didn't turn out too well, now did it. Thank you for the beautiful example of how wrong economists can be when they try to predict the future. (Beside the fact he doesn't seem to understand what Laffer was saying with the Laffer Curve. He said raising the tax rate could raise or lower revenues depending on where you are on the curve.)

[remember]

The Reagan tax rate cuts being a prime example of not only of economic growth from marginal tax rate decreases, but a characteristic growth in government revenue collections that go with growing economies.

The Reagan tax cuts is a flawed example.

LOL, your */~rdavis whoever he is, constructs a strawman, and does a lousy job of analysis. The base issue is one of tax avoidence behavior which increases with increasing marginal rates, and decreases with decreasing marginal rates.

If it's such a lousy analysis, then you should have no trouble pointing out specifically which numbers and/or conclusions are incorrect. The fact is, I have presented this analysis to numerous supply-siders and none have yet contradicted anything specific in it. So please, take your best shot.

The fact is, I am yet to see any reputable supply-sider stand by the claim that tax cuts cause government revenues to increase by more than they would otherwise. In fact, they all seem to say otherwise. For example, following is an excerpt from the CATO Policy Analysis titled "Supply Tax Cuts and the Truth About the Reagan Economic Record", co-written by Stephen Moore and online at http://www.cato.org/pubs/pas/pa-261.html:

Fable 1: The Reagan Administration Relied on "Pie-in-the-Sky" Predictions That Tax Rate Cuts Would Pay for Themselves

Supply-siders predicted their tax cuts would pay for themselves. This was nonsense from day one, because the credible evidence overwhelmingly indicates that revenue feedbacks from tax cuts is 35 cents per dollar, at most. Are we really gullible enough to accept a free dinner while still suffering the indigestion from our "free" lunch? [23]

This is one of the great enduring myths of Reaganomics: that the White House relied on wild supply-side assumptions regarding the revenue impact of the tax cuts. The Reagan administration never assumed that the tax cuts would pay for themselves. In fact, "America's New Beginning: A Program for Economic Recovery," the White House budget plan released on February 18, 1981, included a table entitled "Direct Revenue Effects of Proposed Tax Reductions." [24] That table predicted a huge $700 billion revenue loss from the tax cuts through 1986, as shown in Table 4.

Table 4 

Reagan Administration's Scoring of the 1981 Tax Cut--Revenue Impact, in Billions of Dollars  

1981   1982   1983   1984   1985   1986  1981-86
---- ------ ------ ------ ------ ------ --------
-8.8  -53.9 -100.0 -148.1 -185.7 -221.7   -718.2 

Source: Office of the President, "America's New Beginning: A Program for Economic Recovery,"
February 18, 1981, p. 16. 

So, once again, if you can find any specific problem with the numbers or conclusions in my analysis at http://home.att.net/~rdavis2/taxcuts.html, please post it.