JFK thinks so. Economist Arther Laffer believes so too in his piece below. Don’t ruin the US economy & the country by raising taxes… what do you guys think? Comments? -------------------------- By ARTHUR LAFFER, The Wall Street Journal "Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues. " - President John F. Kennedy, Economic Report of the President, January 1963 If only more of today’s leaders thought like JFK. Sadly, in the debate over whether to extend the 2001 and 2003 tax cuts, and if so whether the cuts should be extended to those people who are in the highest tax bracket, there is a false presumption that higher tax rates on the top 1% of income earners will raise tax revenues. Anyone who is familiar with the historical data available from the IRS knows full well that raising income tax rates on the top 1% of income earners will most likely reduce the direct tax receipts from the now higher taxed income—even without considering the secondary tax revenue effects, all of which will be negative. And who on Earth wants higher tax rates on anyone if it means larger deficits? Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We’ve also cut just about every other income tax rate as well. During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period. (See the nearby chart). These results shouldn’t be surprising. The highest tax bracket income earners, when compared with those people in lower tax brackets, are far more capable of changing their taxable income by hiring lawyers, accountants, deferred income specialists and the like. They can change the location, timing, composition and volume of income to avoid taxation. Just look at Sen. John Kerry’s recent yacht brouhaha if you don’t believe me. He bought and housed his $7 million yacht in Rhode Island instead of Massachusetts, where he is the senior senator and champion of higher taxes on the rich, avoiding some $437,500 in state sales tax and an annual excise tax of about $70,000. Howard Metzenbaum, the former Ohio senator and liberal supporter of the death tax, chose to change his official residence to Florida just before he died because Florida does not have an estate tax while Ohio does. Goodness knows what creative devices former House Ways and Means Chairman Charlie Rangel has used to avoid paying taxes. In short, the highest bracket income earners—even left-wing liberals—are far more sensitive to tax rates than are other income earners. When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP. Or perhaps you’d like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP. And then there’s the Hoover/Roosevelt Great Depression. The Great Depression was precipitated by President Hoover in early 1930, when he signed into law the largest ever U.S. tax increase on traded products—the Smoot-Hawley Tariff. President Hoover then thought it would be clever to try to tax America into prosperity. Using many of the same arguments that Barack Obama, Nancy Pelosi and Harry Reid are using today, President Hoover raised the highest personal income tax rate to 63% from 24% on Jan. 1, 1932. He raised many other taxes as well. President Roosevelt then debauched the dollar with the 1933 Bank Holiday Act and his soak-the-rich tax increase on Jan. 1, 1936. He raised the highest personal income tax rate to 79% from 63% along with a whole host of other corporate and personal tax rates as well. The U.S. economy went into a double dip depression, with unemployment rates rising again to 20% in 1938. Over the course of the Great Depression, the government raised the top marginal personal income tax rate to 83% from 24%. Is it any wonder that the Great Depression was as long and deep as it was? Whoever heard of a country taxing itself into prosperity? Not only did taxes as a share of GDP fall, but GDP fell as well. It was a double whammy. Tax receipts from the top 1% of income earners stayed flat as a share of GDP, going to 1% in 1940 from 1.1% in 1928, but at what cost? We all know that there are lots of factors influencing tax revenues from the rich, but the number one factor has to be the statutory tax rates government tells the rich they have to pay. Not only do the direct income tax consequences of higher tax rates on those in the highest brackets lead to higher deficits, the indirect effects magnify the tax revenue losses many fold. As a result of higher tax rates on those people in the highest tax brackets, there will be less employment, output, sales, profits and capital gains—all leading to lower payrolls and lower total tax receipts. There will also be higher unemployment, poverty and lower incomes, all of which require more government spending. It’s a Catch-22. Higher tax rates on the rich create the very poverty and unemployment that is used to justify their presence. It is a vicious cycle that well-trained economists should know to avoid. Mr. Laffer is the chairman of Laffer Associates and co-author of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).
Completely agree with Laffer.
When will conservatives realize that there is a difference between cutting tax rates from 90% to 70% or from 70% to 40% than from 39% to 35%. Why not cut from 39% to 10% or 5% or 0? Everyone knows tax cuts stimulate the economy and promote economic growth, but they do not pay for themselves. Deficits exploded under Reagan and Bush because the revenue did not meet expenditures – their plan to “starve the beast” did not work and left us with a huge national debt and more vulnerable to fight off future recessions. Tax cuts (when you’re running a current deficit) come at a cost and like everything you have to weigh the good against the bad. The debate shouldn’t be whether we should maintain the Bush tax cuts; it should be whether we should borrow more money to fund operations while the cuts are in effect.
Depends, does the current plutocracy benefit you in any way?
Are we STILL taking Art Laffer seriously? Question: How many times does someone need to be discredited before we stop taking them seriously? Also: Anyone who utters one iota of complaint about current spending and then tries to argue we shouldn’t let the Bush tax cuts expire exposes themselves as both an idiot and hypocrite.
shorter version… EVERYONE MUST DEFEND THE SELF-INTERESTS OF THE TOP 1%!!!
frisian Wrote: ------------------------------------------------------- > shorter version… > > EVERYONE MUST DEFEND THE SELF-INTERESTS OF THE TOP > 1%!!! Frisian, well said! Thanks for sticking it up to NakedPuts. Obviously we all know that one of the reasons is that the top 1% of where a significant amount of the invested capital to start new businesses, hire more people and to multiply…
AlphaSeeker Wrote: ------------------------------------------------------- > frisian Wrote: > -------------------------------------------------- > ----- > > shorter version… > > > > EVERYONE MUST DEFEND THE SELF-INTERESTS OF THE > TOP > > 1%!!! > > Frisian, well said! Thanks for sticking it up to > NakedPuts. > > Obviously we all know that one of the reasons is > that the top 1% of where a significant amount of > the invested capital to start new businesses, hire > more people and to multiply… They’d also be an excellent source of additional tax revenues.
NakedPuts Wrote: ------------------------------------------------------- > Are we STILL taking Art Laffer seriously? > > Question: How many times does someone need to be > discredited before we stop taking them seriously? > > Also: Anyone who utters one iota of complaint > about current spending and then tries to argue we > shouldn’t let the Bush tax cuts expire exposes > themselves as both an idiot and hypocrite. I am not following how a complaint about excessive government spending (expenditures) while believing a set of tax laws should be maintained (revenues) makes somebody an idiot and a hypocrite. In fact, I would argue that one who wants smaller government will, in fact, hope for less expenditure and less taxes. How is that idiotic?
goes to eleven Wrote: ------------------------------------------------------- > I am not following how a complaint about excessive > government spending (expenditures) while believing > a set of tax laws should be maintained (revenues) > makes somebody an idiot and a hypocrite. In fact, > I would argue that one who wants smaller > government will, in fact, hope for less > expenditure and less taxes. How is that idiotic? Because the US needs to be tough and do both to get our balance sheet back in shape. Too bad the populace is too spoiled, entitled and weak willed to support any true economic austerity. Harsh reality.
Question is do the top .1 percent reinvest the money in USA or overseas? If there was a way to force them to reinvest/ spend locally in the US, then I am for more tax cuts. If however they stash it away in a swiss bank account or invest in Dubai and China, then I am against it.
>> They’d also be an excellent source of additional tax revenues. ha ha. I don’t think alphaseeker gets it. I really can’t believe anybody would take Laffer seriously. The man who on 8/28/2006 said: “The U.S. economy has never been in better shape… We’re gonna have a nice little slow down, but it’s not gonna be a crash.” http://www.youtube.com/watch?v=LfascZSTU4o He staked “his honor” on this (4:35). Shouldn’t this mean that he himself thinks we no longer need to listen to him?
the root of the matter is whether you believe 1) that you, based on your natural capitalist self-interest, will be more effecient to spend your hard-earn money; or 2) the government will. If you believe in 2), you generally favor high taxes. But, how effecient is our government programs and GSEs?
AlphaSeeker. You are perfectly correct in your analysis based on the “invisible hand” theory taught in all principles of econ courses. It is a good general theory that explains the basic method in which economics works, but it doesn’t explain everything and has many exceptions. This is analogous to the efficient market theory taught in Finance. We understand the idea of EMT, and it is great to view the market through this lens. However, we also know that the EMT never works perfectly and occassionally fails perfectly. In the same way individual self-interest does not always yield perfect market outcomes. Solely self-interested spending would never pay for armies, schools, most roads, etc. My favorite example for market inefficiencies is fisheries. The ideal level of fishing for a fishery is that which will allow the fish to replenish their population perpetually. The ideal level of fishing for each individual fisherman is that which he can catch from dawn to dusk. With no governance, every fish an individual fisherman does not catch, another fisherman will catch. In the U.S. we have lavish amounts of spending on consumable goods, while we seem never to have money of public transport, infrastructure, schools, etc. I think the appropriate economic term for this is “ghetto rich”. It must have been coined by J.K. Galbraith.
goes to eleven Wrote: ------------------------------------------------------- > I am not following how a complaint about excessive > government spending (expenditures) while believing > a set of tax laws should be maintained (revenues) > makes somebody an idiot and a hypocrite. In fact, > I would argue that one who wants smaller > government will, in fact, hope for less > expenditure and less taxes. How is that idiotic? Because as noted above, when you’re running a deficit there’s no difference between a tax cut and a spending increase. Please review: http://www.cbpp.org/cms/index.cfm?fa=view&id=3036 Short version for those who don’t want to click through: The Bush tax cuts, if extended, will drive a larger deficit than both wars, TARP, Fannie and Freddie, the Stimulus and the effects of the economic downturn COMBINED.
^^^^ There is no difference between a tax cut and a spending increase? Hmm… I understand that a $5 increase in revenue or a $5 decrease in spending would have the same effect on any balance sheet (regardless of deficit balance), but if you want to delever, the fact that I would rather see a reduction in government spending as opposed to tax increases makes me neither a hypocrite nor an idiot. We can have a rational discussion about the extent to which additional taxes hurts growth, but if you think there is no difference between a tax cut and a spending increase, we will have to do some work to even get to a starting point. And if I used a WSJ editorial as a basis for my argument, I would likely be flamed, as I should. Yet you cite the Center on Budget Policies and Priorities? Whoa.
no difference between a tax cut and > a spending increase, we will have to do some work > to even get to a starting point. There is no difference when you’re running a deficit.
This argument is so tired. Imagine a simplified US economy with a 10 trillion dollar GDP and a 40% tax rate. This would generate 4 trillion dollars in revenue per year. Lets say the tax rate is cut to 35% and this generates 10% more in GDP in EVERY year (a quite generous assumption). 35% of 11 trillion? $3.85 trillion. The Laffer Curve is irrelevant at such low tax rates.
But if we cut the tax rate to 0% we will have so much growth that we can pay off both the deficit and the debt with the proceeds. And remember, only the profits get taxed. If you hire someone new, that reduces your profits and therefore your tax bill. With sensible legislation, hiring someone could be a sensible way to reduce your taxes.
goes to eleven Wrote: ------------------------------------------------------- > And if I used a WSJ editorial as a basis for my > argument, I would likely be flamed, as I should. > Yet you cite the Center on Budget Policies and > Priorities? Whoa. You’re only a hypocrite and idiot if you’ve been loudly whining about deficit levels and spending in the past 6 months, like so many tea party hacks. I don’t know if that applies to you or not. All I cited was a single piece of analysis they did, based upon CBO data. That’s hardly parroting their talking points.