Laffer Curve Cultists
September 5, 2007 9:31 PM Subscribe
"Here is what makes the rise of supply-side ideology even more baffling. One might expect that a radical ideology that successfully passed itself off as a sophisticated new doctrine would at least have the benefit of smooth, reassuring, intellectual front men, men whose very bearing could attest to the new doctrine's eminent good sense and mainstream bona fides. Yet, if you look at its two most eminent authors, good sense is not the impression you get. Let me put this delicately. No, on second thought, let me put it straightforwardly: They are deranged." Feast of the Wingnuts - How economic crackpots devoured American politics, by Jonathan Chait. Counterlink: Arthur B. Laffer explains his curve.
Some African tax rates are the highest in the world.
Laffer curve, 'n stuff.
/sigh
posted by ryoshu at 11:12 PM on September 5, 2007
Laffer curve, 'n stuff.
/sigh
posted by ryoshu at 11:12 PM on September 5, 2007
There's nothing wrong with the Laffer curve in of itself. The problem is where on the curve the Right says we are.
They insist we're already in the "Prohibitive Range" and a tax-cut would lead to more tax revenue. We aren't. Higher taxes would lead to more revenue. (Not that I'm exactly thrilled about the prospect of raising taxes.)
People who scoff at the very mention of the concept either don't understand the Laffer curve, or mean to laugh at it's proposed application. There's nothing too radical in the theory itself.
posted by spaltavian at 11:21 PM on September 5, 2007 [1 favorite]
They insist we're already in the "Prohibitive Range" and a tax-cut would lead to more tax revenue. We aren't. Higher taxes would lead to more revenue. (Not that I'm exactly thrilled about the prospect of raising taxes.)
People who scoff at the very mention of the concept either don't understand the Laffer curve, or mean to laugh at it's proposed application. There's nothing too radical in the theory itself.
posted by spaltavian at 11:21 PM on September 5, 2007 [1 favorite]
Feast of the Wingnuts
Isn't that what they serve for dinner on the Neocon Cruise?
posted by homunculus at 11:32 PM on September 5, 2007
Isn't that what they serve for dinner on the Neocon Cruise?
posted by homunculus at 11:32 PM on September 5, 2007
I'll feast on your wingnuts.
if you play your cards right
ew, I just grossed myself out
posted by davejay at 11:50 PM on September 5, 2007
if you play your cards right
ew, I just grossed myself out
posted by davejay at 11:50 PM on September 5, 2007
Firstly, I tend to be suspicious of articles that feature the terms "wingnut" or "moonbat": synonyms meaning "someone who disagrees with my political beliefs and is therefore insane."
Second, he seems to be radically redefining terms like "supply side economist" to mean something very extreme... then criticizing them for being extreme. All supply side economics basically means is that you think it's better to boost economic growth by encouraging businesses to supply more stuff, than by increasing spending so that the government+consumers demand more stuff. You may disagree, but it's not an intrinsically "crackpot" idea.
As spaltavian says, the existence of some form of Laffer curve is not a controversial idea. It's not hard to see that if income tax was 99.9%, total tax receipts would fall as hardly anyone would bother to earn anything.
Alternatively, consider somone who stores a pile of cash under his bed for a year to dodge taxes, rather than pay it into a bank. By doing so, he forgoes the interest he would have made: say 3% of the value. If the tax he dodges was less than 3%, he has no incentive to do that. The more the tax rate increases over 3%, the more incentive he has to do that. If you increase the tax rate enough, the amount you lose to dodging is going to exceed the amount you gain from the higher payments.
That said, it's only a very tiny minority of people who think that the US is currently on the side of the Laffer curve where you can raise revenue by cutting taxes. You might more fairly call those people "cultists" or "crackpots", but that doesn't mean the whole concept is wrong.
posted by TheophileEscargot at 2:08 AM on September 6, 2007 [1 favorite]
Second, he seems to be radically redefining terms like "supply side economist" to mean something very extreme... then criticizing them for being extreme. All supply side economics basically means is that you think it's better to boost economic growth by encouraging businesses to supply more stuff, than by increasing spending so that the government+consumers demand more stuff. You may disagree, but it's not an intrinsically "crackpot" idea.
As spaltavian says, the existence of some form of Laffer curve is not a controversial idea. It's not hard to see that if income tax was 99.9%, total tax receipts would fall as hardly anyone would bother to earn anything.
Alternatively, consider somone who stores a pile of cash under his bed for a year to dodge taxes, rather than pay it into a bank. By doing so, he forgoes the interest he would have made: say 3% of the value. If the tax he dodges was less than 3%, he has no incentive to do that. The more the tax rate increases over 3%, the more incentive he has to do that. If you increase the tax rate enough, the amount you lose to dodging is going to exceed the amount you gain from the higher payments.
That said, it's only a very tiny minority of people who think that the US is currently on the side of the Laffer curve where you can raise revenue by cutting taxes. You might more fairly call those people "cultists" or "crackpots", but that doesn't mean the whole concept is wrong.
posted by TheophileEscargot at 2:08 AM on September 6, 2007 [1 favorite]
Have you noticed that the crackpot cultists have been running the country lately?
posted by Kirth Gerson at 4:22 AM on September 6, 2007 [2 favorites]
posted by Kirth Gerson at 4:22 AM on September 6, 2007 [2 favorites]
Of course the Laffer Curve is uncontroversial in theory. That's why it's not even worth talking about. If you tax all income at 99.5 percent, it is going to be bad for the economy and for tax revenues.
Duh.
What we are talking about in the US, today, is whether tax rates should be, say, 35 percent vs. 36.8 percent.
And the Laffer Curve is loudly and repeatedly cited by the deranged (yet mainstream) right as a reason to never, ever, ever raise taxes one percent, and why cutting taxes always, always leads to increased revenue. Both are false.
To say that the Laffer Curve works in theory is just like saying that Communism works in theory. The issue is, what do we see in the actual real world we're living in?
posted by ibmcginty at 4:25 AM on September 6, 2007 [4 favorites]
Duh.
What we are talking about in the US, today, is whether tax rates should be, say, 35 percent vs. 36.8 percent.
And the Laffer Curve is loudly and repeatedly cited by the deranged (yet mainstream) right as a reason to never, ever, ever raise taxes one percent, and why cutting taxes always, always leads to increased revenue. Both are false.
To say that the Laffer Curve works in theory is just like saying that Communism works in theory. The issue is, what do we see in the actual real world we're living in?
posted by ibmcginty at 4:25 AM on September 6, 2007 [4 favorites]
Sorry, that should be "what do we see in this ever-changing world in which we live in?"
posted by ibmcginty at 4:26 AM on September 6, 2007
posted by ibmcginty at 4:26 AM on September 6, 2007
Excellent article. Those criticizing it seem not to have read the whole thing. He's not saying the entire idea (that there comes a point where raising taxes is counterproductive) is wrong; he's saying the people who have come to power have taken it to ludicrous extremes and are crackpots who are ruining the economy, a conclusion which seems manifestly true if you've been paying attention to the news lately. If you find the word "crackpot" distasteful, you probably shouldn't be spending time on MeFi; may I suggest a subscription to Better Homes and Gardens?
Here's an excerpt for those who don't feel like clicking through:
posted by languagehat at 5:48 AM on September 6, 2007 [5 favorites]
Here's an excerpt for those who don't feel like clicking through:
Like most crank doctrines, supply-side economics has at its core a central insight that does have a ring of plausibility. The government can't simply raise tax rates as high as it wants without some adverse consequences. And there have been periods in American history when, nearly any contemporary economist would agree, top tax rates were too high, such as the several decades after World War II. And there are justifiable conservative arguments to be made on behalf of reducing tax rates and government spending. But what sets the supply-siders apart from sensible economists is their sheer monomania. You could plausibly argue that, say, Reagan's tax cuts contributed around the margins to the economic growth of the 1980s. But the supply-siders believe that, if it were not for Reagan's tax cuts, the economic malaise of the late '70s would have continued indefinitely. They believe that economic history is a function of tax rates--they insisted that Bill Clinton's upper-bracket tax hike must cause a recession (whoops), and they believe that the present economy is a boom not merely enhanced but brought about by the Bush tax cuts.If you want more, you know where to find it.
It doesn't take a great deal of expertise to see how implausible this sort of analysis is. All you need is a cursory bit of history. From 1947 to 1973, the U.S. economy grew at a rate of nearly 4 percent a year—a massive boom, fueling rapid growth in living standards across the board. During most of that period, from 1947 until 1964, the highest tax rate hovered around 91 percent. For the rest of the time, it was still a hefty 70 percent. Yet the economy flourished anyway. None of this is to say that those high tax rates caused the postwar boom. On the contrary, the economy probably expanded despite, rather than because of, those high rates. Almost no contemporary economist would endorse jacking up rates that high again. But the point is that, whatever negative effect such high tax rates have, it's relatively minor. Which necessarily means that whatever effects today's tax rates have, they're even more minor.
posted by languagehat at 5:48 AM on September 6, 2007 [5 favorites]
Whether the basic theory is correct tends to make a pretty big difference if you're going to describe people as "wingnuts","deranged", "crackpot", "monomaniacs", "cranks" and so on.
If you look at ibmcginty's first link, the difference between being a deranged crackpot monomaniac crank wingnut and a sane person, is whether you include Norwegian tax data as a valid data point, or exclude it as a statistical outlier.
Oh, they're just so wacky, those not-rejecting-statistical-outlier folk.
posted by TheophileEscargot at 6:20 AM on September 6, 2007
If you look at ibmcginty's first link, the difference between being a deranged crackpot monomaniac crank wingnut and a sane person, is whether you include Norwegian tax data as a valid data point, or exclude it as a statistical outlier.
Oh, they're just so wacky, those not-rejecting-statistical-outlier folk.
posted by TheophileEscargot at 6:20 AM on September 6, 2007
TheophileEscargot-- as anyone who click the link to which you refer can see, the issue is not, as you claim, "whether you include Norwegian tax data as a valid data point." It is actually, whether instead of drawing a best-fit line to fit the data, you draw a fake best-fit line that fits your preconceived notions.
Sorry, TE, you're too dishonest to take part in a grown-up conversation.
posted by ibmcginty at 6:33 AM on September 6, 2007 [1 favorite]
Sorry, TE, you're too dishonest to take part in a grown-up conversation.
posted by ibmcginty at 6:33 AM on September 6, 2007 [1 favorite]
"what do we see in this ever-changing world in which we live in?"
Paul McCartney ending a sentence with a preposition.
posted by jonp72 at 6:39 AM on September 6, 2007
Paul McCartney ending a sentence with a preposition.
posted by jonp72 at 6:39 AM on September 6, 2007
To clarify, the fake best-fit line goes directly through the statistical outlier.
It's like having a set of points, say, [3, 5, 4, 8, 2, 18], and picking 18 as the representative number because that makes your theory look good. But just because you can make a curvy line do what you want on Microsoft Paint doesn't mean that it actually describes what's happening in the real world.
posted by ibmcginty at 6:46 AM on September 6, 2007
It's like having a set of points, say, [3, 5, 4, 8, 2, 18], and picking 18 as the representative number because that makes your theory look good. But just because you can make a curvy line do what you want on Microsoft Paint doesn't mean that it actually describes what's happening in the real world.
posted by ibmcginty at 6:46 AM on September 6, 2007
spaltavian: There's nothing wrong with the Laffer curve in of itself.
From Chait's article:
posted by Kattullus at 7:02 AM on September 6, 2007
From Chait's article:
That fateful night, Wanniski and Laffer were laboring with little success to explain the new theory to Cheney. Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it. The premise of the curve was simple. If the government sets a tax rate of zero, it will receive no revenue. And, if the government sets a tax rate of 100 percent, the government will also receive zero tax revenue, since nobody will have any reason to earn any income. Between these two points--zero taxes and zero revenue, 100 percent taxes and zero revenue--Laffer's curve drew an arc. The arc suggested that at higher levels of taxation, reducing the tax rate would produce more revenue for the government.If you say that the Laffer Curve doesn't say that income tax revenue is 0 at 100% income, that's in fact what Laffer himself says. In fact, he seems to be saying that tax revenue is 0 at lower levels than 100% (linked chart is from the second link).
At that moment, there were a few points that Cheney might have made in response. First, he could have noted that the Laffer Curve was not, strictly speaking, correct. Yes, a zero tax rate would obviously produce zero revenue, but the assumption that a 100-percent tax rate would also produce zero revenue was, just as obviously, false. Surely Cheney was familiar with communist states such as the Soviet Union, with its 100 percent tax rate. The Soviet revenue scheme may not have represented the cutting edge in economic efficiency, but it nonetheless managed to collect enough revenue to maintain an enormous military, enslave Eastern Europe, fund ambitious projects such as Sputnik, and so on. Second, Cheney could have pointed out that, even if the Laffer Curve was correct in theory, there was no evidence that the U.S. income tax was on the downward slope of the curve--that is, that rates were then high enough that tax cuts would produce higher revenue.
posted by Kattullus at 7:02 AM on September 6, 2007
Here's Laffer's explication of the figure I linked to: "Figure 1 is a graphic illustration of the concept of the Laffer Curve--not the exact levels of taxation corresponding to specific levels of revenues. At a tax rate of 0 percent, the government would collect no tax revenues, no matter how large the tax base. Likewise, at a tax rate of 100 percent, the government would also collect no tax revenues because no one would willingly work for an after-tax wage of zero (i.e., there would be no tax base). Between these two extremes there are two tax rates that will collect the same amount of revenue: a high tax rate on a small tax base and a low tax rate on a large tax base."
posted by Kattullus at 7:06 AM on September 6, 2007
posted by Kattullus at 7:06 AM on September 6, 2007
During most of that period, from 1947 until 1964, the highest tax rate hovered around 91 percent. For the rest of the time, it was still a hefty 70 percent.
Rich people did not pay taxes then. In other words, when the tax rates are high enough (my guess is anything greater than 15%), the wealthy will pay lawyers and accounts to avoid taxes. The laws relating to trusts and investments were such that people could accumulate and control great wealth in other legal entities, that they wouldn't need it to pass to them as income. If you run a foundation that has a contract with you to pay your living expenses, housing, and retirement, how much income do you really need?
Furthermore, those obligations are expenses on the company's books, but would not be considered gifts to you. Again the company (or the foundation, or the trust) owns your house, and it is contractually obligated to let you live there.
The laws regarding trusts and foundations have changed, to make this process much more complicated, but if you've every wondered why every celebrity has a charitable trust of a foundation in their name, this is ultimately why.
The taxation argument is also silly because the reason we need higher taxes is because our government is in debt. Our government is in debt becausewelfare of nearly $1 trillion spent on defense and interest on the debt. The reason we have a debt is because in 1980 a decision was made to increase defense spending dramatically and to cut taxes.
What makes defense spending interesting is that it creates an entire industry that would not remotely exist in its present form without that spending. There is evidence that a primary driver of GDP growth in recent years has been growth in defense spending.
But if we spend that much on defense, we wouldn't need to raise taxes to get us out of debt.
posted by Pastabagel at 7:33 AM on September 6, 2007 [1 favorite]
Rich people did not pay taxes then. In other words, when the tax rates are high enough (my guess is anything greater than 15%), the wealthy will pay lawyers and accounts to avoid taxes. The laws relating to trusts and investments were such that people could accumulate and control great wealth in other legal entities, that they wouldn't need it to pass to them as income. If you run a foundation that has a contract with you to pay your living expenses, housing, and retirement, how much income do you really need?
Furthermore, those obligations are expenses on the company's books, but would not be considered gifts to you. Again the company (or the foundation, or the trust) owns your house, and it is contractually obligated to let you live there.
The laws regarding trusts and foundations have changed, to make this process much more complicated, but if you've every wondered why every celebrity has a charitable trust of a foundation in their name, this is ultimately why.
The taxation argument is also silly because the reason we need higher taxes is because our government is in debt. Our government is in debt because
What makes defense spending interesting is that it creates an entire industry that would not remotely exist in its present form without that spending. There is evidence that a primary driver of GDP growth in recent years has been growth in defense spending.
But if we spend that much on defense, we wouldn't need to raise taxes to get us out of debt.
posted by Pastabagel at 7:33 AM on September 6, 2007 [1 favorite]
Ugh, I meant to say "if we didn't spend that much on defense..."
posted by Pastabagel at 7:34 AM on September 6, 2007
posted by Pastabagel at 7:34 AM on September 6, 2007
"Alternatively, consider someone who stores a pile of cash under his bed for a year to dodge taxes, rather than pay it into a bank. By doing so, he forgoes the interest he would have made: say 3% of the value. If the tax he dodges was less than 3%, he has no incentive to do that. The more the tax rate increases over 3%, the more incentive he has to do that."
Sadly, this seems to be the general intellectual level of the wingnuts when defending their fiscal policies. To anyone who thinks the above argument is sensible, I'll just hint that income tax is applied to income not wealth.
posted by srt19170 at 7:35 AM on September 6, 2007
Sadly, this seems to be the general intellectual level of the wingnuts when defending their fiscal policies. To anyone who thinks the above argument is sensible, I'll just hint that income tax is applied to income not wealth.
posted by srt19170 at 7:35 AM on September 6, 2007
Yes very good article. I wish people would read it before commenting.
Pastabagel, the same logic holds today - Warren Buffet for example pays less in tax percentage than his secretary. Chait's central point holds true, taxes are a minor influence on economic growth.
posted by stbalbach at 7:44 AM on September 6, 2007
Pastabagel, the same logic holds today - Warren Buffet for example pays less in tax percentage than his secretary. Chait's central point holds true, taxes are a minor influence on economic growth.
posted by stbalbach at 7:44 AM on September 6, 2007
srt19170 -- substitute "income tax" for "capital gains tax" and it makes perfect sense. Taxation is taxation.
posted by fet at 7:56 AM on September 6, 2007
posted by fet at 7:56 AM on September 6, 2007
Sadly, this seems to be the general intellectual level of the wingnuts when defending their fiscal policies. To anyone who thinks the above argument is sensible, I'll just hint that income tax is applied to income not wealth.
posted by srt19170 at 10:35 AM on September 6
The Laffer Curve is not limited to income taxes. It is "tax rates". There is a tax on interest earned, there is tax on capital gains, there are corporate taxes, sales taxes, etc.
Chait's central point holds true, taxes are a minor influence on economic growth.
posted by stbalbach at 10:44 AM on September 6
Let's slow down a second here. Chait is correct that supply-side economics is largely voodoo, but he engages in the same thing.
Taxes have a real effect on economic activity. Taxes simultaneous reduce income that can be used for spending and increase the prices of the things on which you'd spend income. And "you" can refer to you personally, or your family, or General Motors.
Chait's example of 1947 to 1973 is a cherry picked date range that just so happens to coincide with the time period in which the US was the world's largest and primary exporter/producer, and at the same time in which the US relied largely on domestic production to meet demand (low import levels). And that's a time period when the US fought two wars, spent tremendously on infrastructure, but is before the establishment of Medicare and welfare. In other words, government spending at this time was spent primarily on job creation and diffused into industry, rather than as transfer payments.
And Chait seems to be focused on personal income tax rates of 90 percent, which doesn't matter because I'd be surprised if anyone in that tax bracket actually paid 90%. There were plenty of loopholes and other vehicles to protect that money.
posted by Pastabagel at 8:06 AM on September 6, 2007
posted by srt19170 at 10:35 AM on September 6
The Laffer Curve is not limited to income taxes. It is "tax rates". There is a tax on interest earned, there is tax on capital gains, there are corporate taxes, sales taxes, etc.
Chait's central point holds true, taxes are a minor influence on economic growth.
posted by stbalbach at 10:44 AM on September 6
Let's slow down a second here. Chait is correct that supply-side economics is largely voodoo, but he engages in the same thing.
Taxes have a real effect on economic activity. Taxes simultaneous reduce income that can be used for spending and increase the prices of the things on which you'd spend income. And "you" can refer to you personally, or your family, or General Motors.
Chait's example of 1947 to 1973 is a cherry picked date range that just so happens to coincide with the time period in which the US was the world's largest and primary exporter/producer, and at the same time in which the US relied largely on domestic production to meet demand (low import levels). And that's a time period when the US fought two wars, spent tremendously on infrastructure, but is before the establishment of Medicare and welfare. In other words, government spending at this time was spent primarily on job creation and diffused into industry, rather than as transfer payments.
And Chait seems to be focused on personal income tax rates of 90 percent, which doesn't matter because I'd be surprised if anyone in that tax bracket actually paid 90%. There were plenty of loopholes and other vehicles to protect that money.
posted by Pastabagel at 8:06 AM on September 6, 2007
Really interesting (and is there anything evil Dick Cheney hasn't had his hand in?). Also, I have to wonder if any of these people are connected to the Ayn Rand fanbase... And just to point out this:
The business lobbyists have turned the Republican Party into a kind of machine dedicated unwaveringly to protecting and expanding the wealth of the very rich. As it has pursued this goal ever more single-mindedly, the right has by necessity grown ever more hostile to majoritarian decision-making for the obvious reason that it's hard to enlist the public behind an agenda designed to benefit a tiny minority.
He's missing the religious right in this equation, and the other ideological reasons why people vote for those who actively work against their interests.
posted by jokeefe at 8:14 AM on September 6, 2007
The business lobbyists have turned the Republican Party into a kind of machine dedicated unwaveringly to protecting and expanding the wealth of the very rich. As it has pursued this goal ever more single-mindedly, the right has by necessity grown ever more hostile to majoritarian decision-making for the obvious reason that it's hard to enlist the public behind an agenda designed to benefit a tiny minority.
He's missing the religious right in this equation, and the other ideological reasons why people vote for those who actively work against their interests.
posted by jokeefe at 8:14 AM on September 6, 2007
Is supply-side economics supposed to grow the economy, or maximize tax revenues by growing the economy?
posted by footnote at 8:35 AM on September 6, 2007
posted by footnote at 8:35 AM on September 6, 2007
footnote-- it's supposed to enrich powerful people, and to cast indifference to the less well-off as moral and practical.
Any actual effect on the economy or tax revenues is a secondary concern.
posted by ibmcginty at 8:51 AM on September 6, 2007
Any actual effect on the economy or tax revenues is a secondary concern.
posted by ibmcginty at 8:51 AM on September 6, 2007
fet, pastabagel - you are some way from debunking srt19170's point about the standard of argument.
TheophileEscargot's claim taken at face value was that a 3% tax rate would be enough to make it pointless to invest at a 3% rate of interest.
Capital gains tax, like its name suggests, is charged *on the gains*, not on the original capital, which renders this claim nonsensical. A tax of 3% on a 3% gain is a tax of 0.09% of the original investment, which is not exactly a huge disincentive to invest.
PS: Katallus - great post.
posted by pascal at 8:54 AM on September 6, 2007
TheophileEscargot's claim taken at face value was that a 3% tax rate would be enough to make it pointless to invest at a 3% rate of interest.
Capital gains tax, like its name suggests, is charged *on the gains*, not on the original capital, which renders this claim nonsensical. A tax of 3% on a 3% gain is a tax of 0.09% of the original investment, which is not exactly a huge disincentive to invest.
PS: Katallus - great post.
posted by pascal at 8:54 AM on September 6, 2007
To say that the Laffer Curve works in theory is just like saying that Communism works in theory. The issue is, what do we see in the actual real world we're living in?
Except communism doesn't work in theory, and the Laffer curve may be directly applicable in the semi-socialized nations with high tax rates. America isn't the world; the curve has potential uses in other countries.
posted by spaltavian at 9:02 AM on September 6, 2007
Except communism doesn't work in theory, and the Laffer curve may be directly applicable in the semi-socialized nations with high tax rates. America isn't the world; the curve has potential uses in other countries.
posted by spaltavian at 9:02 AM on September 6, 2007
Fair enough, spaltavian, but the article deals with the US political scene, except, peripherally, for the last little bit about the Boix article.
posted by ibmcginty at 9:22 AM on September 6, 2007
posted by ibmcginty at 9:22 AM on September 6, 2007
TheophileEscargot-- as anyone who click the link to which you refer can see, the issue is not, as you claim, "whether you include Norwegian tax data as a valid data point." It is actually, whether instead of drawing a best-fit line to fit the data, you draw a fake best-fit line that fits your preconceived notions.
Sorry, TE, you're too dishonest to take part in a grown-up conversation.
ibmcginty: I hope people are following your links, they're worthwhile reading.
However, since the original article he criticized has now disappeared behind the paywall, I can't really judge how bad it is. Though presumably as the selected "Worst Editorial Ever" it must be pretty bad. It would be strange if you couldn't find a bad example of a school of thought somewhere.
However, if you look at the critique, he explicitly says:
I don't really see how you can declare someone to be "deranged" on that basis: they subjectively interpret a graph in a different way to you.
Nor do I see why accusing people of being "dishonest", "crackpots", "cultists", "deranged", "wingnuts", "monomaniacs" and "cranks" because they disagree with you constitutes a grown-up conversation.
posted by TheophileEscargot at 9:24 AM on September 6, 2007
Sorry, TE, you're too dishonest to take part in a grown-up conversation.
ibmcginty: I hope people are following your links, they're worthwhile reading.
However, since the original article he criticized has now disappeared behind the paywall, I can't really judge how bad it is. Though presumably as the selected "Worst Editorial Ever" it must be pretty bad. It would be strange if you couldn't find a bad example of a school of thought somewhere.
However, if you look at the critique, he explicitly says:
I haven't actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph.Even if the original article was completely drawn freehand and not derived statistically, all that we're comparing is one freehand sketch against another; both subjective.
I don't really see how you can declare someone to be "deranged" on that basis: they subjectively interpret a graph in a different way to you.
Nor do I see why accusing people of being "dishonest", "crackpots", "cultists", "deranged", "wingnuts", "monomaniacs" and "cranks" because they disagree with you constitutes a grown-up conversation.
posted by TheophileEscargot at 9:24 AM on September 6, 2007
Capital gains tax, like its name suggests, is charged *on the gains*, not on the original capital, which renders this claim nonsensical. A tax of 3% on a 3% gain is a tax of 0.09% of the original investment, which is not exactly a huge disincentive to invest.
posted by pascal at 11:54 AM on September 6
I don't know what standard you are talking about. Chait tried to present some argument that at a 100% tax the government would still make positive tax revenue. I'm arguing it would not.
The laffer curve argues that if the combined effect of all taxes is 100%, the governments revenue would be zero, yes? Not income taxes, but all taxes, including sales and other consumption taxes.
For the combined effect of all taxes to be 100%, all taxes must be 100% (it makes no sense to have taxes greater than 100%). If all taxes are 100%, there is no incentive to invest, because gains would be taken by the government, but you'd have to bear any losses. But the laffer curve is concerned with tax revenues to the government, not your wealth.
And if we include sales taxes in the analysis, then your wealth is taxed, because all of your consumption spending would come from wealth, as your income is taxed in its entirety. So in the short term, there would be some revenue has sales taxes are collected from spending out of wealth, but over the long term, it would be exhausted.
And obviously the 100% point is a theoretical one.
posted by Pastabagel at 9:37 AM on September 6, 2007
posted by pascal at 11:54 AM on September 6
I don't know what standard you are talking about. Chait tried to present some argument that at a 100% tax the government would still make positive tax revenue. I'm arguing it would not.
The laffer curve argues that if the combined effect of all taxes is 100%, the governments revenue would be zero, yes? Not income taxes, but all taxes, including sales and other consumption taxes.
For the combined effect of all taxes to be 100%, all taxes must be 100% (it makes no sense to have taxes greater than 100%). If all taxes are 100%, there is no incentive to invest, because gains would be taken by the government, but you'd have to bear any losses. But the laffer curve is concerned with tax revenues to the government, not your wealth.
And if we include sales taxes in the analysis, then your wealth is taxed, because all of your consumption spending would come from wealth, as your income is taxed in its entirety. So in the short term, there would be some revenue has sales taxes are collected from spending out of wealth, but over the long term, it would be exhausted.
And obviously the 100% point is a theoretical one.
posted by Pastabagel at 9:37 AM on September 6, 2007
PB, you seem to responding to an argument that I am not making, which seems like a waste of bits on your part.
posted by pascal at 9:53 AM on September 6, 2007
posted by pascal at 9:53 AM on September 6, 2007
It seems to me that tax rates as they relate to tax revenue is not a two dimensional equation. You would have to assume that a 100% tax rate would result in social services such as housing, food, healthcare, and transportation provided by the state. If the state did not, it wouldn't be taxes so much as systematic theft. If under a 75% income tax rate the state provided services equal to the value of that 75%, the cost of the taxes (the disincentive) to the individual would be 0.
Also, what would be the point of 100% sales tax under a 100% income tax regime?
posted by effwerd at 10:03 AM on September 6, 2007
Also, what would be the point of 100% sales tax under a 100% income tax regime?
posted by effwerd at 10:03 AM on September 6, 2007
TE, I really do appreciate your willingness to respond after my admittedly somewhat intemperate response. And you are correct that calm and rational debate is, in general, a good thing.
But I stand behind what I said.
You write: "Even if the original article was completely drawn freehand and not derived statistically, all that we're comparing is one freehand sketch against another; both subjective. I don't really see how you can declare someone to be "deranged" on that basis: they subjectively interpret a graph in a different way to you."
Arrrrrrggghhh! No! No, no, no. They misrepresented the data! This is like saying, "you say two plus two equals four, but I'm entitled to my belief that it's five. It's merely a difference of opinion." No, no, no.
You don't draw a best-fit curve through an outlying data point. No, no, no, a thousand times no. I can't tell if you are deliberately lying about this, or if you genuinely think that drawing that curve was a-ok. It is not. Two and two are not five, and that graph does not show that if the US cuts taxes it will gain revenue, and it does not show what the writer claims it shows. You're right that we can't read the article, but we can judge the data manipulation in his graph.
And this Laffable bit of dishonesty, that tax cuts pay for themselves, is a huge part of Republican campaigns.
We liberals have been fighting by Marquis of Queensbury rules and getting rolled every time, on tax cuts and many other very important issues (hint: one involves a war in a faraway country that ends with the letter "Q"). I won't apologize for calling people "dishonest" and "deranged" when they make these easily falsifiable, but oft-repeated and politically useful, arguments.
posted by ibmcginty at 10:38 AM on September 6, 2007
But I stand behind what I said.
You write: "Even if the original article was completely drawn freehand and not derived statistically, all that we're comparing is one freehand sketch against another; both subjective. I don't really see how you can declare someone to be "deranged" on that basis: they subjectively interpret a graph in a different way to you."
Arrrrrrggghhh! No! No, no, no. They misrepresented the data! This is like saying, "you say two plus two equals four, but I'm entitled to my belief that it's five. It's merely a difference of opinion." No, no, no.
You don't draw a best-fit curve through an outlying data point. No, no, no, a thousand times no. I can't tell if you are deliberately lying about this, or if you genuinely think that drawing that curve was a-ok. It is not. Two and two are not five, and that graph does not show that if the US cuts taxes it will gain revenue, and it does not show what the writer claims it shows. You're right that we can't read the article, but we can judge the data manipulation in his graph.
And this Laffable bit of dishonesty, that tax cuts pay for themselves, is a huge part of Republican campaigns.
We liberals have been fighting by Marquis of Queensbury rules and getting rolled every time, on tax cuts and many other very important issues (hint: one involves a war in a faraway country that ends with the letter "Q"). I won't apologize for calling people "dishonest" and "deranged" when they make these easily falsifiable, but oft-repeated and politically useful, arguments.
posted by ibmcginty at 10:38 AM on September 6, 2007
The Atlantic's Megan McArdle responds to Chait's piece. Excerpt:
His primary exhibits for the nefarious influence of supply-side policy are: Larry Lindsay, Dick Cheney, Jack Kemp, Jude Wanniski, and George Gilder. Cheney I give you, but Larry Lindsay was drummed out of the administration in disgrace (for unrelated reasons) even before Bush's major tax cut, and Chait somehow neglects to mention the more conventional economists who have occupied the job since. Jack Kemp hasn't had access to serious power since I was snoring my way through Algebra I, and what power he did have was over HUD. Moreover, though I agree that Jude Wanniski and George Gilder are barking moonbats, they have, to put it kindly, limited influence on today's Republican party; which is hardly surprising given that Wanniski was kicked out of the party in disgrace before he died in 2005, and George Gilder has turned his attentions to that hugely influention Republican mouthpiece, the Gilder Technology report. This motley collection of names is hardly proof that the Supply Siders Have Taken Over the Building.Matthew Yglesias replies to McArdle. Excerpt:
Chait's point, however, was that the very same ideas espoused by these crazy people continue to control the GOP policy agenda. To get around this point, Megan seems to elide the small fact that Dick Cheney is Vice President of the United States. One other believer who has some impact on public policy is a fellow by the name of George W. Bush [...] And, of course, in addition to this insignificant crew of presidents and congressional leaders, there's people like Rudy Giuliani and John McCain. As Greg Mankiw put it "fealty to the most extreme supply-side views is de rigeur in some segments of the Republican party." Those segments just happen to include the party's entire national leadership.Jonathan Chait responded to other parts of McArdle's blog entry. Excerpt:
Finally, she asserts that I'm wrong to write that "the Laffer Curve was not, strictly speaking, correct." Let me explain this. The Laffer Curve is a concept that says a 0% tax rate and a 100% tax rate will both produce zero revenue. Therefore it's possible to cut taxes and raise revenue. Most economists agree that this is true in theory, but ridicule the notion (put forth by leading Republicans) that current U.S. tax rates are high enough that tax cuts can raise revenues.posted by Kattullus at 11:22 AM on September 6, 2007
I think it's also true, in theory, that some tax rates could be high enough that a rate cut could produce higher revenue. I have not disagreed with that idea anywhere in my book. What I took exception to is the idea that a 100% tax rate would produce zero revenue. I know for a fact that this is false. How could I know that? Because if tax rates were 100% I would still work anyway. Why not? It beats sitting home all day. I wouldn't work as hard, but I'd work. The government would get revenue from me. There, that's above zero. I'm also highly confident that other people would work, too. Not nearly as many as do work, and again not very hard, but work they would.
The point here is that the supply-side model, which holds that all human activity takes the form of calculating the marginal return on our work, is wrong. People work for all sorts of reasons other than income -- intellectual stimulation, pride in their craft, feeling productive, etc.
Cheney I give you, but
Then she goes on with some blather rendered meaningless by her having said that. Cheney has been pushing this stupid agenda every chance he got since the Nixon administration, and now he gets to push it with more leverage than ever.
posted by Kirth Gerson at 11:52 AM on September 6, 2007
Then she goes on with some blather rendered meaningless by her having said that. Cheney has been pushing this stupid agenda every chance he got since the Nixon administration, and now he gets to push it with more leverage than ever.
posted by Kirth Gerson at 11:52 AM on September 6, 2007
An avalanche of ad hominem.
One might expect that a reactionary misinterpretation passing itself off as a critical analysis would at least have the benefit of smooth, reassuring logic...
posted by rush at 12:30 PM on September 6, 2007
One might expect that a reactionary misinterpretation passing itself off as a critical analysis would at least have the benefit of smooth, reassuring logic...
posted by rush at 12:30 PM on September 6, 2007
This might be obvious to everyone, but just in case...
The Laffer curve assumes that work is done for the purpose of accumulating more wealth. On a very - VERY - basic level this is of course elementary, but then he (or the curve itself) take this concept and simplify it to a thought analogous to "people eat because food is tasty." No, people eat because they're hungry and need to do so to survive. As one gets higher on the economic scale, and the question of starving or not becomes less and less of an issue, then the merits of relative tastiness come into play.
We need money to survive, and the majority of people just about anywhere, including America, work not to increase wealth, but to get themselves and, more importantly, their families, by.
Assuming he's right about the 100% tax rate yielding no revenue (and he's not, but it works well and is useful and illustrative in theory) that doesn't mean that he's right about the 99% tax rate yielding low revenue. He's dead wrong, in fact. People the world over work for pennies a day because they HAVE to, because without that, they and their families won't survive through the winter. 99% or anything near it is a horribly immoral tax rate, to be sure, and not maximally effective by a long shot, but to claim that the mass of a people won't work when working is a way to earn money shows that Laffer is either full of shit (I don't think he is) or just naturally simplifies things beyond having any relationship to the real world. Or he's just never considered the idea that anyone would work except out of greed.
This brings us to Supply-Side Economics, which, as has been mentioned above, isn't ENTIRELY without merit as an economic theory. It just has worked that way in practice. Of course, when we look at the two forces of economics as being SUPPLY and DEMAND then we can reasonably assert that there are two ways to affect the economy. However, in almost any society, the best leverage will ALWAYS be on the demand side. People gotta eat. People gotta sleep. People gotta have medicine and clothes and so do their kids. And people are used to budgeting and cutting back on one or the other so that they can survive even when they can't quite make ends meet. When we look at Trickle-Down Economics (which is really the issue here, not so much the smewhat more general "Supply Side") it simply can't hold. If we tend our economic indicators towards bringing more money at the bottom, the bottom will spend every cent of it, because they're living in want. If we tend towards the top, the top will, at best, look for tastier steak, but in our given system, they can already afford that, so they'll more likely just accumulate as much as they can, and then use whatever means are at their disposal to avoid paying taxes.
The notion that people will stop working en masse at some above-marginal tax rate just goes against what we know of the human condition. Right now, people are sneaking across the border from Mexico at great risk in order to do demeaning work for next to no money, so that they and their families might survive. These same people would jump at the chance for any better wages or situation if they could get to it. And yet we believe that high-income earners (who are all we're talking about here - most Americans pay the majority of their taxes in payroll taxes, and as such are unaffected by the Laffer curve stratagem) will simply stop working their high-wage jobs if the top margin were too high. If they tried it, I assure you, there'd be a line of people behind them to snatch up any employment they left open.
posted by Navelgazer at 5:06 PM on September 6, 2007
The Laffer curve assumes that work is done for the purpose of accumulating more wealth. On a very - VERY - basic level this is of course elementary, but then he (or the curve itself) take this concept and simplify it to a thought analogous to "people eat because food is tasty." No, people eat because they're hungry and need to do so to survive. As one gets higher on the economic scale, and the question of starving or not becomes less and less of an issue, then the merits of relative tastiness come into play.
We need money to survive, and the majority of people just about anywhere, including America, work not to increase wealth, but to get themselves and, more importantly, their families, by.
Assuming he's right about the 100% tax rate yielding no revenue (and he's not, but it works well and is useful and illustrative in theory) that doesn't mean that he's right about the 99% tax rate yielding low revenue. He's dead wrong, in fact. People the world over work for pennies a day because they HAVE to, because without that, they and their families won't survive through the winter. 99% or anything near it is a horribly immoral tax rate, to be sure, and not maximally effective by a long shot, but to claim that the mass of a people won't work when working is a way to earn money shows that Laffer is either full of shit (I don't think he is) or just naturally simplifies things beyond having any relationship to the real world. Or he's just never considered the idea that anyone would work except out of greed.
This brings us to Supply-Side Economics, which, as has been mentioned above, isn't ENTIRELY without merit as an economic theory. It just has worked that way in practice. Of course, when we look at the two forces of economics as being SUPPLY and DEMAND then we can reasonably assert that there are two ways to affect the economy. However, in almost any society, the best leverage will ALWAYS be on the demand side. People gotta eat. People gotta sleep. People gotta have medicine and clothes and so do their kids. And people are used to budgeting and cutting back on one or the other so that they can survive even when they can't quite make ends meet. When we look at Trickle-Down Economics (which is really the issue here, not so much the smewhat more general "Supply Side") it simply can't hold. If we tend our economic indicators towards bringing more money at the bottom, the bottom will spend every cent of it, because they're living in want. If we tend towards the top, the top will, at best, look for tastier steak, but in our given system, they can already afford that, so they'll more likely just accumulate as much as they can, and then use whatever means are at their disposal to avoid paying taxes.
The notion that people will stop working en masse at some above-marginal tax rate just goes against what we know of the human condition. Right now, people are sneaking across the border from Mexico at great risk in order to do demeaning work for next to no money, so that they and their families might survive. These same people would jump at the chance for any better wages or situation if they could get to it. And yet we believe that high-income earners (who are all we're talking about here - most Americans pay the majority of their taxes in payroll taxes, and as such are unaffected by the Laffer curve stratagem) will simply stop working their high-wage jobs if the top margin were too high. If they tried it, I assure you, there'd be a line of people behind them to snatch up any employment they left open.
posted by Navelgazer at 5:06 PM on September 6, 2007
The marginal tax rate is the rate of one's last dollar. I can hardly believe that people, in defense of Laffer, talk about high progressive rates as if they were flat, and then argue later on that we need a flat tax. Supply-siders also flirt with insanity by emotionally arguing for one class to have subsidized income, but not ones who feel the direct pressure. The crux of this argument is that the wealthy get no political respect--the starry-eyed worship of money, plain and simple, and many are correct to call it a Trojan horse.
Both supply-siders and their opponents have been keen to claim the mantles of thinkers as diverse as Karl Marx and Adam Smith. Jude Wanniski has claimed both as supply-side thinkers due to their advocacy of a gold monetary standard and more specifically their focus on the agents of production in an economy.
posted by Brian B. at 6:49 PM on September 6, 2007
Both supply-siders and their opponents have been keen to claim the mantles of thinkers as diverse as Karl Marx and Adam Smith. Jude Wanniski has claimed both as supply-side thinkers due to their advocacy of a gold monetary standard and more specifically their focus on the agents of production in an economy.
posted by Brian B. at 6:49 PM on September 6, 2007
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