The Tax Debate and the Laffer Curve

[J. J.]

--If the Laffer Curve is credible, then shouldn't we first determine on which side of the curve we are currently on with regard to optimized tax revenues before we make a downward rate adjustment, since if we are on the forward-sloping end of the curve, lowering rates would cost revenue?

I think this is the key point.  Many people in the early 80's were saying, "Art, you're right, in theory, but we're not at the peak."  The empirical data from the period tended to support that.

You also had two different factors when Laffer first proposed the theory.  The top Marginal Tax Bracket was 70% and tax brackets were not indexed for inflation.

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At some points this isn't true, but in 2011 I think it is.

One thing that you hinted is is that the same solution does not work in all situations.  Arguably a policy that had inflation as effect made no difference in 1935; in 1979, it would have been a disaster.  In 1981, a policy that had, as an effect, increased debt made no difference.  2011, it does.

That is why you hear me talking about income tax increases.  I doubt that the Laffer disincentive would be reached.

[J. J.]

In regard to the Laffer curve itself, when he drew it (on a cocktail napkin) it was a standard bell curve.  I think that was the wrong assumption.  It might have more a skewed right side curve.  There is a disincentive, but it kicks in at higher rates.

[J. J.]

I don't dispute there being some validity to the Laffer curve at very high tax rate levels, but the missing link is this:

Without Keynesianism, in a neo-liberal economy, there is virtually no incentive to invest simply because there is little or not growth due to a dearth of demand.  We are seeing precisely this condition at present - extremely low (dangerously low) tax rates do nothing whatever to encourage investment because neo-liberal inequality leave us with an economy not worth investing in.

Oddly, you are right in certain situations, though not our current one.

[J. J.]

Oddly, you are right in certain situations, though not our current one.

So, you're saying at the present we have plenty of demand and a high tax rate, J.J.?  Perhaps your cummerbund is too tight.

No. and I wear a vest.

I'm basically saying that an small income tax increase would have a negative effect on revenues.

[J. J.]

I don't dispute there being some validity to the Laffer curve at very high tax rate levels, but the missing link is this:

Without Keynesianism, in a neo-liberal economy, there is virtually no incentive to invest simply because there is little or not growth due to a dearth of demand.  We are seeing precisely this condition at present - extremely low (dangerously low) tax rates do nothing whatever to encourage investment because neo-liberal inequality leave us with an economy not worth investing in.

It is sheer idiocy for anyone to be talking about disincentives to investment due to taxes in an economy where 1) tax rates are a comically low level of 35%, and 2) huge amounts of capital are sitting idle because of a lack of demand.

I've even toyed with the idea of a Intangible Property Tax for cash/bank accounts over a certain amoun with credits offset by hiring employees or making capital investments.  Any thoughts?

It would completely destroy the economy, even worse that it is now.

Cut capital gains, toss Obamacare, remover newer environmental regulations, cut bot entitlements and defense spending and raise income taxes across the board.  Eliminate the loopholes in corporate taxes, make it a lower rate.  Do however consider a tax on undistributed corporate profits.

[J. J.]

Cut capital gains, toss Obamacare, remover newer environmental regulations, cut bot entitlements and defense spending and raise income taxes across the board.  Eliminate the loopholes in corporate taxes, make it a lower rate. 

Why would repeating the same mistakes which brought us back to 1929 again be a good idea?

Because:

A.  Those are not the same policies.

2.  This in not 1929.

[J. J.]

Cut capital gains, toss Obamacare, remover newer environmental regulations, cut bot entitlements and defense spending and raise income taxes across the board.  Eliminate the loopholes in corporate taxes, make it a lower rate. 

Why would repeating the same mistakes which brought us back to 1929 again be a good idea?

Because:

A.  Those are not the same policies.

2.  This in not 1929.

A.  Afraid they are, J.J.  Just more concentrationist neo-liberal madness.

2. 1929 was caused by capitalism, just as all panics are including the current.  Easily fixed by Keynesian redistribution, but you're prescribing the opposite.

The 1929 recession was caused by debt; what helped it become the Great Depression was Smoot-Hawley.

The difference today is a lot of the debt is government debt, something there wasn't a lot of in 1929.

[J. J.]

The 1929 recession was caused by debt; what helped it become the Great Depression was Smoot-Hawley.

The difference today is a lot of the debt is government debt, something there wasn't a lot of in 1929.

Oh my gosh you are one ass-backwards mofo.

Try reading economics texts, you might learn something,  People were leveraged and couldn't meet the margin calls.  That was the proximate cause of the crash.

(That's also why I sold off silver coins just before Black Thursday.)

[J. J.]

The 1929 recession was caused by debt; what helped it become the Great Depression was Smoot-Hawley.

The difference today is a lot of the debt is government debt, something there wasn't a lot of in 1929.

Oh my gosh you are one ass-backwards mofo.

Try reading economics texts, you might learn something, unless the pox has entirely rotted you brain.  People were leveraged and couldn't meet the margin calls.  That was the proximate cause of the crash.

(That's also why I sold off silver coins just before Black Thursday.)

People, i.e., not the government. They are not at all the same, nor is their debt. This recession was also caused by debt. Debt belonging to the people in the form of mortgages. Mortgages and government debt are, once again, not remotely the same.

There is a difference in debt, but this recession is being caused, to some extent to government financing.  Even from a Keynesian viewpoint, we might have hit the "Keynesian Endpoint."

[J. J.]

The 1929 recession was caused by debt; what helped it become the Great Depression was Smoot-Hawley.

The difference today is a lot of the debt is government debt, something there wasn't a lot of in 1929.

Oh my gosh you are one ass-backwards mofo.

Try reading economics texts, you might learn something, unless the pox has entirely rotted you brain.  People were leveraged and couldn't meet the margin calls.  That was the proximate cause of the crash.

(That's also why I sold off silver coins just before Black Thursday.)

People, i.e., not the government. They are not at all the same, nor is their debt. This recession was also caused by debt. Debt belonging to the people in the form of mortgages. Mortgages and government debt are, once again, not remotely the same.

That government debt, however, is creating a problem, at this point.