On Taxes and Economic Growth

I often times hear from folks of the left that the claim that high tax rates reduce economic growth is a "right wing myth". Sometimes, they'll even go further, showing a bar chart which shows no correlation between economic growth and the top marginal tax rate in US history.

But, the fact is that this comparison is very misleading. It is a limited data set and controls for nothing. Instead, we need to look at academic studies and other evidence on the impact of taxes on growth. And, the evidence is overwhelming that taxes do, in fact, hurt economic growth, reduce investment, reduce new businesses, and reduce labor supply. Here are some links supporting this:

(On taxes and labor supply): http://www.nationalreview.com...
and
http://www.economics21.org...

(On arguments for high top tax rates): http://www.nationalreview.com...
and
http://www.economics21.org...

(On taxes and "the laffer curve"): http://www.economics21.org...

(A link to a bunch of other studies showing the same thing): http://pirate.shu.edu...

So, next time someone claims that it is a myth that high taxes hurt growth, know that they are contradicting a large amount of academic literature.

This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

The Laffer Curve is indisputably true. At a 0% tax rate, the government collects 0 revenue. At a 100% tax rate, the government collects 0 revenue. Somewhere in the middle, the government collects a maximum amount of revenue. Thus, the Laffer Curve. No economist disagrees with this--the disagreement is about which part of the Laffer Curve we're on, not whether the curve exists.

At 7/29/2012 5:24:49 PM, LaissezFaire wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

The Laffer Curve is indisputably true. At a 0% tax rate, the government collects 0 revenue. At a 100% tax rate, the government collects 0 revenue. Somewhere in the middle, the government collects a maximum amount of revenue. Thus, the Laffer Curve. No economist disagrees with this--the disagreement is about which part of the Laffer Curve we're on, not whether the curve exists.

Also, to whether there are multiple local maximums on the chart.

I thought it was contingent upon whether the system is closed or not? Like, a high tax rate is fine if its universal, because expectations of what it means to be the "richest" in society will be adjusted accordingly, and people will still strive for that comparative improvement in lifestyle. However, if it's different by region or whatever, then it does matter, as the "richest" in the low-tax area will be, ceteris paribus, richer than the "richest" in the high-tax area.

This is what I'd been led to believe anyways.

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

At 7/29/2012 6:20:30 PM, NixonianVolkswagen wrote:
I thought it was contingent upon whether the system is closed or not? Like, a high tax rate is fine if its universal, because expectations of what it means to be the "richest" in society will be adjusted accordingly, and people will still strive for that comparative improvement in lifestyle. However, if it's different by region or whatever, then it does matter, as the "richest" in the low-tax area will be, ceteris paribus, richer than the "richest" in the high-tax area.

This is what I'd been led to believe anyways.

I'm not sure what you are saying.

Using that logic, it seems that a universal 99% tax rate wouldn't hurt incentives at all, which strikes me as nuts.

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

At 7/29/2012 6:23:20 PM, JamesMadison wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

Marianne Bertrand, Darrel Duffie, David Autor, Michael Greenstone, Kenneth Judd, Anil Kashyup, Pete Klenow and Austan Goolsbee all state it does not exist. All professors of economics to some degree. The first four disagree on empirical grounds, the rest disagree on theoretical, of which they each have done studies showing the Laffer curve to be unsubstantiated to some degree. However, the most prominent economists, such as Ed Lazear and Mankiw, criticise its existence. Of course, the economic advisor to Bush and Romney respectively, as well as multiple award winners, are obviously not "serious economist[s]".

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Markets always do a better job than gov.

At 7/29/2012 6:41:50 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:23:20 PM, JamesMadison wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

Marianne Bertrand, Darrel Duffie, David Autor, Michael Greenstone, Kenneth Judd, Anil Kashyup, Pete Klenow and Austan Goolsbee all state it does not exist. All professors of economics to some degree. The first four disagree on empirical grounds, the rest disagree on theoretical, of which they each have done studies showing the Laffer curve to be unsubstantiated to some degree. However, the most prominent economists, such as Ed Lazear and Mankiw, criticise its existence. Of course, the economic advisor to Bush and Romney respectively, as well as multiple award winners, are obviously not "serious economist[s]".

First, I know you are wrong about Mankiw and Lazear...

But, I don't think that you understand the laffer curve.

The laffer curve states that there is some rate between 0% and 100% which maximizes revenue.

If you agree, you believe in the laffer curve... If you disagree and think that a 100% tax rate would bring in the most revenue of any tax rate, then you don't believe in the laffer curve.

If you can find any economist saying that a 100% tax rate would maximize revenue, then you have found an economist that does not beleive in the laffer curve.

I don't think any economist would be dumb enough to say that.. but, prove me wrong.

At 7/29/2012 6:42:44 PM, JamesMadison wrote:

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

That's a matter of opinion, and since each government is different, it doesn't have to be inefficient by definition.

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Ummm... no, not really. If you don't like it, you can leave to a different government (just like if your don't like the closest grocery store, you can go use a different one). Also, much of what the government does is not a monopoly. After all, when the government took ownership of GM, they didn't close down all the competition to create a monopoly.

Markets always do a better job than gov.

False.

At 7/29/2012 6:51:07 PM, Ore_Ele wrote:

At 7/29/2012 6:42:44 PM, JamesMadison wrote:

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

That's a matter of opinion, and since each government is different, it doesn't have to be inefficient by definition.

But, given all the evidence, it is.

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Ummm... no, not really. If you don't like it, you can leave to a different government (just like if your don't like the closest grocery store, you can go use a different one). Also, much of what the government does is not a monopoly. After all, when the government took ownership of GM, they didn't close down all the competition to create a monopoly.

But, they have the ability to extract funds from taxpayers by force... something corporations can't do (well, unless they do it through government)

Markets always do a better job than gov.

False.

Well, since you explained it so well, I think I can see where you are coming from.

At 7/29/2012 6:45:15 PM, JamesMadison wrote:

At 7/29/2012 6:41:50 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:23:20 PM, JamesMadison wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

Marianne Bertrand, Darrel Duffie, David Autor, Michael Greenstone, Kenneth Judd, Anil Kashyup, Pete Klenow and Austan Goolsbee all state it does not exist. All professors of economics to some degree. The first four disagree on empirical grounds, the rest disagree on theoretical, of which they each have done studies showing the Laffer curve to be unsubstantiated to some degree. However, the most prominent economists, such as Ed Lazear and Mankiw, criticise its existence. Of course, the economic advisor to Bush and Romney respectively, as well as multiple award winners, are obviously not "serious economist[s]".

First, I know you are wrong about Mankiw and Lazear...

*Google Lazear, Laffer Curve*

http://www.forbes.com...

"This is the Laffer curve issue. There is little (if any) evidence that rates exceed revenue-maximizing levels. See Mankiw, Feldstein."

Oh, I'm also adding S.D. Wall to that list.

But, I don't think that you understand the laffer curve.

The laffer curve states that there is some rate between 0% and 100% which maximizes revenue.

Essentially, you can use that description for near anything. A PPF can just as easily show that there is some rate between 0 and 100% which can maximise revenue. In fact, if this is what you are defending, then you have to somehow justify why this amazing discovery creates so much controversy. Simplifying something down to the blatant has deprived what the Laffer curve *is* of all meaning.

If you agree, you believe in the laffer curve... If you disagree and think that a 100% tax rate would bring in the most revenue of any tax rate, then you don't believe in the laffer curve.

Cool dichotomy there. Which reminds me: we can get rid of calling it a Laffer Curve, remove this pointless statement, and instead call it "reductio ad absurdum". Seeing as that has a bit more useful terminology, older terminology, and non-triviality.

If you can find any economist saying that a 100% tax rate would maximize revenue, then you have found an economist that does not beleive in the laffer curve.

I don't think any economist would be dumb enough to say that.. but, prove me wrong.

In its simplest form, you've misunderstood the Laffer curve. The laffer curve is specifically built around the least squares line. It uses the equation "Tax revenue = tax rates x output". From this equation, it inevitably concludes, through simple statistics, that tax revenue peaks between 60 and 70%. If the empirical evidence contradicts this, then the Laffer curve fails. if the theory contradicts this, then the Laffer Curve fails. The empirical side of the Laffer curve failed, and many still criticise the theory behind it to begin with.

And why is this not in the economics section? It has the term "economics" in the title... -_-

At 7/29/2012 6:28:14 PM, JamesMadison wrote:

At 7/29/2012 6:20:30 PM, NixonianVolkswagen wrote:
I thought it was contingent upon whether the system is closed or not? Like, a high tax rate is fine if its universal, because expectations of what it means to be the "richest" in society will be adjusted accordingly, and people will still strive for that comparative improvement in lifestyle. However, if it's different by region or whatever, then it does matter, as the "richest" in the low-tax area will be, ceteris paribus, richer than the "richest" in the high-tax area.

This is what I'd been led to believe anyways.

I'm not sure what you are saying.

Using that logic, it seems that a universal 99% tax rate wouldn't hurt incentives at all, which strikes me as nuts.

You'll notice that I said, "strive for that comparative improvement in lifestyle" - I think it's not unreasonable to suppose that I didn't intend to imply that improvements in lifestyle are meaningless, if the tax rate is such that there's no difference between the richest and the poorest in terms of standard of living, then that'll have a significant impact.

However, if we use my logic in a reasonable way, we can say that there might be little difference to growth if the richest men in the world had hundreds of million$ to their names rather than billion$.

At 7/29/2012 6:54:55 PM, JamesMadison wrote:

At 7/29/2012 6:51:07 PM, Ore_Ele wrote:

At 7/29/2012 6:42:44 PM, JamesMadison wrote:

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

That's a matter of opinion, and since each government is different, it doesn't have to be inefficient by definition.

But, given all the evidence, it is.

So, if every conservative I meat is stupid, I can rightly define conservatism as stupid and everyone that believes in it as stupid. And you would consider that a legitimate definition? right....

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Ummm... no, not really. If you don't like it, you can leave to a different government (just like if your don't like the closest grocery store, you can go use a different one). Also, much of what the government does is not a monopoly. After all, when the government took ownership of GM, they didn't close down all the competition to create a monopoly.

But, they have the ability to extract funds from taxpayers by force... something corporations can't do (well, unless they do it through government)

Yes they can. If you use the company's service or products, they can force you to pay for that service/product. If you don't like the US government you can move to a different nation and go work there (assuming they welcome you in, but that is between you and them), and the US government will stop taxing you.

Markets always do a better job than gov.

False.

Well, since you explained it so well, I think I can see where you are coming from.

Sorry, the statement was so ignorant, I don't really want to put in the effort to correct you, because I honestly don't think you'd learn anything. I believe that you would just ignore it and throw out more ignorance.

At 7/29/2012 7:01:16 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:45:15 PM, JamesMadison wrote:

At 7/29/2012 6:41:50 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:23:20 PM, JamesMadison wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

Marianne Bertrand, Darrel Duffie, David Autor, Michael Greenstone, Kenneth Judd, Anil Kashyup, Pete Klenow and Austan Goolsbee all state it does not exist. All professors of economics to some degree. The first four disagree on empirical grounds, the rest disagree on theoretical, of which they each have done studies showing the Laffer curve to be unsubstantiated to some degree. However, the most prominent economists, such as Ed Lazear and Mankiw, criticise its existence. Of course, the economic advisor to Bush and Romney respectively, as well as multiple award winners, are obviously not "serious economist[s]".

First, I know you are wrong about Mankiw and Lazear...

*Google Lazear, Laffer Curve*

http://www.forbes.com...

"This is the Laffer curve issue. There is little (if any) evidence that rates exceed revenue-maximizing levels. See Mankiw, Feldstein."

Oh, I'm also adding S.D. Wall to that list.

Nice job not understanding what the laffer curve is.

But, I don't think that you understand the laffer curve.

The laffer curve states that there is some rate between 0% and 100% which maximizes revenue.

Essentially, you can use that description for near anything. A PPF can just as easily show that there is some rate between 0 and 100% which can maximise revenue. In fact, if this is what you are defending, then you have to somehow justify why this amazing discovery creates so much controversy. Simplifying something down to the blatant has deprived what the Laffer curve *is* of all meaning.

It shouldnt create this much controversy... it is a fake controversy.

If you agree, you believe in the laffer curve... If you disagree and think that a 100% tax rate would bring in the most revenue of any tax rate, then you don't believe in the laffer curve.

Cool dichotomy there. Which reminds me: we can get rid of calling it a Laffer Curve, remove this pointless statement, and instead call it "reductio ad absurdum". Seeing as that has a bit more useful terminology, older terminology, and non-triviality.

Again, I agree that it shouldn't be so controversial.

If you can find any economist saying that a 100% tax rate would maximize revenue, then you have found an economist that does not beleive in the laffer curve.

I don't think any economist would be dumb enough to say that.. but, prove me wrong.

In its simplest form, you've misunderstood the Laffer curve. The laffer curve is specifically built around the least squares line. It uses the equation "Tax revenue = tax rates x output". From this equation, it inevitably concludes, through simple statistics, that tax revenue peaks between 60 and 70%. If the empirical evidence contradicts this, then the Laffer curve fails. if the theory contradicts this, then the Laffer Curve fails. The empirical side of the Laffer curve failed, and many still criticise the theory behind it to begin with.

Um... no. That is flatly false.

And, the evidence supports a laffer rate well lower than taht...

At 7/29/2012 7:11:24 PM, Ore_Ele wrote:

At 7/29/2012 6:54:55 PM, JamesMadison wrote:

At 7/29/2012 6:51:07 PM, Ore_Ele wrote:

At 7/29/2012 6:42:44 PM, JamesMadison wrote:

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

That's a matter of opinion, and since each government is different, it doesn't have to be inefficient by definition.

But, given all the evidence, it is.

So, if every conservative I meat is stupid, I can rightly define conservatism as stupid and everyone that believes in it as stupid. And you would consider that a legitimate definition? right....

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Ummm... no, not really. If you don't like it, you can leave to a different government (just like if your don't like the closest grocery store, you can go use a different one). Also, much of what the government does is not a monopoly. After all, when the government took ownership of GM, they didn't close down all the competition to create a monopoly.

But, they have the ability to extract funds from taxpayers by force... something corporations can't do (well, unless they do it through government)

Yes they can. If you use the company's service or products, they can force you to pay for that service/product. If you don't like the US government you can move to a different nation and go work there (assuming they welcome you in, but that is between you and them), and the US government will stop taxing you.

Markets always do a better job than gov.

False.

Well, since you explained it so well, I think I can see where you are coming from.

Sorry, the statement was so ignorant, I don't really want to put in the effort to correct you, because I honestly don't think you'd learn anything. I believe that you would just ignore it and throw out more ignorance.

Right, how dare I question the efficiency of government!

At 7/29/2012 7:13:24 PM, JamesMadison wrote:

At 7/29/2012 7:11:24 PM, Ore_Ele wrote:

At 7/29/2012 6:54:55 PM, JamesMadison wrote:

At 7/29/2012 6:51:07 PM, Ore_Ele wrote:

At 7/29/2012 6:42:44 PM, JamesMadison wrote:

At 7/29/2012 6:37:54 PM, Ore_Ele wrote:

At 7/29/2012 6:22:23 PM, JamesMadison wrote:

At 7/29/2012 4:55:32 PM, Ore_Ele wrote:
This is sadly an oversimplified claim. The tax rate itself cannot be looked at by itself. It has to also be looked at what the taxes are spent on.

While it can be argued that raising taxes harms economic growth, what the taxes are spent on can stimulate economic growth more than the taxes harmed it. In which case, those very tax increases can be said to increase economic growth.

Um, these studies all look at how high taxes are in countries. I don't know if you knew this, but high tax countries are also high spending countries.

So, it also takes into account the fact that tax money is spent... and BTW, high taxes and high spending are worse for the economy than high taxes and low spending.

"High" is subjective, so depending the levels, this can be true or false. High tax rates with 0 spending are worse than high tax rates with balanced spending. While high tax rates with massive deficit spending (pending what the spending is on) can be worse than balanced spending (can also be better, pending the socioeconomic situation).

True, but you have to realize government typically doesn't use resources that wisely.

That's a matter of opinion, and since each government is different, it doesn't have to be inefficient by definition.

But, given all the evidence, it is.

So, if every conservative I meat is stupid, I can rightly define conservatism as stupid and everyone that believes in it as stupid. And you would consider that a legitimate definition? right....

And, why would we expect anything different?

After all, the gov. has a monopoly... no competition, bad incentives, etc.

Ummm... no, not really. If you don't like it, you can leave to a different government (just like if your don't like the closest grocery store, you can go use a different one). Also, much of what the government does is not a monopoly. After all, when the government took ownership of GM, they didn't close down all the competition to create a monopoly.

But, they have the ability to extract funds from taxpayers by force... something corporations can't do (well, unless they do it through government)

Yes they can. If you use the company's service or products, they can force you to pay for that service/product. If you don't like the US government you can move to a different nation and go work there (assuming they welcome you in, but that is between you and them), and the US government will stop taxing you.

Markets always do a better job than gov.

False.

Well, since you explained it so well, I think I can see where you are coming from.

Sorry, the statement was so ignorant, I don't really want to put in the effort to correct you, because I honestly don't think you'd learn anything. I believe that you would just ignore it and throw out more ignorance.

Right, how dare I question the efficiency of government!

You didn't question, you simply made extreme claims of absolute (markets are always better and such other claims) with no evidence. You also can't point to anecdotal evidence to confirm an absolute (can't prove an "always" or a "never" with examples), so it has to be done purely logically.

At 7/29/2012 7:11:41 PM, JamesMadison wrote:

At 7/29/2012 7:01:16 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:45:15 PM, JamesMadison wrote:

At 7/29/2012 6:41:50 PM, Stephen_Hawkins wrote:

At 7/29/2012 6:23:20 PM, JamesMadison wrote:

At 7/29/2012 4:57:16 PM, Stephen_Hawkins wrote:
I just like how the Laffer curve is stated as a certain economic fact by the previous post... I'm not an economist, but even I know that's if not heavily debated, defunct.

No serious economist would debate whether or not the laffer curve exists... only where it is

Marianne Bertrand, Darrel Duffie, David Autor, Michael Greenstone, Kenneth Judd, Anil Kashyup, Pete Klenow and Austan Goolsbee all state it does not exist. All professors of economics to some degree. The first four disagree on empirical grounds, the rest disagree on theoretical, of which they each have done studies showing the Laffer curve to be unsubstantiated to some degree. However, the most prominent economists, such as Ed Lazear and Mankiw, criticise its existence. Of course, the economic advisor to Bush and Romney respectively, as well as multiple award winners, are obviously not "serious economist[s]".

First, I know you are wrong about Mankiw and Lazear...

*Google Lazear, Laffer Curve*

http://www.forbes.com...

"This is the Laffer curve issue. There is little (if any) evidence that rates exceed revenue-maximizing levels. See Mankiw, Feldstein."

Oh, I'm also adding S.D. Wall to that list.

Nice job not understanding what the laffer curve is.

Nice job not stating any of the problems: bearing in mind at this point all I did was cite a quotation, and add an economist, I am now wondering if you actually read what I put, or just disagree.

But, I don't think that you understand the laffer curve.

The laffer curve states that there is some rate between 0% and 100% which maximizes revenue.

Essentially, you can use that description for near anything. A PPF can just as easily show that there is some rate between 0 and 100% which can maximise revenue. In fact, if this is what you are defending, then you have to somehow justify why this amazing discovery creates so much controversy. Simplifying something down to the blatant has deprived what the Laffer curve *is* of all meaning.

It shouldnt create this much controversy... it is a fake controversy.

If you agree, you believe in the laffer curve... If you disagree and think that a 100% tax rate would bring in the most revenue of any tax rate, then you don't believe in the laffer curve.

Cool dichotomy there. Which reminds me: we can get rid of calling it a Laffer Curve, remove this pointless statement, and instead call it "reductio ad absurdum". Seeing as that has a bit more useful terminology, older terminology, and non-triviality.

Again, I agree that it shouldn't be so controversial.

So you have two options. Either a relatively large minority of economists, among such company as nobel prize winners and the giants of economics in general, as well as masses with doctorates, are idiots on their field to such an extent that you can outsmart them, or you misunderstand. And bearing in mind your general attitude, if you have anything more than a masters I expect you to be flaunting it on your profile, but I shall ignore this suspicion that you as an 18 year old don't have the qualifications to be an authority on the subject and just ask this: do you honestly think I should believe you over the vast array of experts I have cited, the textbooks and general books I own, and the vast oversimplification you give to begin with?

If you can find any economist saying that a 100% tax rate would maximize revenue, then you have found an economist that does not beleive in the laffer curve.

I don't think any economist would be dumb enough to say that.. but, prove me wrong.

In its simplest form, you've misunderstood the Laffer curve. The laffer curve is specifically built around the least squares line. It uses the equation "Tax revenue = tax rates x output". From this equation, it inevitably concludes, through simple statistics, that tax revenue peaks between 60 and 70%. If the empirical evidence contradicts this, then the Laffer curve fails. if the theory contradicts this, then the Laffer Curve fails. The empirical side of the Laffer curve failed, and many still criticise the theory behind it to begin with.

Um... no. That is flatly false.

And, the evidence supports a laffer rate well lower than taht...

Directly copied that last paragraph, minus the very last statement, from Applied Economics by Andrew Griffiths. If you think the last statement is false, I can again refer you to the studies which state that the Laffer Curve is empirically flawed.

Bump.