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CKA Uber
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PostPosted: Thu Jan 13, 2011 9:01 am
 


Lemmy wrote:
andyt wrote:
If the peak is 70%, doesn't that argue for high taxation - max revenue is achieved at a 70% tax rate.

It doesn't "argue" anything. It tells you whether a change in taxation will generate more of fewer tax dollars, if know where you are on the curve.


Alright, so if you're taxing at 30% it argues that you will generate more tax dollars at say 60%, which is a very high taxation rate. I don't see how the Laffer curve was used to justify cutting taxes so drastically by Republicons. Yes at one time pre Reagan, taxes on the highest incomes were 70%, but the overall tax rate would have been well below that.

It's not even that govt has to maximize revenues and so squeeze every penny they can out of us. But by this curve, it seem govts have a lot of latitude to raise taxes instead of running deficits. As such they could have practiced proper Keynsian economics by running deficits during hard times to stimulate the economy and raising taxes and paying off that debt during boom times. Of course no govt did that, they prefer to bribe us with our own money during good times - low taxes and lots of govt programs for everybody. And people prefer to elect govts that do just that. Well except the Chretien years - they actually were doing it right. Not like the low tax and big spenders in power now.


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PostPosted: Thu Jan 13, 2011 10:54 am
 


andyt wrote:
Alright, so if you're taxing at 30% it argues that you will generate more tax dollars at say 60%, which is a very high taxation rate. I don't see how the Laffer curve was used to justify cutting taxes so drastically by Republicons.

Again, the Laffer curve doesn't "argue" anything. It just identifies that if you tax people too much, they'll find a way to avoid paying the tax. In 1981, because the vast majority of people didn't (don't) understand the Laffer curve, it was easy for Reagan to wheel out an oversimplified picture of it (on national tv) and tell America how great tax cuts would be. And people like to be told "we're gonna reduce your taxes". What he forgot to mention was that the tax cuts were mostly for the rich.

andyt wrote:
Yes at one time pre Reagan, taxes on the highest incomes were 70%, but the overall tax rate would have been well below that.

Depends what measure you're using. Total taxes are well beyond income taxes. In Canada, the average federal tax level is around 33%. But most Canadians pay well over 70% when you add in provincial taxes, sales taxes, excise taxes, etc., etc.

andyt wrote:
It's not even that govt has to maximize revenues and so squeeze every penny they can out of us. But by this curve, it seem govts have a lot of latitude to raise taxes instead of running deficits. As such they could have practiced proper Keynsian economics by running deficits during hard times to stimulate the economy and raising taxes and paying off that debt during boom times. Of course no govt did that, they prefer to bribe us with our own money during good times - low taxes and lots of govt programs for everybody. And people prefer to elect govts that do just that. Well except the Chretien years - they actually were doing it right. Not like the low tax and big spenders in power now.

Things aren't that simple. The Laffer curve looks different for each different type of tax. The peak of the Laffer Curve for capital gains taxes, for example, is more like 20%. For tobacco it's more like 90% before the average smoker goes running to the Indians for cheap smokes. As for Keynesian fiscal policy, it works fine when you have a 1-budget slump. But string together consecutive years of recession and fiscal trap sets in and kills all the benefits with debt.

Reaganomics tax cuts worked for whom they were intended to work for: the wealthy. The average tax rate in the USA fell by about 1% while revenues increased by around 6%. But only because those who benefitted most represent the largest incomes, which also grew. In that sense, it was a rigged game from the get go.


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PostPosted: Thu Jan 13, 2011 4:11 pm
 


Lemmy wrote:
Again, the Laffer curve doesn't "argue" anything. It just identifies that if you tax people too much, they'll find a way to avoid paying the tax.
I am no economist but didn't the work of (or theft by) Hervé Falciani indicate that the rich will avoid paying taxes no matter what the rate is?
Interesting discussion you guys are having, quite refreshing!


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PostPosted: Fri Jan 14, 2011 12:47 am
 


It's interesting, and nice to see Lemmy not call me a troll.

But I didn't really post this to get into a detailed discussion of the Laffer curve, interesting as it is. I posted more about the whole idea of supply side economics as it's been applied in the US, including deregulating the banks etc. Seems to me like it's been a disaster. If lowering taxes is supposed to give more govt revenues, why is the US approaching a dept that equals it's GDP. If the free market is the best for running an economy, what just happenend, and still seems to be happening in the US. Guess the piper has to be paid at some time, and yet there are so many people still pushing the same tired line.


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PostPosted: Fri Jan 14, 2011 6:18 am
 


andyt wrote:
It's interesting, and nice to see Lemmy not call me a troll.

Behave yourself and there'll be no need to label. :D

andyt wrote:
But I didn't really post this to get into a detailed discussion of the Laffer curve, interesting as it is. I posted more about the whole idea of supply side economics as it's been applied in the US, including deregulating the banks etc. Seems to me like it's been a disaster. If lowering taxes is supposed to give more govt revenues, why is the US approaching a dept[sic] that equals it's GDP. If the free market is the best for running an economy, what just happenend, and still seems to be happening in the US. Guess the piper has to be paid at some time, and yet there are so many people still pushing the same tired line.

Deregulation was certainly a key component of Reaganomics. And you're right, deregulation can be very dangerous, especially in credit markets. 2008 proved that. Regarding debt, well, a balanced budget has two sides: revenue and spending. In Reagan's day, the biggest cause of debt was that almost immediately after his 1981 tax reforms, the global economy went into the toilet. The recession that began in 1982 wiped out any of the tax cut stimulus. In the present day, foreign wars are the culprit. And as for "the piper being paid", I'm not so sure. The west has collectively chosen to pay the debt forward to the next generation. My kids'll no doubt saddle my grandchildren with it and so on. The cost of that choice, however, is the tremendous good we could do with our federal budget were we not committing such a large wedge of the pie to service interest on that debt. If I had to predict what will happen in the long-term, my guess is that, at some point, the US government will tell its creditors to go fuck their hats. Every other government will follow suit and the collective debts will be wiped out. It'll be the greatest heist in history, but I suspect it will one day occur.


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