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The Great Lie of Supply-Side Economics
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Author:  andyt [ Wed Jan 12, 2011 12:53 pm ]
Post subject:  The Great Lie of Supply-Side Economics

http://economistsview.typepad.com/economistsview/2007/10/the-great-lie-o.html

Quote:
The Tax Evasion: The Great Lie of Supply-Side Economics, by James Surowiecki, The New Yorker: In American politics, supply-side economics is the monster that will not die. The supply-side argument that, in the United States, tax-rate cuts pay for themselves ... has little or no support within the mainstream economic profession, and no hard empirical data to back it up. Myriad studies have demonstrated that both the Reagan tax cuts of the nineteen-eighties and the tax cuts put through under the current Administration shrank government revenues and led to bigger budget deficits.


Quote:
The cynical explanation for the persistence of the supply-side dogma is that it’s simply cover for cutting taxes for the rich. But the supply-side orthodoxy has flourished for other reasons, too. To begin with, the absurd idea that tax cuts pay for themselves is based on an idea that is not at all absurd, which is that tax rates can have an impact on people’s behavior. Increase taxes too much, and people may work less ... and invest less..., and so the economy will grow more slowly. The opposite can happen if you cut taxes. (How much of an impact tax rates have ... is a subject of much debate in economics, but it’s inarguable that they do matter.) What supply-siders have done is start with that reasonable idea and extrapolate it to unreasonable lengths.



Here's another guy on it:
http://www.robertapplebaum.com/content/supply-side-economics-aka-trickle-down-or-reaganomics-absolute-failure-any-measure

Quote:
Arguments in favor of supply-side economics can only stand up if you limit the data, such as focusing only on one city instead of the entire federal government, or focusing only on the Reagan years without considering the long-lasting, generational effects of federal tax policies. However, when you look at the big picture, supply-side economics can only be considered a colossal failure on the level of Soviet-style communism - doomed to fail from the start.


Quote:
Recently released census data confirms that real incomes for middle class wage earners decreased by 5% from 2001-2009. The number of Americans living in poverty is higher than at any time since such records started being kept. The gap between rich and poor has never been greater than it is today. These statistics are the direct result of 30 years of clinging to an ideology that tax cuts are the panacea for anything and everything that ails the nation.

Author:  sandorski [ Wed Jan 12, 2011 1:14 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

yup

Author:  Lemmy [ Wed Jan 12, 2011 1:42 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Supply side economics encompasses a lot more than Reaganomics and tax cuts. John Crow's zero-inflation experiment, which basically disproved the Phillips Curve, is an example of supply side economics that has become the model for virtually every central bank's monetary policy. To suggest that supply side economics is a "lie" or has been "disproved" demonstrates, at best, a pedestrian grasp of economics.

Author:  andyt [ Wed Jan 12, 2011 1:50 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Lemmy wrote:
Supply side economics encompasses a lot more than Reaganomics and tax cuts. John Crow's zero-inflation experiment, which basically disproved the Phillips Curve, is an example of supply side economics that has become the model for virtually every central bank's monetary policy. To suggest that supply side economics is a "lie" or has been "disproved" demonstrates, at best, a pedestrian grasp of economics.


Well, a pedestrian grasp is all I've got. But if you read the article, or even the quote I selected, he's talking about the misuse of the idea.

So, the Laffer curve seems to say that a 50% tax rate maximizes revenue. Yet few countries tax income at an average of 50%. And wouldn't you get that 50% average just as nicely if you tax high incomes at rates well above 50%, and low incomes well below 50%?

Author:  andyt [ Wed Jan 12, 2011 1:56 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Quote:
Tax Cuts Don't Boost Revenues


http://www.time.com/time/magazine/article/0,9171,1692027,00.html

Quote:
If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.


Quote:
In other words, the Bush tax cuts were meant to create big deficits. But Laffer's O.K. with that. "The Laffer Curve should not be the reason you raise or lower taxes," he says. Perhaps not, but it does make for great campaign promises.

Author:  Lemmy [ Wed Jan 12, 2011 3:23 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

andyt wrote:
So, the Laffer curve seems to say that a 50% tax rate maximizes revenue. Yet few countries tax income at an average of 50%. And wouldn't you get that 50% average just as nicely if you tax high incomes at rates well above 50%, and low incomes well below 50%?

Where did you get the notion that the peak of the Laffer Curve is at 50%?

Author:  Pseudonym [ Wed Jan 12, 2011 3:36 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Maybe he looked at the example curve on Wikipedia?

Author:  Lemmy [ Wed Jan 12, 2011 3:45 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

That'd be mistake #1, but even on Wiki, the peak is labelled t*, not 50%. Reading a little farther (again, even on Wiki), you can see that it states that "estimates of revenue-maximizing tax rates have varied widely with some studies suggesting midpoint ranges around 70%". There have been HUNDREDS of empirical studies on estimating the Laffer curve. The results are different for different types of taxes and also differ depending on the location of the test data. But every study I've seen on total taxation estimates the peak to be well above 50%. There's also no empirical evidence that would suggest that the curve looks anything like the symmetrical, smooth parabol displayed on Wiki (or in 1st year econ texts).

Author:  BartSimpson [ Wed Jan 12, 2011 3:51 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

The counter to supply side economics is the notion that higher tax rates have no discernible effect on an economy. That seems to be the delusion that too many class warfare specialists engage in.

Right now, in California, we've got a Lt. Governor who thinks that a 10% annual property tax is fair, a Governor who wants to see the state income tax raised by as much as 75% (because Illinois did it!), a group of solons wants the state sales tax raised to 10%, and they want to add a $1 per gallon (25 cents per liter) state tax added to petrol, and they also want a $100 per acre foot state tax added to water.

All of which will be outstanding news for Texas, Arizona, and Florida as California businesses and the retired raise stakes and move to those tax havens.

Author:  Pseudonym [ Wed Jan 12, 2011 3:57 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

As a conservative, I've never really followed the whole "lower taxes, higher revenue" argument. It has worked in a few specific cases, but the primary goal should never be maximized revenues anyway. I want smaller government and more freedom. Government maximizing its revenues is directly opposed to my ideals.

Author:  BartSimpson [ Wed Jan 12, 2011 4:10 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Pseudonym wrote:
As a conservative, I've never really followed the whole "lower taxes, higher revenue" argument. It has worked in a few specific cases, but the primary goal should never be maximized revenues anyway. I want smaller government and more freedom. Government maximizing its revenues is directly opposed to my ideals.


Amen. PDT_Armataz_01_37

Author:  Lemmy [ Wed Jan 12, 2011 5:02 pm ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Pseudonym wrote:
As a conservative, I've never really followed the whole "lower taxes, higher revenue" argument. It has worked in a few specific cases, but the primary goal should never be maximized revenues anyway. I want smaller government and more freedom. Government maximizing its revenues is directly opposed to my ideals.

R=UP
But that's got nothing to do with you being a conservative. As a liberal, I can say that the primary goal should never be maximized revenues anyway. I want smaller government and more freedom. Government maximizing its revenues is directly opposed to my ideals too!

Author:  andyt [ Thu Jan 13, 2011 12:44 am ]
Post subject:  Re: The Great Lie of Supply-Side Economics

Lemmy wrote:
That'd be mistake #1, but even on Wiki, the peak is labelled t*, not 50%. Reading a little farther (again, even on Wiki), you can see that it states that "estimates of revenue-maximizing tax rates have varied widely with some studies suggesting midpoint ranges around 70%". There have been HUNDREDS of empirical studies on estimating the Laffer curve. The results are different for different types of taxes and also differ depending on the location of the test data. But every study I've seen on total taxation estimates the peak to be well above 50%. There's also no empirical evidence that would suggest that the curve looks anything like the symmetrical, smooth parabol displayed on Wiki (or in 1st year econ texts).


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

Author:  andyt [ Thu Jan 13, 2011 12:46 am ]
Post subject:  Re: The Great Lie of Supply-Side Economics

BartSimpson wrote:
The counter to supply side economics is the notion that higher tax rates have no discernible effect on an economy. That seems to be the delusion that too many class warfare specialists engage in.



Nope - read just the quotes I started this topic with, or better yet the whole article.

Author:  Lemmy [ Thu Jan 13, 2011 6:00 am ]
Post subject:  Re: The Great Lie of Supply-Side Economics

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.

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