Umm, Kevin, "Captain" Ed is a fucking moron. I thought everybody already knew that.

The recession was the Reagan administration's shitty economic policies coming home to roost. The same thing will happen again soon and, if we are lucky, it will be before Shrub leaves office.

Vladi: But I don't think I've ever linked to him before. I figured it was time to correct that.

Tax increases make tax receipts go up and tax cuts make them go down — relative to where receipts would be if no action had been taken, of course.

Well, then, if that's true, let's just increase our taxes to 100%. That will solve the national debt and budget deficit problems at one shot!

(I expect that at least one regular will now chime in to accuse me of all sorts of horrible crimes, and Kevin will say nothing-like the time I asked, in comments, how he could possibly support one of his claims based on the chart he was referencing.)

No, No, NO! Deficits don't matter. Reagan proved that.

"and that, combined with a good economy and some fiscal discipline, finally resulted in a balanced budget five years later."

uh-huh. And a ~30% cut in defence spending had nothing to do with it?

Kevin, it is OUR MONEY!
Except when we send hundreds of billions to Iraq, via Halliburton, so they can have less electricity, less running water, and more car bombs. Then it is Support the Troops!

We don't need no fiscal solvency! The rapture will save us from selling hundreds of billions in bonds to the Chinese.

Oh yeah, and Cheney verified that deficits don't matter.

I love the way am and his cronies occasionally slip up with stuff like "defence"...sort of a verbal GPS. Wasn't it Cranky Observer who asserted that some of our most amusing trolls are from the UK?

The key distinction is: tax cuts are always good, even if the effects are bad. But tax increases are always bad, even if the results are good.

One of my problems with Bush is that he refuses to cut spending at all. Indeed, he increases it.

The most laughable line Bush has uttered to date (yes, there is stiff competition for that title) was in this year's State of the Union, when he stated that he'd reduced discretionary spending.

This is a lie. Bush has increased discretionary spending more than any President since Johnson. Indeed, he's increased it more than Johnson did.

I imagine he'll deal with this by increasing inflation, all the while bragging that he's cut taxes.

In that, he will resemble Johnson even more.

Nice troll comment, am. Where do you get your numbers? I'm pretty sure they are either pure bullshit, or refer to a 30% cut in the rate of growth of defense spending.

That doesn't even address the argument that we had just defeated the most powerful enemy we had ever known, and maybe reducing defense spending made sense. But, of course, you trolls think that defense spending should never be reduced, regardless of whether we are facing a nuclear armada or a few Arabs with box cutters.

Nemo Ignoramus is outraged -- OUTRAGED -- that someone points out his ignorance, and Kevin doesn't defend him! Yes, just cut taxes, ignore the consequences of Reagan's and W's policies, ignore the consequences of H.W.'s and Clinton's policies.

Ignoramus -- "I'll say anything for a few bucks more!"

Nemo: Don't be an idiot. Federal tax receipts are at about 20% of GDP. Any increase in that range will increase revenues. You have to get up to around the 60% range before increases might start to hurt revenues. We're nowhere near that and never will be.

Well, then, if that's true, let's just increase our taxes to 100%. That will solve the national debt and budget deficit problems at one shot!

Well, then, if that's not true, let's just decrease our taxes to 0.00%. That will solve the national debt and budget deficit problems at one shot!

AM, don't worry, the USA can still protect you even with the military we have....I think.

In general, if you increase taxes you will slow the economy and increase tax receipts. However, in specific cases there is no clear relation between the timing of tax cuts/increases, the strength of the economy and tax receipts. There are too many other factors to consider. Bush the first also had to deal with a tight monetary policy.

In that, he will resemble Johnson even more. Posted by: Nemo Ignotus

Perhaps only in Johnson's pig-headedness about Vietnam. Otherwise, the Johnson era increase in discretionary spending was to fight poverty and racial discrimination, and to promote education. All the discretionary spending in Shrub and the Rethugs' budgets have been to grease the palms of corporate America.

In fact, Johnson spent most of his time in office fighting rapacious assholes like Bush, DeLay, Frist and the rest. Johnson had a lot of personal faults. But he was a New Deal crusader in the best sense.

brewmn: your aggressiveness is exceeded only by your ignorance. Go look up "peace dividend", or look here http://www.truthandpolitics.org/military-relative-size.php, or at the OMB data from which it was obtained.

If only Clinton had funded Star Wars, George W. Bush wouldn't have been forced to ignore the "bin Laden determined to strike inside the U.S." pdb!

Kevin Drum,

Why not a post on the current account deficit? That really distinguishes the reality based community from the fantasy based one. Try the latest Business Week. You'll have wingnuts rolling in here talking about "dark matter" and nebulous intangibles. It'll be fun!

Deficits don't matter:
To professional investors and white collar criminals who shelter hundreds of billions in offshore accounts in the Caymans, yet enjoy all the benefits of being US citizens, like having the US Military protect their investments in third-world sweatshops.

"captain" Ed was named that from his girlfriend in the 1970's (probably his only one), because of his infatuation with star trek.

Yes, his nickname came from captain Kirk.

I once dug into a cato institute report which claimed a big list of tax increases and tax cuts causing growth spurts and recessions in the economy over the century.

The first thing I noticed was how vague they were with thier dates. Tax cuts in "the 1920's" caused the boom then. Tax increases in the 1930's caused the depression. So I spent a couple hours on google. The big tax cut they were talking about in the 1920's happened in 1928. The tax increases in 1932 or later. When was the big boom of the 20's? Basically from a few years after WWI (1920 or so) to 1929. Now when did that depression start? The stock market bubble popped in 29 and the economy fell apart over the next two years. So the tax cuts came at the tail end of a boom, and the tax increases came when unemployment was passing 25% going in the wrong direction.

They had other examples from the late 60's and early 80's (interestingly they omitted the 1940-60 without explination, probably what happened there so stongly against thier thesis they could not even fudge it the other way) which I lined up with GDP growth numbers to see that thier claims were simply false. Overall I think every tax cut except the reagan (and now bush2) one occured during a boom, and every tax increase occurred during a bust. The economy appeared to wobble about completely independant of these changes.

The obvious conclusion is that the government cuts taxes when it is getting lots of revenue, and increases them when it isn't. At least until the "Reagan era" where republican presidents cut taxes and run massive deficits all the time.

"Tax increases make tax receipts go up and tax cuts make them go down — relative to where receipts would be if no action had been taken, of course."

Well within a certain range this is certainly true. However, despite those who misunderstand the Laffer Curve (which actually is a well-understood economic concept dating to at least the 14th century), its not disputed among economists that if tax rates are too high they will be counterproductive and actually decrease revenues. It is finding that exact point of revenue maximization that is the problem.

Personally, I'm actually amenable to the idea that personal income tax rates could be higher...there is, however, some evidence that our corporate tax rates (ours are among the highest in the world) are in fact high enough to be counterproductive. in other words, Bush cut the wrong taxes (and doing away with the estate tax is just asinine.)

Perhaps it should be required of the pundits and posters in the blogosphere to take at least Economics 101. This will prevent them from making absurd claims that are equivalent to the claims of perpetual motion machines inasmuch as they violate the first principle of macroeconomic theory on taxation, to wit, the Laffer curve. The shape of the curve may not be known, and the number of peaks that it has may also be subject to dispute, but the curve is, by golly, real. Once you understand the Laffer curve, you can rationally and logically deduce the affect of changes in the rate of taxation. At least you will not have to contend with all this verbal effluvia here.

Sure, sure, the way to prosperity is to tax everyone more. That way they have less money to spend, so businesses take in less, and pay less to employees, so they can spend less...

Ya, makes perfect sense to me. After all, everyone knows that government is the most efficient user of revenue, that's why the phrase "government waste" isn't even in the lexicon.

am,
Your link proves brewmn's point. It shows military spending relative to GDP. Why do we need more or less military spending based on the size of the GDP?

Here are the numbers for 1990 - 2000 (in billions):

299,273,298,291,281,272,265,270,268,274

Once you understand the Laffer curve, . . . Posted by: tbrosz

Fake T-Bone or not, bringing the Laugher curve is worth a smile.

DR: the topic being discussed is the macroeconomic impact of defense/defence outlays, is it not?

In 1989: 5.6% of GDP.
In 2000: 3.0% of GDP.

That's a large slice of the overall economy, let alone of Federal revenues.

As for brewmn's "point": he made two. The first was completely wrong and the second was some sort of attack on myself, also completely wrong.

shortstop: I love the way am and his cronies occasionally slip up with stuff like "defence"

It's almost as funny as someone posing as a "life-long liberal" railing about "the Democrat Party" (or similar rushism).

What Tbroz is trying to say is you can't borrow and spend with no limits or grow your way ouy of this habbit,somewhere you have to raise taxes to meet the Laffer curve intersection and not go beyond it.

Jeff II:

actually, the validity of the Laffer Curve is undisputed in economics (dating to Ibn Khaldun and espoused by Keynes among others). for example, tax rates of either 0% or 100% will both collect no revenue.

the debate is where the peak of the curve lies. the Pecorino study puts it at 65% for a modern economy...others put it as high as 80% for personal income taxes.

just some perspective for the discussion...

In dollar terms, federal receipts from personal income taxes, at $802 billion in 2004, are still lower than they were in 1998 ($826 billion) and much lower than in 2001 ($994 billion)...

SOURCE: "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates." - Congressional Budget Office 12/10/05

.....Clinton had "all time highs" in Federal tax revenues 8-years in a row, before and after Republican congresses, before and after tax increases.

.....Federal tax revenues FELL in 2001, AGAIN in 2002, and DOWN even more in 2003. That hasn't happened since the GREAT DEPRESSION.

....the Republican congress and Republican president are hitting "all-time highs" on borrowing and spending.

finally.....

As a percentage of gross domestic product, government spending has climbed sharply, from 18.5 percent in 2001 to nearly 20 percent for each of the past three years.

am,
Are you saying the cut in defense funding contributed to the recession or contributed to the recession ending? I'm not sure how the numbers as quoted support either argument.

You know, even your lefty hero Keynes recognized the Laffer curve

Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.

So people like CN would rather have a bill handed to him for the costs of,The roads he drives on,The sewage system he uses,Flying oh add the cost of Flight controllers,The biggy is give Cn a bill for the War.I would rather have the U.S. as a whole pay for these.But dumb asses like CN would rather pay for these at cost to him.

I do hope this blog is influential however if Alito is any guide it isn't. Nothing would be better for GOP fortunes than to have Democrats run on tax increases. It would be nice to see another Mondale repeat in 2008.

Now that's funny: I was going to make the obvious debunking of c.n.'s straw man argument, when lo and behold c.n. him/her/itself goes and beats me to it.

As a bonus, c.n.'s amusing obsession with Communism rears its comical head! Comedy gold!

Nathan - I'm fairly sure that you are wrong about our corporate tax rates being higher than other countries. I think that you should check that out. I don't have a specific reference but I will try to find one.

But dumb asses like CN would rather pay for these at cost to him.
Well, I'm just happy that I'm not dumb enough to think that I'm not already paying for that stuff. Here's your clue: the government has no money. Everything they get, they take from people that work for a living.

That bill gets handed to me every April 15th.

Arg. Boinked the HTML. Take two:

Now that's funny: I was going to make the obvious debunking of c.n.'s straw man argument, when lo and behold c.n. him/her/itself goes and beats me to it.

Damn Grgory, you're not just having trouble with your HTML, you're having trouble following along.

It's alright, though, I'm used to it.

You know, even your lefty hero Keynes recognized the Laffer curve Posted by: conspiracy nut

No he didn't, you fucking moron. Keynes had been dead for over twenty years. You can't put words in his mouth. Conservatives trying to link him with it doesn't make it so.

This link has a good run down of federal budgets and deficits and other fun numbers.

http://www.cbo.gov/budget/historical.pdf

One number from this to consider is that we hit a high of spending during the Reagan years (around 23% of GDP), and a low during the Clinton years (around 18%). And now Bush has been raising that up again from 18, so we're now close to 21%. Republicans are bigger spenders than Democrats. The problem is that they also tax less - we're now at around 17% of GDP, after Bush's tax cuts, and we're going further.

the government has no money. Everything they get, they take from people that work for a living.

Aw, c.n. forgot to add "at gunpoint" for the true loony libertarian/anti-tax crank triple axel. Too bad.

Here's a clue for you, c.n.: Taxation has been accepted as a legitimate function of government since way before Hobbes....even Jesus Christ condoned it.

Nathan: the debate [about the Laffer curve] is where the peak of the curve lies. the Pecorino study puts it at 65% for a modern economy...others put it as high as 80% for personal income taxes.

In other words, so far beyond US tax rates that it's utterly irrelevant. The 0% and 100% points are trivial observations. Hence the term "Laughable" curve.

I do hope this blog is influential however if Alito is any guide it isn't. Nothing would be better for GOP fortunes than to have Democrats run on tax increases. It would be nice to see another Mondale repeat in 2008.
Posted by: rdw on February 7, 2006 at 2:58 PM | PERMALINK

Which would prove once again, that Republicans can't handle the truth, and would rather daddy President lie to them "in their own best ineterest".

Have you had enough of the Republican outrage?

Join the revolution http://www.boycott-republicans.com

Morons. Despite what you hear.
It is obvious that Republican
control means big deficits
and less real paying jobs.
Then Democrates come along and
have to fight tooth and nail
to fix the mess. By then the
short term memory clan votes
the tax happy Dems out before
the real long term plan can be
set in stone. They elect more
Republicans then boom were right
back in the hole. You want to see
real progress vote Dem across the
board then let them stay long
enough to fix it and then let
them stay and finish the work.
But then you can't remember what
the original story was. So I am
sure your short term memory will
not retain this advice a half hour
from now.

Math is suppost to add up.

the debate is where the peak of the curve lies. the Pecorino study puts it at 65% for a modern economy...others put it as high as 80% for personal income taxes. Posted by: Nathan

Actually, there is no debate at all because serious economists think the Laffer Curve is crap. Keynes did not describe or ascribe to it, regardless of what conservatives think.

Gregory
Taxation has been accepted as a legitimate function of government since way before Hobbes....even Jesus Christ condoned it.
Do tell.

And if you don't think taxes are taken at gunpoint, try not paying yours and see what happens.

CN But a much smaller bill then if you tried to pay for it yourself,Did you know it costs about 5 million dollars for a one mile stretch of road.How much have you paid for?

Here's a clue for you, c.n.: Taxation has been accepted as a legitimate function of government since way before Hobbes....even Jesus Christ condoned it.
Posted by: Gregory on February 7, 2006 at 3:05 PM | PERMALINK

There's a difference, though.

The Romans extracted tax through threat of the spearpoint.

Americans extract tax voluntarily, because they are participants in a representative government. Except for the few whack-jobs who believe that government should be a few rich elites ruling the mob with propaganda, and lies, the mob paying taxes, the elite; not so much.

Hypothetical Here:

Tax Base $100
Tax 10%
Revenue: $10

Tax cut of 10%
Revenue $9.

The base must grow by 11.11% to return the same amount of revenue.

If you don't cut spending, until the base grows to the necessary point, you've got to borrow the difference. That forestalls the day when the "tax cut pays for itself". Reagan's debt, for example, is still with us.

This isn't rocket science. It's just proportions. 8th grade math.

Jeff II: you're pretty ignorant.

the Laffer Curve was postulated at least 600 years ago (hint: it wasn't called the Laffer Curve)...and as a theoretical matter, its validity is undisputed by any economist of any stripe (see my 0% and 100% comment). could it be that maybe you're attacking a straw man?

Alex: you are correct that tax rates in the U.S. (with the possible exception of corporate rates) are nowhere near the point where increased tax rates would result in decreased revenue.

No he didn't, you fucking moron.
Oh, since he didn't use the word "Laffer" he can't describe a Laffer curve (like he did). Gosh, I'm glad you cleared that up.

"What's in a name? That which we call a rose
By any other word would smell as sweet."
William Shakespeare
From Romeo and Juliet (II, ii, 1-2)

And just to add one more point We Dems wanted the Iraqis to pay for reconstruction,saving the U.S. tax payers 200-300 billion dollars.But no the righties wanted to take on this burden all buy there self.

The common "proof" offered of the Laffer Curve is the two data points: 0% and 100%. In other contexts, that's called The Shell Game. A 0% rate obviously produces no money A 100% rate would produce lots of money.

The British lived with tax rates > 100% for a long time (a 98% bracket + the VAT). It wasn't a healthy situation for accumulating wealth, but it didn't produce the $0 so fabled in song and story.

Nathan et al., Re: corporate taxes. Just looking around the web it appears that US corporate taxes are relatively high: fourth highest in the OECD. On the other hand, corporations are paying only about 8% of federal revenues compared to about 24% in the 60s. I wonder if there is a difference between the stated tax rate and the effective tax rate.

The GOP's pathological hatred/fear/disdain of taxes will be the undoing of the Republic. A complex society, such as ours, cannot exist for long, when there is a self-interested constituency that wants lots of government services (read - a strong military), but they aren't willing to pay for it. This has been the trajectory of all the world's great empires.

Salute as we go under.....

That bill gets handed to me every April 15th.

Didn't you mean, "handed to my mommy"?

Imaginary theoretical constructs aside:
The US economy is 2/3 driven by consumer spending. Nobody disputes this. It's a fact. It is an ideology-neutral fact.

If you cut taxes disproportionately for the rich, in hopes that they're going to invest in expansion of industrial capacity, you've got no guarantee that they're going to do so IN THIS COUNTRY.

If you increase taxes disproportionately for the rich, in hopes of relieving middle-class consumers of the burden of financing the government, then the rich STILL CONSUME JUST AS MUCH, and the middle and lower classes consume more. The consumer-spending-driven economy will thrive. IN THIS COUNTRY.

Which option is more PATRIOTIC?

"Tax increases make tax receipts go up"

I think we have good evidence that government spending also decreases with tax increases. You get a two fer one.

And if you had listened to us dems we wouldn't have wasted billions of dollars on a war we didn't have to fight.CN most of your tax dollars now go to pay intrest on the U.S. debt run up by Republicans.

conspiracy nut: And if you don't think taxes are taken at gunpoint, try not paying yours and see what happens.

You're right. So many people fail to see through the propaganda that we feed them from childhood. George Washington was Evil! We're talking about the man who suppressed the Whiskey Rebellion, using some flimsy excuse about the people now having representation.

Let's face it nut, the only answer to the evil of taxes is anarchy!

conspiracy nut is an anarchist!, which is why he so hates the commies. Once upon a time the great threat to America was anarchists (in 1912 my grandfather's immigration papers required him to swear that he wasn't one). Then the commies stole their thunder. Nobody likes to be upstaged.

Jeff II: you're pretty ignorant. Posted by: Nathan

Nathan, I've forgotten more about economics than you'll ever understand. Furthermore, I don't get my economic talking points from the Cato Institute or the Heritage Foundation, which, along with the WSJ editorial page, are the only proponents of supply-side economics, which was underpinned by Laffer's perversions.

Um, the point is to stimulate the economy by stimulating investment.

the Republicans believe that if you give money to rich people they will turn around and invest it, building factories and such, thus creating jobs and supply. In fact this is a good approach in an inflationary situation when you have too many dollars chasing too few products: in that case you need more supply.

But that's not the case Bush faced.

Bush faced a deflationary recession. There was too many products chasing too little demand.

Under those conditions, giving money to rich is stupid, because nobody is going to build a widget factory if there is no demand (or soft demand) for widgets.

As a result, Bush giving money to the rich was similar to taking money out of the economy, except for the purchase of porsches and mink coats and diamond studded cock rings.

Rubin's genious was that tax cuts weren't the oppoerative act for stimulating investment, but stability and ability to predict, and get, a return on an investment. That's why the economy both boomed and tax revenues went up.

But the structural problem is in the weakness in demand. That simply is a function of a lack of bargaining power for wages. Republican's have turned a blind eye towards 'insourceing technology labor', outsourcing and rampart immigration, all of which is putting downward pressure on wages. Walmart's of the world doesn't help either.

What saved Bush's bacon, was the fed driving down interest rates and China's willingness to lend us money at below fair value interest rates. This help to put spending power in holders of mortgages thus spuring demand.

In the long term, the collapse of demand, the lack of bargaining power, all point towards an eventual 1929 type of adjustment. Not very tasteful and rather unsightly. The business of trickle down is nothing more than political smack. It doesn't occur, People don't get rich by letting money trickle down, they get rich by squeezing it up. So giving Rich people money is nearly the same as taking it out of the economy in the face of shrinking demand.

Out side of all this, is the effect on innovation. Even during the 1930s when there was no demand, innovation continued and can bring increases in productivity and demand.

I recommend everyone read Nobel Lauriette Douglas North's "Structure and Change in Economic History." The Roman Empire collapsed because demand collapsed (perhaps as a result of Constantine's inseption on the Latifunda system) wrecking the commercial economy. The rich got richer, the poor got poorer, and the rich and powerful used their influence to avoid paying taxes. Meanwhile the tactical edge of the Roman Legion had thinned, meaning Rome needed to spend more on the Army not less. This growing tax burden was pushed down to the weakest elements of society, many who would have to choose between eating and paying taxes, and who had no interest in who prevailed in any military outcome. The outcome is now history. Furthermore its a common pattern in history, it happen in medieval Japan, and in Ancient Egypt and arguably ended Hapsburg Spain, Bourbon France and Romanov Russia, not to mention triggering the Great Depression which launched Hitler into power and subsequently delivered WWII and the Holocost. You cut taxes to the rich at your risk.

Now look at us: We have increasing concentration of rich and powerful, we have immigrants poring over our borders, and like Rome, we don't have the political will to fund and fight our enemies.

Its an Epic event inching its way to catastrophy.

Did you know it costs about 5 million dollars for a one mile stretch of road
Well, highways are plenty expensive, but you're on the order of about 6 times too high there. linky

Let's rough some stuff out. There are about 800,000 miles of highway in the US. Lifespan of say 10 years, that's about 80,000 miles per year built. There are 128 million tax returns. Let's see, that's miles of road times cost of road divided by number of returns, carry the one... $531 dollars. Naturally this is largely covered by the tax on gasoline, and further spread between Federal and State taxes.

But wait, I'm sorry, what was your point about my mile of road? Am I the only one that gets to drive on it?

It is finding that exact point of revenue maximization that is the problem.

No, Nathan, it is emphatically not the problem, since we are nowhere near it!

Good grief.

Everyone knows that withdrawing Americans from the middle East is what causes extended increases in GDP growth:

Lebanon 1958
Hostages out of Iran 1981
Marines out of Lebanon 1983
Army out of Iraq 1991

Bush is just planning on jump starting the economy with rocket fuel.

One addition:

If you cut taxes disproprotionately for the rich, in hopes that they're going to invest in expansion of industrial capacity, you've got no guarantee that they're going to do so in this country:

And you've got a virtual guarantee that they will do so in another country, given that the US Military (that they're not paying for; the middle and lower classes are paying for it, disproportionately, and with their sons and daughters) will be busy making sure that there will be no costly regulatory impediments in that other country.

And while the US Military is over in that third world shithole making the world safe for sweatshops, they're not at home making America more safe and secure.

So how is this policy stronger on Security?

Jeffrey Davis says:
"A 100% rate would produce lots of money.
The British lived with tax rates > 100% for a long time (a 98% bracket + the VAT). It wasn't a healthy situation for accumulating wealth, but it didn't produce the $0 so fabled in song and story."

Apparently you're unfamiliar with the tax evasion and shelters prevalent during that period. the effective tax rate was much lower. I lived in Norway during the late 1970's when they had a similar tax rate...the amount of tax evasion was breathtaking.

"Just looking around the web it appears that US corporate taxes are relatively high: fourth highest in the OECD. On the other hand, corporations are paying only about 8% of federal revenues compared to about 24% in the 60s. I wonder if there is a difference between the stated tax rate and the effective tax rate."

you realize that the contrast between corporate tax rate and revenues is what underlies the suggestion that perhaps the current corporate tax rate is counterproductive? I'm open to other explanations -- which is why I noted that is only a possibility at this point.

Jeff II: really? mind telling me where you received your degree...which economics courses you took and who the professors and textbooks were?
your dismissal of Keyne's statement of the Laffer Curve says everything.

Jeffrey Davis says:
"A 100% rate would produce lots of money.
The British lived with tax rates > 100% for a long time (a 98% bracket + the VAT). It wasn't a healthy situation for accumulating wealth, but it didn't produce the $0 so fabled in song and story."

Apparently you're unfamiliar with the tax evasion and shelters prevalent during that period. the effective tax rate was much lower. I lived in Norway during the late 1970's when they had a similar tax rate...the amount of tax evasion was breathtaking.

"Just looking around the web it appears that US corporate taxes are relatively high: fourth highest in the OECD. On the other hand, corporations are paying only about 8% of federal revenues compared to about 24% in the 60s. I wonder if there is a difference between the stated tax rate and the effective tax rate."

you realize that the contrast between corporate tax rate and revenues is what underlies the suggestion that perhaps the current corporate tax rate is counterproductive? I'm open to other explanations -- which is why I noted that is only a possibility at this point.

Jeff II: really? mind telling me where you received your degree...which economics courses you took and who the professors and textbooks were?
your dismissal of Keynes' statement of the Laffer Curve says everything.

OK wonderful you pay 531 dollars for just roads,Now lets tally up war costs please.

There are about 800,000 miles of highway in the US. Lifespan of say 10 years, that's about 80,000 miles per year built. Posted by: conspiracy nut

That, like everything else you post, is nonsense. The freeways in and around the major metropolitan areas in the U.S. are in an almost constant state of repair. Just as one X mile section is resurfaced, another needs attention. About the only place you might find a highway lasting ten years is one in a temperate area with no traffic. Either that or Montana or Idaho because they don't pay any taxes. They're all resigned to shitty roads because it's unAmerican to pay for good ones.

obscure:

if you actually read my comments you'd notice that I said we were nowhere near it on personal income taxes.

(besides, what I meant was that as a theoretical matter, determining the peak point of the Laffer Curve matters a great deal)

CN most of your tax dollars now go to pay intrest on the U.S. debt run up by Republicans.
I know you guys just make this shit up because it sounds good, and I know that actual facts aren't useful because you'll be making this same shit up tommorrow, but check out Figure 1 (while you're there, notice that as a percent of budget, defense is shrinking, transfer payments are growing)

You're right.
I know.

Paraphrasing the great I.F. Stone:

"The strategy of the rich is to raise such a terrific hue & cry at any and every attempt to raise taxes as to create the illusion that there is actually a revolution in progress."

Or, take the words, again paraphrased, of former Senate Majority Leader George Mitchell:

"When workers organize to try and squeeze a few extra nickels out of their employers that is called 'class warfare.' When employers organize to squeeze a few extra nickels out of their employees, that is called 'business as usual.'"

Take these nuggets together with the ridiculous irrelevance of the Laffer curve and bake your own batch of right-wing folly.

Now lets tally up war costs please.
Not until you tell me more about my mile of road.

The freeways in and around the major metropolitan areas in the U.S. are in an almost constant state of repair.
No shit. You guys are too brilliant for me. But let me ask one question about these roads, where every fucking bit of it is always under re-contruction. How do you get to work, fly?

Try not to be quite so stupid.

Jeff II,

Do you think that you would collect much revenue at a taxation level of 100% of income? If not, then you believe in the Laffer curve, and Nathan is correct. However, Kevin is also correct in that we are not at the peak of the curve.

DR,

2.6% of GDP, the difference in defense spending as a fraction of the economy between 1990 and 2000 amounts to a difference of about $260 billion dollars in year 2000. Thus the peace dividend contributed a significant fraction to the deficit reduction of the 1990s.

To all,

One not only must examine the the effect on total revenues when determining the optimal tax rate, but the tax structure, and one must examine the effect on the economy of both as a function of time. For example, a tax structure that takes 65% of a $10 trillion dollar economy will bring in more revenues than a 30% take of a $20 trillion economy.

And if you don't think taxes are taken at gunpoint, try not paying yours and see what happens.

Yes! He nails it! The triple axel!

For an encore, c.n., how about telling us again how the G8 are all Marxist?

"uh-huh. And a ~30% cut in defence spending had nothing to do with it?"

Huh? Defense spending was 299 billion in 1990
and fell as low as 269 billion in 1998.

http://www.census.gov/prod/2002pubs/01statab/fedgov.pdfTable 458

a) That is nowhere near a 30% drop
b) That difference of $30 billion was less than 10% of the difference between the $221b 1990 deficit and the $69b 1998 surplus.

(besides, what I meant was that as a theoretical matter, determining the peak point of the Laffer Curve matters a great deal)

I apologize for any undue sarcasm, Nathan. But I did read your comments and it appeared that you were relatively comfortable with the estimates in the 60-80% range.

So, yes, that would render the Laffer curve and 'finding the peak' rather irrelevant.

Nemo: Don't be an idiot. Federal tax receipts are at about 20% of GDP. Any increase in that range will increase revenues. You have to get up to around the 60% range before increases might start to hurt revenues. We're nowhere near that and never will be.

Kevin,

I'm not the idiot who made such an open-ended statement which I clearly don't actually believe.

You know, you could have said "Oops, that wasn't what I meant" and made a minor correction to the original post, instead of clarifying in the comments and making an insulting comment in the process.

This would be especially important since your clarification leads to some interesting grounds for further discussion. It appears that the highest the US federal tax burden/GDP ratio has ever gotten is 20.9%, but there are other countries who are over the 60% range. (Finland comes to mind.)

Based on what you've said, allow me to amend my original statement:

We should jack our taxes up to about, say, 60% of GDP, which will solve our problems with debt and the deficit!

Nomo-you seem to have hit on the Bush administration's economic plan, except you've left out "adopt inflationary policies that are a de facto tax increase."

OK, You left out bridges.

Here is something from the Wikipedia.

In 2005, the Congressional Budget Office released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates" [2] that casts doubt on the idea that tax cuts ultimately improve the government's fiscal situation. Unlike earlier research, the CBO paper examines the budgetary impact of any possible macroeconomic effects of tax policies, i.e., it attempts to account for how tax cuts affect the overall size of the economy, and therefore influence future government tax revenues; and ultimately, deficits or surpluses. The paper's author forecasts the effects using various assumptions (e.g., people's foresight, the mobility of capital and the ways in which the federal government might make up for the lost revenue). Even in the paper's most generous scenario, only 28% of lost tax revenue is recouped over a 10-year period after a 10% tax-rate cut. The paper points out that these shortfalls in revenue would have to be made up by federal borrowing: the paper estimates that the federal government would pay an extra $200 billion in interest over the decade covered by his analysis. The 10% tax cut would result in a 1% increase in gross national product. The paper appears to focus on Federal government revenue only and does not look at the total public sector revenue (i.e., it does not include increases in local and state government revenue).

conspiracy nut: what was your point about my mile of road? Am I the only one that gets to drive on it?

That's the way it ought to be, because anything else is Communism!

I made a mistake in my first comment in this thread: the link I meant to point to was here.

Kevin has not, to date, even attempted to answer me.

In 2005, the Congressional Budget Office released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates"
Imagine that, a bunch of Democratic government employees, living off the taxes of others, don't support a decrease in taxes.

Who'd have thunk it?

Hey 'guys"--CN, Nathan, and anyone else. Take your Laughable Curve crap over to Angry Bear and talk to some real economists. They'll Laffer you right off the site with your sorry butts in a sling.

*sigh* I was too hasty with the "post" button.

Replace the last sentence in my last comment with

"Kevin has not, to date, even attempted to answer me on that post."

That's the way it ought to be, because anything else is Communism! Naw, roads are a public good.

"Once you understand the Laffer curve, you can rationally and logically deduce the affect of changes in the rate of taxation."

??? Laffer's postulate that tax revenues are 0 at 0% taxation and 0 at 100% taxation tells one nothing about which side of the maximum you're on. If you look at the trend in tax revenues post-1981 tax cuts (remmebering to correct for inflation, which many intellectually-dishonest supply-sider fail to do), you reach the conclusion that in fact we were and are on the left side of the maximum. Further, the contention of the supply-siders that there would be an increase in investment in the economy failed to appear. By the supply-siders contention, there should have been a permanent increase in investment as a %age of GDP. And there was, for about 2-3 years; then a steady fall to below the %age in the 1970s, to a trough in 1992, recovering under Clinton.

No supply-side free lunch during the 1980s; instead a consumption boom from debt leverage, and Reagan getting lucky from the fall in oil prices in the 1980s.

"I apologize for any undue sarcasm, Nathan. But I did read your comments and it appeared that you were relatively comfortable with the estimates in the 60-80% range.

So, yes, that would render the Laffer curve and 'finding the peak' rather irrelevant."

obscure, fair enough...if you go back to my initial post you'll see that my point was only that there is a point (which we are not near) where the LC dictates that tax increases will be counterproductive and that this concept is undisputed among economists. we have apparently reached that point with the highest American tax brackets in the past (but we are certainly nowhere near it now).

Hey klaus, I was just going by the lefty hero Keynes.

CN your linky seems to reflect wages only there is nothing in there about type of roadway just wages per mile,If we are paying these guys I hope there putting down product.By the way I worked many years in the road Ind. so I know what it costs.

klaus: I would suggest that you actually read my comments instead of performing a Jeff II-style reflex.

I have expressly stated that we could comfortably increase tax rates since we are indeed on the left side of the Laffer/Khaldun/Keynes curve.

The labor was $160K per mile. The total was $850K per mile. Oh great roadway worker.

Arghhh!

Arghhh!
According to Howard Dean, that is Yeeeeaaaarrgghhh!

Jeff II-

I'd definitely compare the two in pig-headedness, although I suspect Bush doesn't feel the mental anguish Johnson did.

But as for their obsessions..they certainly share one on education, and both have spent gobs of money on it.

With regard to Johnson's faults, personal corruption comes to mind, as does the whole question of whether the award of his Silver Star was for heroism he never actually displayed.

The two are very similar in their need to humiliate subordinates.

Bush does not appear to have Johnson's rapacious sexual appetite, but it might be that his underlings have done a good job of covering it up.

I have a list of things that make me not want to vote for someone for President. I foolishly voted for Bush in 2000, but since then, I've added "from Texas" to the list of things which make me not want to vote for someone. We've had two Texan Presidents, and they've both been disasters. It's a bit of an irrational prejudice, but it's taken hold of me.

Well we have the Reagan Model,We all know how that worked out.We have the Bush Model and we can see where that is going.The Clinton Model seems to have reached more people better economy,Better lifestyle,And SURPULSES hmmmm.

But let me ask one question about these roads, where every fucking bit of it is always under re-contruction. How do you get to work, fly? Posted by: conspiracy nut

No. Only Republican pigs can fly. If you live in a modern country, you quit enabling people with more highway and instead you take the train.

Bubbles: What saved Bush's bacon, was the fed driving down interest rates and China's willingness to lend us money at below fair value interest rates.

Reminds me of a line from http://maxspeak.org/mt/archives/001939.html

Referring to our Chinese creditors, and to the fact that there has been a net loss of private sector jobs in the Bush years (all job gains coming from the public sector):

The upshot is that the triumph of Republican-conservatarian economic policy consists of an expansion of government jobs financed by loans from the Communist Peoples Republic of China.

Laffer, as near as I can tell, was and is a moron. There is nothing predictive in the Laffer curve. (If he has a real technical paper on it, please give me a reference)

If taxes are 0% then you still have extremist libertarian volunteer government. If taxes are 100% then you have theoretical communism with a huge black market.

If taxes are 0% then you still have extremist libertarian volunteer government.

. . . essentially indistinguishible from warlordism.

"Of course, since following comrade Keynes gave us stagflation, maybe we shouldn't pay much attention to this."

No, following comrade Keynes* gave us (FDR followed a Keynesian plan, even if he didn't know it), and a post-war boom that lasted, with intermittent slowdowns, thirty years. His insights also has given us a much more stable economy.

By contrast, stagflation was the consequence of the supply-side shock of oil price rises and trying to defer the recessionary effect of such a price rise. Now, eventually someone like Volcker had to hit the brakes and say the slowdown had to happen now. But Reagan stepping on the accelerator pedal at the same time made Volcker's task much harder and easier to overshoot. Result; output equivalent to ~20% of GDP lost. Was it worth it to fight inflation? You tell me. What's certain is that most of the intended boost from Reagan's earlier tax cuts got exported. It's moronic to set fiscal policy that's completely out of whack from what the Fed is trying to do; but that's what Reagan did. Result: all supply-siders trying to boost Reagan use 1983 as the starting point for their statistics, airbrushing out the early 1980s recession.

Monetarism, by contrast, on its first empirical test in the US and UK in the early 1980s, found to its surprise that the velocity of money was very fucking far from being constant.

The proof of this can be seen that the Fed ditched monetary targets long ago, targeting interest rates instead. The only significant central bank that still uses money targets is the European central bank (at the insistence of the Germans); that's been a large part of the problem with the Euro-area.

*Just a note to RW trolls: Keynes wasn't a socialist. He was fairly antipathetic to the UK Labour Party (he was a Liberal), and particularly Atlee's enthusiasm for central planning and nationalisation. If he'd lived more than a year into the Atlee government, we might have seen him put out a similar scalding polemic as he did against Churchill diastrous reign as Chancellor of the Exchequer in "The Economic Consequences of Mr. Churchill".

Personally, I don't see why any righties even bother with the "trickle down" or "Laffer curve" nonsense. They know it's all bullshit, and the reality of it is that they consider paying taxes to support any social program that benefits people who are poor is "immoral" because deep down inside, poor people deserve their lot in life. Either they didn't work hard enough, or they're sinful, and God has cursed them, or they're genetically inferior due to mixture of blood with mongrel races.

Face it - rightwing politics is all a one-sided ethical framework based on Kantian "rights-based" logic, without regard to the consequences of policy.

So what if cutting taxes on the rich will destroy the economy and the country? It's only right to let the rich benefit more from their richness, because they earned it, and they deserve it, it's their right.

That's really what this is all about. The rest is just bullshit to try to sleaze their way into getting what they want.

Wrong CN but you live in a dream world anyway.

"Republicans are bigger spenders than Democrats. The problem is that they also tax less - we're now at around 17% of GDP, after Bush's tax cuts, and we're going further."

BRussel, you are on to something. Reagan and Bush cut taxes and spending went way up. Clinton raised taxes and spending went down. There may be something here, look further into it.

"Bush doesn't feel the mental anguish Johnson did."

Well Johnson slaughtered some 1.2 million innocent people, Bush is still around 70,000, with only two years to go.

Anyway, for a clue, each American family, on average, will give up $27,000 to the federal government, about 1/4 of the family paycheck. They will give up almost another 1/4 for state and local. The cause is not too much revenue, but too much government. We are not over taxed, we are over-governmented.

Or, think of it this way. For each of your families, there is almost on other shadow family your support. Your adopted family earns money from government spending and mandates.

Correcting an omission:

"No, following comrade Keynes* gave us (FDR followed a Keynesian plan, even if he didn't know it),"

should read:

No, following comrade Keynes* gave us recovery from a Republican recession, with a spectacular Real GDP growth that averaged 8%/year from 1933 to 1941 (FDR followed a Keynesian plan, even if he didn't know it). Only one year that St. Ronnie ran the country, 1984, even comes close to what FDR achieved *on average before the output boost from WW2*.

Keynes, and Keynesian policies, have made a greater contribution to human welfare than the invention of antibiotics. Yup.

"If taxes are 0% then you still have extremist libertarian volunteer government.

. . . essentially indistinguishible from warlordism."

Well, Osama, a Rose by any other name....

I've been looking into the purported ability to sustain tax rates around 60%, and who to look at besides Sweden

During the 1870s Sweden was an impoverished nation, occasionally plagued by starvation. All this changed as capitalism was introduced in the country. Free markets, property rights and the rule of law created an environment where the Swedish people could achieve a long period of rapid economic development. Between 1870 and 1970 Sweden had the second highest economic growth in the world, second only to Japan.

[...]

During the 1960s the social democrats radicalised. They abandoned their traditional pragmatic policies and started a large-scale expansion of the welfare state. Between 1970 and 1990 taxes increased by almost one percent point each year. Income taxes doubled between 1960 and 1990, rising from approximately 30 to 60 percent. During the 1970's the political left viewed Swedish policies as a success. The massive expansion of the public sector reduced unemployment in the short run. Few questioned if this expansion was a sustainable policy.

"The Swedish system is in serious trouble. The Swedish economy is no longer creating jobs – private sector employment has been shrinking for decades, and the public sector can no longer absorb more workers… Many Swedes are pessimistic about the future, in large measure because they cannot imagine how their system can survive, yet cannot overcome the political obstacles to changing it."

[...]

Recently Jan Edling, an economist from Sweden’s largest labour union, LO, wrote a report where he explained that it was the welfare system that caused people to go on sick leave or early retirement. According to Edling, Sweden had a de facto unemployment rate of 20–25 percent. As LO refused to print the report Edling resigned after 18 years of service.

Telling the truth might not be popular, but I wish that Edling's report would be translated and sent to all fans of the welfare state around the world. It shows that the Swedish welfare state has systematically destroyed personal responsibility and work ethics. [source]

Bubbles on February 7, 2006 at 3:25 PM | PERMALINK

Excellent post, Bubbles. Very thought provoking.

And speaking of provoking thought, hey CN, did you read it? A lot of words I know, and since you clearly know everything and seem extraordinarily close minded, I find it hard to believe you could grasp it. But maybe, just maybe, you are wrong about something, anything. Give it a whirl.

Wrong CN but you live in a dream world anyway.
You keep spouting any old shit that you want to be true, and I point you to links with like facts and figures. And I'm living in a dream world?

If you cut taxes disproportionately for the rich, in hopes that they're going to invest in expansion of industrial capacity, you've got no guarantee that they're going to do so IN THIS COUNTRY.

Furthermore, even the rich (except for the nouveau riche, usually takes them a generation or so to settle down) can't be counted on to simply consume more. The economy is better off if the middle class is able to trade in the Pinto on a new Lumina because there are 10s of millions in the middle class, as opposed to mere millions of seriously rich. Under the same scenerio, the wealthy really only need so many 60' boats (power or sailing) and only so many second homes. In short, for all economies you want to boost mass consumption of "normal" goods. Boosting the consumption of high end goods will never do much to bouy the economy.

No matter how much you cut taxes, pay attention here idiot conservatives (yes that's you Nathan and CN), you can't make everyone rich or even comfortable.

If you increase taxes disproportionately for the rich, in hopes of relieving middle-class consumers of the burden of financing the government, then the rich STILL CONSUME JUST AS MUCH, and the middle and lower classes consume more. The consumer-spending-driven economy will thrive. IN THIS COUNTRY. Posted by: Osama_Been_Forgotten

Exactly!

The same applies to the nonsense about "freeing up capital for investment" by cutting capital gains and other transaction costs. If you are wealthy enough that your individual investment in a particular industry or even company is significant enough to spur production (innovation, expansion, etc.), you are so wealthy that tax rates of even 50% wouldn't affect your standard of living. However, since most investment is either institutional or weighted toward the invidividual small holder in the aggregate, this glorious anti-tax theory of boosting the economy is utter bullshit as well. Most people hold so few shares of stock in individual companies that cutting capital gains taxes has only a negligible affect on their finances. Again, the only people who benefitted from this recent change were the wealthy.

Same is true of the crusade against the inheritance tax, which affects less than 5% of all Americans. Though to hear the lying SOBs in the Reublican party, you'd think that it was sucking the American economy dry.

Individual investors do not drive production, etc. The managers of firms make these decision based on demand. The point was made above that tax cuts for the wealthy in times of slack demand (and rising unemployment within the middle and lower classes) does not goose the economy in the least. In fact all it does is drive up the national debt.

"Anyway, for a clue, each American family, on average, will give up $27,000 to the federal government, about 1/4 of the family paycheck. They will give up almost another 1/4 for state and local. "

This average here being *mean*, not median. The median American family income in 2004 was ~$44K. The percentages of pre-tax income can be found here. Plus, you're failing to include the benefits that Americans get from their gubmint: pol