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View Diary: Laughing at Laffer (203 comments)

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  •  The Laffer Curve is true (10+ / 0-)

    It's just also banal and tells us nothing useful.

    Here's what the Laffer curve says:

    There is some intermediate level of taxation that will lead to optimal revenue.

    That is, 0% taxation and 100% taxation will both lead to low revenue (the latter because people will stop working.)  So, the optimal level must be between 0% and 100%.  Moving from that optimal level means a decrease (though there may be local maxima on down the line.)

    That's it.  That's all.

    What Laffer's "theory," if I can abuse the word, of the "curve" doesn't tell us is where we stand along that curve.  Maybe right of the maximum point, maybe left.

    It's the logical jump -- "if there is an optimal level, then we must be above that optimal level!!1!" -- that is unjustified and quintessentially "conservative."

    •  Actually, I think (2+ / 0-)
      Recommended by:
      Thinking Fella, Seneca Doane

      they found --or at least a few studies found that the most revenue generating tax rate was right around 65%--after that, folks apparently stop making so much cause they'll lose a big chunk anyhow, below that, the tax rate isn't high enough to dissuade effort.

      Hey, capital gains tax at 65% works for me. Too bad Supply Siders all seem to fall into the David Stockman black hole "None of us really understands what's going on with all these numbers..."

      The numbers are there, they just don't want to talk about it.

      To put that more succinctly, the numbers tell us something pretty simple,  if you want to increase your tax revenue, tax capital gains up to 65%.

      DelicateMonster a slightly left of center reading experience

      by DelicateMonster on Sun Apr 05, 2009 at 10:19:43 AM PDT

      [ Parent ]

      •  Wonderful comment there (2+ / 0-)
        Recommended by:
        RanxeroxVox, DelicateMonster

        That is what I would like the response to Laffer to be: not that the notion behind the curve is wrong, but that they blithely and corruptly misuse it.  If we say it's wrong, we're too easily refuted.  We need to take the extra step that you have taken.

        I'd love to have a link to those studies, if you have them.

        •  Here's a cite (1+ / 0-)
          Recommended by:
          Seneca Doane

          from Pecorino who's quoted in wikipedia

          The central question is the elasticity of work with respect to tax rates. For example, Pecorino (1995) argued that the peak occurred at tax rates around 65%, and summarized the controversy as:

          Just about everyone can agree that if an increase in tax rates leads to a decrease in tax revenues, then taxes are too high. It is also generally agreed that at some level of taxation, revenues will turn down. Determining the level of taxation where revenues are maximized is more controversial.[11]

          DelicateMonster a slightly left of center reading experience

          by DelicateMonster on Sun Apr 05, 2009 at 03:09:33 PM PDT

          [ Parent ]

      •  How about the other point, (0+ / 0-)

        the one that maximizes the output of the economy, or its growth rate? Is that around 65%, or something else? Or is there such a point, or any research on it?

        Moderation in most things. Except Reactors. IFR forever!

        by billmosby on Sun Apr 05, 2009 at 02:12:33 PM PDT

        [ Parent ]

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