The idea that tax cuts cause tax revenues to increase is based on an economics concept called the Laffer Curve. The Laffer Curve is entirely theoretical, and is based on the observations that tax revenues would be zero if the tax rate was zero percent and if the tax rate was 100%. Therefore, the theory goes, somewhere in the middle there must be a theoretical tax rate where tax revenue is maximized and if tax rates are above that point, a reduction in tax rate will actually result in an increase in tax revenue. Discussions about the tax cuts freqently assume (without any thoughtful consideration) that U.S. tax rates are above the point on the Laffer Curve of maximum tax revenues and therefore any cut in tax rates will result in an increase in tax revenue. This is not necessarily a valid assumption. In fact, most economists have concluded that the 2001 and 2003 Bush tax cuts put U.S. marginal tax rates below the point of maximum tax revenues.

 

 

Here is a quote from an article posted on FactCheck.org:

 

If you took the time to read my link you would have noticed that the article deals entirely with the Reagan tax cuts and has nothing to do with W. Also, those familiar with the theories of the Laffer curve also know that the top tax rates were MUCH higher in 1981 (70% in fact) prior to Reagan's cuts than they were prior to Bush's cuts thereby supporting the theory that Reagan's cuts decreased rates from a point beyond Laffer's maximum down to a point approaching Laffer's maximum. FYI, Reagan's ERTA tax plan cut the top rate to 50%.

Putting money int the pockets of consumers while gouging American manufacturing segment simply increases the level of imports in this country. As for addressing statistics from left wing web sites, such as the ones you must use to distract attention away from Reagan's wildly successful tax cuts - thanks, but no thanks.

 

 

You don't seem to be taking into account the employer tax credit Obama is proposing for each job created in the U.S. or the reduced burden of health care costs (which is currently one of the fastest growing costs facing domestic employers).

 

Care to dispute the paper with a substantive argument that addresses the points made (rather than this hand-waving response that defends Reagan policies without actually defending them in any meaningful way)?

If you took the time to read my link you would have noticed that the article deals entirely with the Reagan tax cuts and has nothing to do with W. Also, those familiar with the theories of the Laffer curve also know that the top tax rates were MUCH higher in 1981 (70% in fact) prior to Reagan's cuts than they were prior to Bush's cuts thereby supporting the theory that Reagan's cuts decreased rates from a point beyond Laffer's maximum down to a point approaching Laffer's maximum. FYI, Reagan's ERTA tax plan cut the top rate to 50%.

 

I did read your outdated link. I know what tax rates were in 1981. You have not addressed the substance of the paper I linked (which compares benefits from supply side theory with demand side theory).

I did read your outdated link. I know what tax rates were in 1981. You have not addressed the substance of the paper I linked (which compares benefits from supply side theory with demand side theory).

 

I have no problem with the factcheck article that discusses the Bush tax cuts. It in no way contradicts my opinions of how Reagan's tax cuts increased revenues during his presidency. The article is keying in on the last 6 or so years and provides absolutely no evidence to contradict my opinion.

 

As far as the paper is concerned, I totally disagree with the portion blaming the deficits on "supply side theory" which the counter argument is put forth in the link I provided.

You don't seem to be taking into account the employer tax credit Obama is proposing for each job created in the U.S. or the reduced burden of health care costs (which is currently one of the fastest growing costs facing domestic employers).

 

Care to dispute the paper with a substantive argument that addresses the points made (rather than this hand-waving response that defends Reagan policies without actually defending them in any meaningful way)?

And you don't seem to be taking into account the "skyrocketing" utility costs that will impact both companies and consumers as you try to build a vision of Obama economic Utopia. Obama will destroy jobs, IMO, and if he is elected then we shall see whether his record is closer to that of Reagan or Carter (or even worse).

 

Most people know instinctively that when you increase costs on American businesses and workers, the American economy must suffer as a consequence. If you want to play with smoke and mirrors to "prove" otherwise, then good luck with that.

 

There is no better real world example that supply side economics works than the improvement in all facets of the American economy under Reagan's stewardship, following a disasterous four years of the Carter, Ford, and Nixon presidencies. Theories that contradict concrete data are lame out of the starting gate.

If tax cuts correlate with economic growth, then why has the economy been lackluster for the past eight years?

 

I will get to the rest later when I have time, but I just realized that I had a bad typo.

 

Tax revenues do not correlate with tax increases, but instead tax revenues correlate with economic growth

Supply-side strategies led to economic growth under Reagan but failed to do so under Bush. Why? I think H's post on the Laffer curve is the answer.

 

There is no paucity of money at the top echelons in America's society currently - there was prior to the 80s. Giving greater benefits to the wealthy led to greater expansion in the 80s because of this, whereas now giving greater benefits to the wealthy has a negligible effect.

Interesting thread. Thanks H.

 

Off the top of my head, my guess is that there is probably a balance in there somewhere that gives us the best of both worlds. I really don't think you can go too far one way or the other and expect success.

 

But, admittedly, I'm relatively unlearned on this subject. I'm going to try to read up on it and some of the links if I get time.

 

Again, though, thanks for the thread. It's lead me to look at something from a new perspective...and that's always good.

Oh yeah? Well, money blown on Japanese-built Lexus automobiles and invested in overseas stock markets doesn't create jobs (at least not in the U.S.) and does not stimulate our economy one iota. Perhaps that is why the U.S. economy has performed so lethargically over the past five years, with weak growth and job creation. Tax cuts to people who spend nearly all of their income in the U.S. creates demand in the U.S. that is likely to be met by businesses in the U.S. where jobs will be created in the U.S.

 

What supply siders like yourself conveniently gloss over repeatedly is that putting more money in the hands of consumers boosts demand for products, which will draw investment (and create jobs in the fulfillment of that demand).

 

I've been saying these same things for months, yet people pay as much attention to me as they do Al Gore when he talks global warming.

You don't seem to be taking into account the employer tax credit Obama is proposing for each job created in the U.S. or the reduced burden of health care costs (which is currently one of the fastest growing costs facing domestic employers).

 

Care to dispute the paper with a substantive argument that addresses the points made (rather than this hand-waving response that defends Reagan policies without actually defending them in any meaningful way)?

Do you honestly believe that enough of Obama's tax plan will survive his inauguration to warrant a point by point discussion - because I do not. I do believe that Obama will make good on his threat to try to bankrupt the coal industry through his punitive cap and trade proposals. Candidate economic plans are nothing more than vehicles into the White House. Partisan analyses of these plans do not impress me the way that they apparently impress you.

 

Would a $3,000 tax credit per employee be enough to persuade you to add employees to your business during a recession (or depression)? I view the proposal as a joke intended to persuade less business savvy voters that Obama knows something about economics, which I do not believe is the case.

 

As for defending Reagan's policies, this topic has been covered in some depth in the past. There is no point in me beating my head against the wall again disputing a partisan PR piece prepared for Obama's political benefit. Obama is more likely to be the next Chamberlain than the next Reagan. If he wins tomorrow, I will be glad to compare his record to Reagan's in four years.

Do you honestly believe that enough of Obama's tax plan will survive his inauguration to warrant a point by point discussion - because I do not. I do believe that Obama will make good on his threat to try to bankrupt the coal industry through his punitive cap and trade proposals. Candidate economic plans are nothing more than vehicles into the White House. Partisan analyses of these plans do not impress me the way that they apparently impress you.

 

Would a $3,000 tax credit per employee be enough to persuade you to add employees to your business during a recession (or depression)? I view the proposal as a joke intended to persuade less business savvy voters that Obama knows something about economics, which I do not believe is the case.

 

As for defending Reagan's policies, this topic has been covered in some depth in the past. There is no point in me beating my head against the wall again disputing a partisan PR piece prepared for Obama's political benefit. Obama is more likely to be the next Chamberlain than the next Reagan. If he wins tomorrow, I will be glad to compare his record to Reagan's in four years.

 

Who in the Democrat House or Democrat Senate is going to be able to stand up to "The One."

 

If HILARY could not stand up to Obama then no one in the Democrat party can. He will have a free reign to do whatever he wants the first 100 days.

Who in the Democrat House or Democrat Senate is going to be able to stand up to "The One."

 

If HILARY could not stand up to Obama then no one in the Democrat party can. He will have a free reign to do whatever he wants the first 100 days.

Bill Clinton reneged on his middle class tax cut and he had no Congressional opposition to the plan. Obama made a lot of promises that he does not intend to keep. Once he is elected, Obama can revise his definition of middle class downward, which I expect him to do. If he follows through on this promise to sharply increase taxes during a deepening recession, the economy will nosedive and he will be forced to backtrack. I do not believe that he would run that risk. He might try to phase in increases but he will not stick to the plan that he has promised, IMO.

If tax cuts correlate with economic growth, then why has the economy been lackluster for the past eight years? Even if you ignore the effects of the 2001 recession and 9/11 and look only at 2004, 2005, 2006 (thereby stopping well short of the most recent economic problems), economic growth during the years in which the Bush tax cuts were in full force was still downright tepid (3.1% annual growth) compared to other recent expansions. This during the absolute best years following the Bush tax cuts, when the economy should have been roaring. And job creation during the Bush years has been almost non-existent (around 5 million jobs compared to about 22 million during the 1990's).

 

The position of the paper I linked is that the supply side theory implemented during the Bush tax cuts is not as effective in practice as a demand side approach.

First of all, you sure are taking a quite convenient short-term approach on this. You are comparing to Presidency's. When TTC brought up Reagan's time, you claim it was irrelevant.

 

The state of the economy was wildly different between Bush's and Clinton's. Clinton's economy had 0 recessions. Bush has had an incredible amount of economic disadvantages. We need to look at more than just 8-year time spans.

Oh yeah? Well, money blown on Japanese-built Lexus automobiles and invested in overseas stock markets doesn't create jobs (at least not in the U.S.) and does not stimulate our economy one iota. Perhaps that is why the U.S. economy has performed so lethargically over the past five years, with weak growth and job creation. Tax cuts to people who spend nearly all of their income in the U.S. creates demand in the U.S. that is likely to be met by businesses in the U.S. where jobs will be created in the U.S.

 

What supply siders like yourself conveniently gloss over repeatedly is that putting more money in the hands of consumers boosts demand for products, which will draw investment (and create jobs in the fulfillment of that demand).

First of all, what's the big deal with buying Japanese cars? We did a thread a while back where I linked to an article about how Toyota Sienna has many more of its parts made in the US then the Ford Mustang.

 

Either way, I have no problem with tax cuts for the middle class, or even those in the lowest bracket. The two problems I have are when: A) they are coupled with tax cuts on the "rich" or B) those "tax cuts" for the poor are just more money for those who don't pay any income taxes. I don't have a problem with tax cuts for the lowest bracket- it is when it is coupled with tax increases for the rich, who already pay exorbitant percentages of our federal income taxes. I'll take tax cuts for anyone.

 

Although, the argument that "tax cuts for the middle class puts money in their hands and increases demand which boosts the economy" is using the assumption that people hide money under mattresses still. The reality is that people put their money in the bank, which lowers interest rates for loans, which leads to businesses borrowing & spending more money. So whether it is initially saved or consumed matters little- someone is spending it.

 

Also, I find it very funny that you criticize the Bush economy, yet conveniently ignore the 2001 tax rebates. We put money in the hands of the people there. Where was the correlating economic growth?

The idea that tax cuts cause tax revenues to increase is based on an economics concept called the Laffer Curve. The Laffer Curve is entirely theoretical, and is based on the observations that tax revenues would be zero if the tax rate was zero percent and if the tax rate was 100%. Therefore, the theory goes, somewhere in the middle there must be a theoretical tax rate where tax revenue is maximized and if tax rates are above that point, a reduction in tax rate will actually result in an increase in tax revenue. Discussions about the tax cuts freqently assume (without any thoughtful consideration) that U.S. tax rates are above the point on the Laffer Curve of maximum tax revenues and therefore any cut in tax rates will result in an increase in tax revenue. This is not necessarily a valid assumption. In fact, most economists have concluded that the 2001 and 2003 Bush tax cuts put U.S. marginal tax rates below the point of maximum tax revenues.

 

 

Here is a quote from an article posted on FactCheck.org:

I agree with what it says that we can't have lower taxes and fat government coffers.

 

Secondly, to be honest, I don't care about higher tax revenues. I am a proponent of small government.

 

I haven't really understood the argument that tax revenues have been low. This chart from the OECD shows tax revenues as a percentage of GDP, and it seems around the same as 1975, 1985, etc.

FWIW, I am not necessarily attached to supply-side economics. I just believe that the Federal Government is too big, and we don't need to raise taxes on anyone.

And you don't seem to be taking into account the "skyrocketing" utility costs that will impact both companies and consumers as you try to build a vision of Obama economic Utopia. Obama will destroy jobs, IMO, and if he is elected then we shall see whether his record is closer to that of Reagan or Carter (or even worse).

 

Most people know instinctively that when you increase costs on American businesses and workers, the American economy must suffer as a consequence. If you want to play with smoke and mirrors to "prove" otherwise, then good luck with that.

 

 

Smoke and mirrors? Not necessary. Just as instinctive is the notion that if the consumers in an economy have more to spend, investment will find its way to businesses and the result will be job creation. Remember the 1990's? 22 million jobs created with a demand side tax policy. Four times as many as were created during the Bush administration, which "benefitted" from the lowest marginal tax rates on the wealthy in U.S. history.

 

 

There is no better real world example that supply side economics works than the improvement in all facets of the American economy under Reagan's stewardship, following a disasterous four years of the Carter, Ford, and Nixon presidencies. Theories that contradict concrete data are lame out of the starting gate.

 

It's easy to create an illusion of prosperity when you spend well beyond your means. Most people know this instinctively, too. Under the Reagan administration, the national debt ballooned fourfold, from $1 trillion to $4 trillion. Under the (W) Bush administration, the national debt has nearly doubled, to approximately $10 trillion. Both administrations implemented supply side policies. Under demand side policies in the 1990's, job creation exceeded that of both the Reagan and Bush 2 presidencies, and the budget went into surplus. Hmmm. Prosperity and balanced budgets. Nothing theoretical about those concrete facts.