Mark Gritter (markgritter) wrote,
Mark Gritter
markgritter

Laffer

The increasingly reactionary op-ed page of the Star Tribune included this Carolyn Baum article claiming there is plenty of evidence in support of supply-side economics.

Why, after all this time and an extensive body of data, are we still questioning whether reductions in marginal and capital-gains tax rates increase economic activity enough to generate more revenue for the federal government?

"Because they don't like the answer," Laffer says of the doubters. "It's not tax cuts that pay for themselves. Tax cuts on the poor cost you lots of money. Tax cuts on the rich pay for themselves. Rich people can afford lawyers, accountants, and can defer income."


Bad math makes Mark angry! If we accept the Laffer curve idea (it's not really even a "theory"), we have to admit it's symmetric! Just as there are points beyond which increased marginal tax rates don't produce additional revenue, there must be points beyond which decreased marginal tax rates do actually decrease collections. Where do those points lie? Who cares about margnialia like that, we're doing Serious Economic Policy here, which doesn't need things like numbers or facts or opposing points of view.

OK, but the thing that really kills me is the evidence now being cited that tax rates don't seem to shift government revenue as a percentage of GDP, the so-called "Hauser's Law.":

What we do know is this: Over time, federal revenue as a share of gross domestic product has stayed fairly constant at 17.9 percent. That's true if the top marginal tax rate is 91 percent (1950s), 50 percent (early 1980s) or 35 percent (2000s). Recessions are the one exception.


What we're supposed to believe here is that if the top marginal rate was lowered to 10%, then the GDP would magically be 3x as large. Hooray! (Oh, wait, many of the super-rich are already paying 15%. So it would only be a 50% improvement.) But it seems to me that a more likely explanation is that the top marginal rate simply doesn't matter much.
Tags: economics, politics, rant
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