Center for American Progress Leftists Have Accidental Encounter with the Laffer Curve, Learn Nothing
by Dan MitchellThe big-government advocates at the Center for American Progress recently released a series of charts designed to prove America is a low-tax nation. I wish this was the case.
The United States does have a lower overall tax burden than Europe, which is shown in one of the CAP charts, but that doesn’t exactly demonstrate that taxes are low in America. Unless, of course, you think weighing less than an offensive lineman in the NFL is proof of being skinny.
But the one chart that jumped out at me was the one showing that the United States collects less corporate tax revenue than other developed nations. The CAP document states, with obvious disapproval, that “Corporate income tax revenue in the United States is about 25 percent below the OECD average.”
The obvious implication, at least for the uninformed reader, is that the United States should increase the corporate tax burden.
But here’s some information that CAP didn’t bother to include in the study. The U.S. corporate tax rate is more than 39 percent and the average corporate tax rate in Europe is less than 25 percent.
So let’s ponder these interesting facts. CAP is right that the U.S. collects less tax revenue from corporations, but even they would be forced to admit (though they omit the info from their report) that the U.S. corporate tax rate is much higher. Let’s see…higher tax rate-lower revenue…lower tax rate-higher revenue…this seems vaguely familiar.
Could this possibly be an example of that “crazy” concept of (gasp!) a Laffer Curve? To be sure, it is only in rare cases, when tax rates get very high, that researchers find that high tax rates lose revenue. In most cases, the Laffer Curve simply implies that higher tax rates won’t raise as much money as politicians want.
But have our friends at CAP inadvertently identified one of those cases where a tax cut (i.e., a lower corporate tax rate) would “pay for itself”?
There certainly is strong evidence for this proposition. In a 2007 study, Alex Brill and Kevin Hassett of the American Enterprise Institute found that the revenue-maximizing corporate tax rate is about 25 percent (click chart to enlarge).
Somehow, I suspect this wasn’t their intention, but I want to thank the statists at CAP for reminding us about the self-destructive impact of high tax rates.
For those who want to learn more about the Laffer Curve, these three videos will make you more knowledgeable than 99 percent of people in Washington (not a big achievement, I realize, but the information is still useful).
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67 Comments
Excellent videos Mr. Mitchell. These explain in a nice concise manner of how higher tax rates actually cost a government tax revenues. The Laffer curve should be the basis for all of our representatives and presidential administrations philosophy about taxation, it's common sense after all. I'm sending links to these videos to everyone I know.
The Laffer Curve could come up and whap those idiots at CAP in the face and they wouldn't recognize what hit them and just blindly go on. If they did recognize it, they'd just ignore it. The unbreakable rule for the left is that if it doesn't fit the narrative they want, it gets ignored as though it never existed.
I am left LAFFERING MY A$$ OFF at the LEFT becoming tripped up with the LAFFER CURVE unintentionally,
once again proving they are genius's, but moreover blithering idiots…
What could be better?
; )
Very clever remark one! You have me LAFFERING MY A$$ OFF!
The present economic wizards in Washington could learn much from Art Laffer. But the left won't have it, and are pathetically stuck on loser, and socialist John Maynard Keynes.
"A just security to property is not afforded by that government, under which unequal taxes oppress one species of property and reward another species."
—James Madison, Essay on Property, March 29, 1792
Good deal Agent 76, we need an occasional good laffer, don't we?;-D
Happy Trails!
.
Brilliant. Truly brilliant!
Good and an insightful post!
What is the Laffer curve really, but some dressed-up common sense. Tax any activity and you'll get less of it as people alter decisions to avoid taxes. Why assume additional work and risk if a greater share of any benefit will be confiscated and thrown down the rat hole of wasteful government spending?
And Obamunists thinks by reversing "tax-and-spend" into "spend-and-tax", they can spend the country into a deep hole, then portray themselves as fiscally disciplined by raising taxes to pay for it. Government binges, then taxpayers pay the price. It's one more way for Obama to tell the American public how stupid he thinks they are. Then again, he was elected.
I just hope and pray Laffer is ready to go in Jan 2013 with some good ideas on how to pull this
dismal economy from the fire… and we MUST insist whomever we choose as our candidate
for POTUS has a proper understanding of Art's principles. He is a national treasure!
.
I am quite sure he is ready willing and able to help US out. Heck, if I have to donate to his salary to get him there. I will. What ever it takes!
You cannot help the poor by destroying the rich.
You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot lift the wage earner up by pulling the wage payer down.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away people's initiative and independence.
You cannot help people permanently by doing for them, what they could and should do for themselves.
… Abraham Lincoln
Laffer would be ready to go right now, however, I doubt if he'd want to work with a community organizer that's so egotistical, and narcissistic. So far, Obama has shunned past successes, and workable economic fixes.
Keynesian economics horribly failed in the 30s for FDR, and likewise, for Baracky.
Well thank you Wash…
"I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments."
Friedrich August von Hayek
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
Very nice, The Line. I always enjoy seeing others using our founders quotes. I get Chris Matthew's tinges up my leg. Nice work!
The new left-wing narrative (I saw it on message boards but have started hearing it on news programs, too, from left-wing pundits) is that America once had much higher taxes after WW2 (as high as 90%) and still had spectacular growth. This confuses tax rates and collected taxes, but it also ignores the economic situation in the late 1940s and 1950s and also that it was collapsing on it's own in the 1960s, which is why John F. Kennedy proposed tax cuts. Simply put, if we added lots of loopholes to the tax code, reintroduced the gold standard, and bombed Europe and Japan flat and destroyed returned the rest of the world to it's pre-1970 state so that they not only couldn't compete with US companies but also were a huge market for US companies, we, too, could reproduce the high-tax and economic miracle produced after WW2.
That really sums it up very nicely, thanks.
The left is always wanting to raise taxes so they can get more of YOUR money to spread around. How hard is it to figure out the more money a person gets to keep and not give to government to pi$$ away, the better off we all will be.
Nice work QA. I like your style, and wit!
CA sales tax dropped by 1% on Friday. Today as I was out shopping, I noticed that the stores were filled with shoppers. I wonder if there is any correlation between the two.
Progressives don't believe in learning, only indoctrination. Never let facts get in the way of ideology.
You do realize the left is government? From coast to coast. This is proven by polls over and over. That is how come liberals are a fraction of the population when polling is done. They are government employees, and have no concept of economics 101, and they can careless what we think. This is the very reason they use propaganda to divide and conquer.
uuhhh, could we mis-navigate this time and bomb Iran, Saudi Arabia, and (you pick one) flat instead?
.
To ECON 101 illiterate leftists, the Laffer Curve is, well, laughable.
This is why, I now realize it's not revenue they're interested in… it's those big deficits, that make the uninformed and ignorant dependent on big government…
Ya got my vote fer that plan there, Dusty. Count me in…
The more wealth they confiscate, the less wealth the citizens have – wealth is independence, so the less you have, the more control and influence the government can have over the population.
That's the ultimate goal – an ever increasing micromanagerial control of the population and the economy. They can't control small pieces here and there and have a government nanaged economy, so they have to keep expanding it, in order to create their ideal society. They've already passed laws to tell us what health insurance to buy, to force us to buy it, to tell us what light bulbs to use, how hot our water heaters can be, how much water a shower head can flow….. it's not going to stop till they tell us where to live, where to work, what to eat, when to sleep, when to wake, and what we can and cannot do with our remaining free time.
Maybe then the country will realize it's been enslaved.
Have you considered the possibility that the Laugher curve is BS and we have lower revenues because of loopholes and tax breaks?
The Laffer curve as an abstract concept is just beyond 10/5= 2, therefore leftards have no hope of ever wrapping their brains around it.
You nailed it, MystWalker…..and
That's what I meant !!
great NFL analogy, dan – says it all.
People who think they will get more income from higher taxes never learn. What happened when Clinton raised taxes on yach's. More people unemployed. Taxing at a high rate will cost jobs when the companies have to pay taxes at a high rate.
Loopholes and tax breaks need to be mentioned in this conversation for it to be honest and fair. The author is smart enough to realize that but decided to purposefully mislead readers. Personally, I'd like to see a reduction in the corporate tax rate but the author decided to focus on being a cheerleader for the LC. What's that line commonly used to describe the MSM? Something along the lines of "it's not what they report that makes them biased, it's what they choose not to report." That's exactly what's going on in this article. No mention of loopholes and tax breaks as a reason for low corporate tax revenues.
The LC is an interesting little theory, but knowing the magical tax rate that maximizes revenue is guesswork. Too many other variables at play to know the ideal rate. Anyone that points to the Reagan years as evidence of the LC's greatness is choosing to ignore the incredibly powerful role of the Fed and monetary policy in dictating economic growth. How about this instead: We lower taxes to lower revenue so spending has to be cut and the economy is free to grow. Sounds like a much better idea to me.
who cares if we can't predict the changing "ideal" spot where the most revenue is raised? The purpose of governance AND that of taxation is NOT TO MAXIMIZE THE REVENUE TO THE GOVERNMENT. It is to fund legitemate governance.
The actual value of understanding the theory of the Laffer Curve (which is nothing more than common sense) is to dispel the idea that simply taxing at higher rates can be counted upon to endlessly fund more government. It is to counter the "there's more revenue, we just need the audacity to go and take it!" mania that has swept the nation's governing bodies. It is evidence of overtaxation, when reductions in rates produce no corresponding drop in revenue or increases in rates do not produce increases of revenue. Ideally, the purpose of governance is to set tax rates at such levels they are not signficant impediments to the pursuits of the people, and thus, anytime rate reductions don't reduce revenues, then we know that further reductions will provide additional benefits to the payers, with minimal loss of revenue, and when increases in rates do not produce more revenue, we're on the wrong side of the curve, causing great harm, and yet reduced revenue.
Consider it considered and rejected…
For Obama, it's not about maximizing revenue or anything practical, it's about "fairness": http://www.youtube.com/watch?v=WpSDBu35K-8
I agree, that's what my closing was about.
Your last sentence is true, but only when all else is held constant, which is impossible. Reagan passed tax cuts in 1981. In 1982 GDP went down 2%. Did the economy sink because of tax cuts? Of course not. GDP went on to soar during Reagan's tenure as president but was it largely because of his tax cuts? Doubtful. The Fed and monetary policy dictated growth. For better or worse, but mainly worse.
Overall fair but vague points. Did you watch the videos? About the loophole point, He says that a fair flat tax( ie no loopholes) raises revenue the best.
Probably, because ordering things online just went up due to CA forcing them to add sales taxes. Already, this great idea is costing more jobs in CA.
LOL!
You are further proof……my theory still hold water…….
Art Laffer is a genius.
I have never seen a progressive who understands this Laffer Curve concept, kinda like explaining cover2 and blitzing to your girlfriend…
The Laffer curve while correct is just a guideline for how the gov't can squeeze every last drop of blood out of the host without killing it off. This is factually accurate, but why do we need to maximize gov't revenue? Shouldn't we be more concerned with maximizing businesses revenue?
Mr. Mitchell is the best poster at the Big's imo.
Well said
The OTHER flaw in the Laffer Curve is that if you get too far to the left, not only does revenue going into the gov't decrease, but businesses in modern society will flee to foreign shores leading to PERMANENT WEALTH DESTRUCTION here in the US.
"Reagan passed tax cuts in 1981. In 1982 GDP went down 2%."
The reason there was an (unnecessary) recession in 1982–and thus the decline in GDP–was that there was a mismatch between monetary and fiscal policies. The Reaganites wanted a 30% across the board tax cut to take effect immediately in order to spur growth while at the same time they had envisioned a tightening of monetary policy (in order to kill inflation) over a year or 18 month period.
What in fact happened was that the tax cuts were delayed due to political complaints of the leftists of the time while the Fed went about reining in the money supply much quicker than planned–interest rates soared and a recession ensued.
As noted by Wall Street Journal editor Robert Bartley in his book, The Seven Fat Years, "as 1982 drew to a merciful close, both sides of the Michael 1 prescription were finally coming into place. The Seven Fat Years started in November."
Monetary policy is not a tool for growth; if it were, the US economy would be booming like crazy about now. Conversely, they could not have accounted for the growth of the Reagan years, when monetary policy was aimed at keeping inflation in check.
That's a pretty good job of rewriting history, Tim. Democrat Paul Volcker, appointed by Carter, began stamping out inflation before Reagan even took office. Reagan and Volcker had almost no contact with each other. The "Seven Fat Years" of (illusory) growth were spurred by monetary policy. An added boost to the money supply from exploding deficits didn't hurt either. Well it hurt, but it wound up hurting a couple decades later.
You do realize those are actually part of the the theory behind the Laffer curve, right? Companies (like Obama's favorite GE) lobby for tax loopholes to avoid the high tax rates.
It's seriously hilarious that Liberals think Conservatives are the ones who support corporate welfare and tax loopholes.
Are you for or against printing money? It's really unclear. You seem to have no actual stance, just that Republicans doing anything is bad and Democrats doing anything is good.
I would trust the writing of Mr Bartley and his account of the Reagan years more than I would trust your partisan critique of something you obviously know nothing about and have no interest in learning about or discussing–as the next poster puts it, are you for or against printing money. I would add, "why?"
Are deficits good or bad? Why? Were Dems in the 80s correct to ridicule Reagan and his "$200 million in hot checks," or are Dems correct today in saying that the reason Obama's stimulus hasn't worked (period OR as advertised) is because he didn't spend enough?
To quote myself from above:
"How about this instead: We lower taxes to lower revenue so spending has to be cut and the economy is free to grow. Sounds like a much better idea to me."
I'm against printing money. Sound money is more important than a printing press. And where did I say Democrats do nothing but good? I clarified McVeigh's misconception that Reagan and Volcker worked together, but did not mean to have it come off as an endorsement for Democrats. Also, few people know Volcker is a Democrat so I thought I'd just throw that in there. But as we all know, it doesn't matter if the Fed Chairman is a Republican or Democrat.
I happen to believe the seeds of recession are planted by the credit expansion that creates the boom. You do not. Fair enough.
Are you a monetarist or not? Because your love of the Reagan years makes you sound like one but you don't seem to grasp the power of monetary policy. (It's fun to insult each other, isn't it?)
And when it comes to Bartley, I have this terrible habit of completely ignoring believers of the efficient market hypothesis.
Well, what we have here is a situation where one would try to talk to a Liberal (not you, I'm responding to the article) about the concept of 'price sensitivity'.
The company has a product and tries to establish the 'best' price. This is affected by the open market which dictates that the 'best' price is always less than the 'optimal' price which would be the apex of the Laffer Curve.
No, we don't need the government to try out various tax rates (like a business might try out various pricing models) to determine how best to 'milk' the people. I totally agree with that.
But when the Liberals can't even understand the concept of price sensitivity; where do you go from there?
Could you possibly explain the 'flaw' more clearly?
The U.N.'s Agenda 21 has already been adopted by over 600 local U.S. governments. Agenda 21 has to do with population density. The goal is to concentrate population, thus making people easier to control.
We must remember that our graduated income tax was one of the goal's of Marxism. In addition, Marx realized that a money system is required….so, The Progressives of the early 1900's created the "federal" Reserve Banking system…
Another goal of Marx's was realized.
Their most difficult goal that they have now accomplished is to De-Christianize American thought …Well, that is done away with…as you can see our prison systems are over-whelmed.
Which leaves us all discussing our tax problems and situations…Just another Marxist issue to divide peoples.
The most excellent economic system is written about in the Bible. Then, couple to that the idea of N.T. voluntary giving practises, then we can realize a win-win situation. (That's why Leviticus 25:10 is stamped on our "flawed" Liberty Bell)
The graduated income tax is Immoral. It will not be used in the Coming Kingdom of God which is established after the 7 year Tribulation Period is over with.
In the meantime, we have to play with the cards that are dealt with, and I highly appreciate Mr Mitchell's and the CATO Institute's work on this subject.. It's a keeper article.
…is that if you get too far to the left… (emphasis mine)
I think you mean "right."
Going to far to the left, the tax rates reduce. The Graph starts at Zero Tax Rate.
of course our taxes are low for fat cat businesses! It must be so because the progressives say so!
That's why so many companies, after analyzing what a good tax deal they have in the US, choose to move overseas for tax relief.
About 3 months ago, former Clinton OMB official Joe Minarik told a Soros roundtable that it would not be feasible to exceed that 25 percent. I think it was in this video: http://vimeo.com/21629418 (1 of 3 on Vimeo) So, this latest piece illustrates that CAP either doesn't listen to, or understand, their own people or are lying, again.
Liberals, with all their whining and crybaby actions over conservatives who run for any type of office has produced a trait that is very obvious!
http://therealrevo.com/blog/?p=49835
Liberals, with all their whining and crybaby actions over conservatives who run for any type of office has produced a trait that is very obvious!
http://therealrevo.com/blog/?p=49835
There seems to be a confusion between the point of the Laffer Curve and the idealogical belief of conservatives.
The Laffer Curve says that there is an optimal level of taxation for maximum revenues, and that taxing too high can also decrease revenues. Since we can't possibly know where we are on the Laffer curve, its an open question as to whether we need to increase or decrease taxes to get to the optimum tax.
Conservatives just say that taxes should be reduced period. The reduction of taxes is the goal.
My question is: why is reduction of taxes always good?
“Collecting more taxes than is absolutely necessary is legalized robbery.” Calvin Coolidge
Or one with some wit given back to Ben Franklin.
“The only difference between death and taxes is that death doesn't get worse every time Congress meets.” Will Rogers
exactly
LOL!
"Laffer curve" also shows up in Capitalism. Increase price, make more, up to a point where lost sales mean less profit. "What the market will bear". Charge more, make less.
Simply put, if we added lots of loopholes to the tax code, reintroduced the gold standard, and bombed Europe and Japan flat and destroyed returned the rest of the world to it's pre-1970 state so that they not only couldn't compete with US companies but also were a huge market for US companies, we, too, could reproduce the high-tax and economic miracle produced after WW2 .http://www.watchesn.com/products/big_Vacheron_Constantin_1.html
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