Budgets being cut anyway . . .

[MasterBlaster]

The actual shape of a Laffer-type Revenue versus tax bite curve is unknown. So depending on your agenda, the peak of the curve moves to support your position.

Clearly though, if we are to the right of the peak, then increased tax rates will bring in less total revenue.

Notice though, that the Laffer-type curve only foretells government revenue and says nothing about the economic vitality of the population at large.

 

[Nords]

I don't think I could really object to not carrying all that Otto fuel around in a closed atmosphere. (If a torpedo accidentally starts while inboard, the exhaust, which includes carbon monoxide, hydrogen cyanide, and ammonia becomes the crew's new breathing mix. This is generally considered a Bad Thing.)

I don't know why people worry about the radiation. The cigarette smoke (before 2011, anyway), primary-coolant sample sink, asbestos lagging, lead-acid battery, oxygen generator, diesel fuel, atmosphere-control chemicals, and explosives/propellants are much more dangerous. And, hey, just for fun, let's go clean out that electrostatic precipitator.

Were you ever one of the guys deemed lucky enough to be tasked to load a hydrogen-bubbling acoustic decoy into the aft signal ejector?

And then there's the liberty ports. When I'm finished with next month's colonoscopy then I'm going to visit the VA center to learn more about the long-term effects of acute exposure to pneumonoultramicroscopicsilicovolcanoconiosis...

 

[Independent]

The actual shape of a Laffer-type Revenue versus tax bite curve is unknown. So depending on your agenda, the peak of the curve moves to support your position.

Clearly though, if we are to the right of the peak, then increased tax rates will bring in less total revenue.

Notice though, that the Laffer-type curve only foretells government revenue and says nothing about the economic vitality of the population at large.

I've tried to find out what's known. I couldn't find a serious economist (as in publishing papers in the standard economic journals) who says we're on the right side of the Laffer curve.

I was able to find one book on the topic that specifically studied people with the top incomes Amazon.com: Does Atlas Shrug? The Economic Consequences of Taxing the Rich (9780674001541): Joel B. Slemrod: Books It's a series of academic papers so it's a slow read, but my bottom line is that although everyone agrees theoretically that taxes impact behavior, the actual impacts appear so small that they get lost in the normal noise of the economy.

There's a much more general book Amazon.com: Taxing Ourselves, 4th Edition: A Citizen's Guide to the Debate over Taxes (9780262693639): Joel Slemrod, Jon Bakija: Books (in spite of the title, it looks like it's designed by a tax policy course) that bumps into this issue. Again, it's hard to find an impact.

Then there's the report from the Treasury Dept when Bush was president http://www.treasury.gov/press-cente...s/treasurydynamicanalysisreporjjuly252006.pdf They said that extending the 2001 and 2003 tax cuts would indeed increase economic growth only if the net lost revenue is covered by spending cuts. They didn't put a specific number on the net loss but it appears to be around 93%. That is, the additional economic growth would pay for about 7% of the static tax loss, so the dynamic loss is 93% of the static loss.

 

[MasterBlaster]

but my bottom line is that although everyone agrees theoretically that taxes impact behavior, the actual impacts appear so small that they get lost in the normal noise of the economy.

I'm not sure that I agree. For someone in one of those 85% plus (historical) marginal rates I don't see much incentive at all to keep producing. I see quite a big disincentive to add any output.

For lower incremental taxes the same effect is there but watered down. It's like the headwinds just keep getting stronger and stronger against additional production with increasing taxation. Different people bail out at different levels, but eventually everyone except those few die-hards give up.

 

[Hamlet]

Exempting those programs makes it mathematically impossible to balance the budget.

Those are the four areas we should be looking at seriously for real reductions.

The rest of the budget is just pocket change compared to them.

If it isn't related to keeping people alive and healthy (Medicare, Medicaid, defense in its various forms) and keeping government's promises (SS) then it should be looked at for reduction.

I realize my post is a gross oversimplification, but I'm just about fed up with our government's inability to make the necessary hard decisions.

 

[Westernskies]

The rest of the budget is just pocket change compared to them.

A billion here, a billion there... pretty soon you're talking about some real money...

We need to change the tax and spend mindset, IMO.

 

[MasterBlaster]

The post from Hamlet is accurate.

Without speaking of changes to

1) Social Security
2) Medicare and Medicaid
3) Defense
4) taxes

You just can't get there from here. The size of the deficit is so large and the impending growth in SS and Medicare gets so big as the boomers retire en masse. That something has to give.

The concept of trimming around the edges just won't work.

 

[Independent]

I'm not sure that I agree. For someone in one of those 85% plus (historical) marginal rates I don't see much incentive at all to keep producing. I see quite a big disincentive to add any output.

For lower incremental taxes the same effect is there but watered down. It's like the headwinds just keep getting stronger and stronger against additional production with increasing taxation. Different people bail out at different levels, but eventually everyone except those few die-hards give up.

Certainly, the marginal rate you start with matters. The calculation is strongly non-linear.

If we start at a 90% marginal rate, reducing it to 80% would increase after tax income by 100%, and that would probably have a visible effect.

But if we start at 36%, reducing the rate to 32% (which has the same static calculation cost to the gov't), only increases after tax income by 6%. That will result in hardly any changes in behavior - so little that standard economic studies won't be able to prove there was any change because of all the noise in the data.

All the studies that I saw were after the 90% was history. These days we're talking about much smaller numbers.

 

[haha]

The private economy (still, most believe) has purposes beyond funding the government.

This "most" you refer to but be posting somewhere other than ER.ORG, the pink forum.

Ha

 

[MasterBlaster]

Certainly, the marginal rate you start with matters. The calculation is strongly non-linear.

If we start at a 90% marginal rate, reducing it to 80% would increase after tax income by 100%, and that would probably have a visible effect.

But if we start at 36%, reducing the rate to 32% (which has the same static calculation cost to the gov't), only increases after tax income by 6%. That will result in hardly any changes in behavior - so little that standard economic studies won't be able to prove there was any change because of all the noise in the data.

All the studies that I saw were after the 90% was history. These days we're talking about much smaller numbers.

You are suggesting that changes to tax rates don't matter. I suggest otherwise.

Even at 32/36 % there are those who are on the edge and will stop producing.

And, by the way, a 12.5% tax increase isn't negligible.

 

[Independent]

You are suggesting that changes to tax rates don't matter. I suggest otherwise.

Even at 32/36 % there are those who are on the edge and will stop producing.

And, by the way, a 12.5% tax increase isn't negligible.

I'm sorry if I suggested that "tax rates don't matter".
I assume that somewhere in an economy of 150 million workers, somebody is on the edge of making some decision and a change in tax rates will impact that person.

The question is "How many people are 'on the edge'?" That's where we appear to disagree.

I'm certain that at least one person won't change his behavior, because I've been through tax rate increases and decreases and I've never changed my work effort as a result. In addition, I've never heard one of my coworkers say that a recent change in tax law made them work more or less.

I find it easy to extend my personal experience to the larger workforce. The great majority of US workers don't determine their own hours. Most of us are salaried or hourly with the employer setting our hours. I've worked with commission only salespeople. They could change, but I've never heard one say that a past change in the law changed their effort.

Having said that, I'm still sure there are some people on the edge. Let's see how many need to be there for us to be at the top of the Laffer curve.

Suppose we're comparing rates of 32% and 36%. Suppose 80% of the workforce just keeps doing what they've been doing, so the increase in revenue from this portion is 4% of 80% of total income, or 3.2% of total income.

Now, suppose the other 20% decrease there incomes by 50%. That loses all the taxes that had been paid on half their income, or .32 * .50 * .20 of total income. That's also 3.2% of total income.
But, the gov't picks up an extra 4% of the income they continue to earn, that's a positive .04 * .50 * .20 or 0.4% of income. So even if 20% of workers cut their effort by 50%, the gov't still gains a little revenue.

So this change in tax rates, which is equivalent to a change in after tax income of 68% vs. 64%, would need to cause 20% of the workers to change their effort by 50%. That's way beyond anything that's conceivable to me given the change in take home pay.

Here's something that might be plausible: 90% of workers wouldn't change their activity at all. 10% would change, with an average reduction of 10%. If my math is right, a tax increase that would appear to provide a gain of 4.00% of income on a static calculation actually generates 3.64% of taxes on a dynamic basis. These numbers put us on the extreme left of the Laffer curve.