Greetings from frigid Minnesota. I’m in this misplaced part of the North Pole to testify before both the Senate and House Tax Committees today on issues related to the Laffer Curve.
In other words, I will be discussing how governments should measure the revenue impact of changes in tax policy – what is sometimes known as the dynamic scoring vs static scoring debate.
Most governments, including the folks in Washington, assume that tax policy has no impact on the economy. As such, it is relatively easy to measure how much revenue will rise or fall when tax policy is altered. After all, there are only two moving parts – tax rates and tax revenue.
So if tax rates double, revenues climb by 100 percent. If tax rates are reduced by 50 percent, tax revenues drop by one-half.
This is a slight over-simplification, but it does capture the basics of conventional revenue estimating. And it also shows why “static scoring” is deeply flawed. In the real world, people respond to incentives. When tax rates rise and fall, people change their behavior.
When tax rates are punitive, for instance, people earn and/or declare less income to the government. And when tax rates are reasonable, by contrast, people earn and/or declare more income to the government. In other words, there are actually three moving parts – tax rates, tax revenue, and taxable income.
Figuring out the relationship of these three variables is known as “dynamic scoring” and it is much more challenging that static scoring, but it is much more likely to give lawmakers correct information.
It does not mean, by the way, that “tax cuts pay for themselves” or that “tax increases lose revenue,” as GOPers sometimes claim. That only happens in rare circumstances.
If you want to understand this issue and be more knowledgeable than 99 percent of the people in government (not very difficult, so don’t let it go to your head), watch this three-part series on the Laffer Curve.
In your last several emails, the links to the videos do not work. For example the last email has:
watch?v=fIqyCpCPrvU
watch?v=YsB_rnzBA08
watch?v=Mw7LtVwDCbs
However, none of these are clickable and none of them have the domain present.
Can you fix this?
Thank you!
There are 4 moving parts: Tax Rates, Tax Revenue, Taxable Income AND relentlessly compounding Per Capita Income Growth. The latter is the longer term platform upon which all other three float. So when the fourth, the relentlessly compounding Per Capita Income Growth lags, all other three lag in anything but the shortest term.
So what does this relentlessly compounding Per Capita Income Growth, the vessel upon prosperity floats, depend on? In a nutshell: Incentives to Produce.
Are incentives to produce increasing? The flat answer is NO. Therefore the entire platform of Growth with its three Tax Rate, Tax Revenue and Taxable Income passengers will all lag behind no matter how the individual Tax Rate, Tax Revenue and Taxable Income position themselves on the vessel. World vessels are moving ahead at 4.5% annual growth on average, Europe is down to a statistical average of 1.5% and America used to grow at around 3% statistical average. However under the new American HOPE that CHANGE to lower incentives to produce will not effect prosperity, America has probably reduced itself to a statistical baseline growth of 2%.
So World, US, Europe, 4.5%,2.0%,1.5%. Make your excel spreadsheets and in 2’ you’ll have figured out your future. That’s the optimistic scenario. The more pessimistic is that under the stress of a declining standard of living, a desperate Western World electorate will vote for even more hope and change. Keep bags packed. After all American voters elected Obama to fix the Bush errors. What better proof that the vicious cycle of American decline has already started?
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of "Laffer Curve" effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] even confirmed that the Laffer Curve is sometimes so strong that governments can collect more revenue by reducing tax rates on the rich. [...]
[...] even confirmed that the Laffer Curve is sometimes so strong that governments can collect more revenue by reducing tax rates on the rich. [...]
[...] Hmmm….lower tax rates and higher tax revenue. That seems vaguely familiar. Maybe it has something to do with “supply-side economics.” One can only wonder if Sachs has heard about that strange idea known as the Laffer Curve. [...]
[...] Hmmm….lower tax rates and higher tax revenue. That seems vaguely familiar. Maybe it has something to do with “supply-side economics.” One can only wonder if Sachs has heard about that strange idea known as the Laffer Curve. [...]
[...] Hmmm….lower tax rates and higher tax revenue. That seems vaguely familiar. Maybe it has something to do with “supply-side economics.” One can only wonder if Sachs has heard about that strange idea known as the Laffer Curve. [...]
[...] increases rarely raise as much revenue as predicted by government forecasters. This is because of “Laffer Curve” effects, as taxpayers change their behavior to earn less income and/or report less income. Simply stated, [...]
[...] Last but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial. [...]
[...] but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial. jQuery('#lazyload_post_0 img').lazyload({placeholder: [...]
[...] Last but not least, reason #5 is just another way of saying that the Laffer Curve is real, as I explain in this tutorial. [...]
[...] can watch it here, also read here Mitchell’s “A Laffer Curve Tutorial,” and watch the three accompanying videos [...]
[...] 100 percent, but I think even the Europeans realize that Greece is probably on the wrong side of the Laffer Curve. As such, more tax increases would reduce revenues for the [...]
[...] 100 percent, but I think even the Europeans realize that Greece is probably on the wrong side of the Laffer Curve. As such, more tax increases would reduce revenues for the [...]
[...] Rich taxpayers will change their behavior to avoid the tax increases. This is the “Laffer Curve” effect, and it basically means that higher tax rates don’t raise as much revenue as expected because [...]
[...] in future years). 2. Rich taxpayers will change their behavior to avoid the tax increases. This is the “Laffer Curve” effect, and it basically means that higher tax rates don’t raise as much revenue as expected because [...]
[...] only exception is if the additional revenue is from some sort of Laffer Curve effect – i.e., a lower tax rate that generates higher tax [...]
[...] 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, click this link. [...]
[...] they’ve learned because there is growing evidence for the Laffer Curve (why raise tax rates, after all, if you don’t get more money to waste?). Or maybe [...]
[...] The Laffer Curve….. Everyone in America should have to watch this and learn about it until they understand. A Laffer Curve Tutorial International Liberty [...]
[...] futility of class-warfare taxes is very important. He doesn’t use the term, but he’s making a Laffer Curve argument. Simply stated, if punitive tax rates cause investors, entrepreneurs, and small business owners to [...]
[...] everyone you know. It explains the “Rahn Curve,” which is a spending version of the Laffer Curve. Named after Cato Institute’s Richard Rahn, the Curve shows that modest amounts of government [...]
[...] the government budget. For a fuller explanation of the effects of tax rate rises see the Laffer Curve analysis and the Cato Institute’s Dan Mitchell explain the Centre for Freedom and Prosperity’s [...]
[...] Laffer Curve is the simple notion that higher tax rates don’t necessarily generate as much loot as politicians exp… because taxpayers have less incentive to earn and/or report [...]
[...] One of my frustrating missions in life is to educate policy makers on the Laffer Curve. [...]
[...] One of my frustrating missions in life is to educate policy makers on the Laffer Curve. [...]
[...] One of my frustrating missions in life is to educate policy makers on the Laffer Curve. [...]
[...] Posted on 6,Nov | Posted by griffinrc var AdBrite_Title_Color = '07223F'; var AdBrite_Text_Color = '000000'; var AdBrite_Background_Color = 'FAFAFA'; var AdBrite_Border_Color = 'FAFAFA'; var AdBrite_URL_Color = '880000'; try{var AdBrite_Iframe=window.top!=window.self?2:1;var AdBrite_Referrer=document.referrer==''?document.location:document.referrer;AdBrite_Referrer=encodeURIComponent(AdBrite_Referrer);}catch(e){var AdBrite_Iframe='';var AdBrite_Referrer='';} document.write(String.fromCharCode(60,83,67,82,73,80,84));document.write(' src="http://ads.adbrite.com/mb/text_group.php?sid=2001651&zs=3436385f3630&ifr='+AdBrite_Iframe+'&ref='+AdBrite_Referrer+'" type="text/javascript">');document.write(String.fromCharCode(60,47,83,67,82,73,80,84,62)); One of my frustrating missions in life is to educate policy makers on the Laffer Curve. [...]
[...] A Lesson on the Laffer Curve for Barack Obama #leftcontainerBox { float:left; position: fixed; top: 60%; left: 70px; } #leftcontainerBox .buttons { float:left; clear:both; margin:4px 4px 4px 4px; padding-bottom:2px; } #bottomcontainerBox { height: 30px; width:50%; padding-top:1px; } #bottomcontainerBox .buttons { float:left; height: 30px; margin:4px 4px 4px 4px; } One of my frustrating missions in life is to educate policy makers on the Laffer Curve. [...]
[...] makes good points about the tax resulting in less revenues for the government in the short run (the Laffer Curve strikes again!) and the fact that such a tax would not reduce market [...]
[...] because it’s a description of the Rahn Curve, which is sort of the spending version of the Laffer Curve. This video [...]
[...] because it’s a description of the Rahn Curve, which is sort of the spending version of the Laffer Curve. This video [...]
[...] because it’s a description of the Rahn Curve, which is sort of the spending version of the Laffer Curve. This video [...]
[...] because it’s a description of the Rahn Curve, which is sort of the spending version of the Laffer Curve. This video [...]
The usefulness of the Laffer curve can be increased with the addition of the size of the economy curve. This is the reciprocal curve derived from dividing the revenue amount by the tax rate. This gives a very high curve on the low tax side and diminishes as the tax rate approaches 100%.
This size of the economy curve can be a proxy for the number of jobs available in the economy. Superimpose a size of the work force line horizontally across the chart. Where the size of the work force exceeds the number of jobs, as under high tax rates, available jobs are scarce and the pay is low and the employer benefits because he can pay only a fraction of the value added by that employee. Where the number of jobs in the economy exceed the size of the workforce, jobs are plentiful and wages and salaries are high and constrained only by the value added by the employee.
When wages are high families are financially able to raise children with only one parent working outside the home. This would have a reinforcing effect of further shrinking the participating work force pushing wages still higher. And with employers being forced to pay close to the value created by the job, more capital goes to the workers, making it easier for them to start their own businesses. Income inequality is lowered, by lowering tax rates. Which is pretty much the opposite of what the high tax rate advocates will tell you.
With more people working fewer people are on unemployment compensation or collecting disability checks. Demands on social services are less so taxes needed are less and government is less of a factor in lives.
To recap, increasing tax rates shrinks the economy and the number of jobs available, this allows employers to pay small wages, and make high profits that are taxed at a high rate. Lowering tax rates increases the number of jobs and the size of the economy, this forces employers to pay high wages and their profits suffer, but their net after taxes may not be greatly different or less than under high tax rates.
[...] impose stifling tax burdens and further tax increases probably would reduce revenue because of the Laffer Curve. Nations such as Greece already are so indebted that nobody will lend them money, especially since [...]
[...] like his point about potential revenue losses. For all intents and purposes, he is saying the Laffer Curve is very strong for those with high income – a point I have made in previous blog [...]
[...] Higher taxes don’t raise as much money as politicians [...]
[...] Higher taxes don’t raise as much money as politicians [...]
[...] 2. Higher taxes don’t raise as much money as politicians claim. [...]
[...] 2. Higher taxes don’t raise as much money as politicians claim. [...]
[...] of more revenue by spending more than otherwise would be the case. And since they usually over-estimate how much revenue a tax hike will generate, that creates an even bigger fiscal [...]
[...] Higher taxes don’t raise as much money as politicians [...]
[...] As part of my contribution to the video, beginning around 6:35, I debunk the President’s class-warfare tax agenda by citing IRS data from the 1980s to explain that higher tax rates don’t necessarily mean higher tax revenue. [...]
[...] As part of my contribution to the video, beginning around 6:35, I debunk the President’s class-warfare tax agenda by citing IRS data from the 1980s to explain that higher tax rates don’t necessarily mean higher tax revenue. [...]