Taxes: Static vs. Dynamic
 

What do you think?

Best,

Kurt

How about cutting "revenue"?

Besides, I think revenue is a misnomer. Revenue is earned, the government simply takes.

Thats a good point; I agree. Guess I was just using "politicalese".

Tax hike = "revenue enhancement". :)

Best,

Kurt

well, we know how you voted!

Should I have made the text green? :)

Best,

Kurt

Here are some total gross tax collections numbers from the IRS, FWIW:

http://www.irs.gov/taxstats/compliancestats/article/0,,id=97168,00.html

The "SOI Historical Tables" go back to 1987.

Best,

Kurt

gotcha, now we really know how you voted!

A tax reduction either increases incentives to work and invest or it doesn't?

If you work and invest more the total tax paid increases and it is dynamic.

The tax game should be modeled around increasing capital formation and jobs which increases gov't tax receipts.


Gov't debt is decreased with spending discipline and economic growth not by increasing taxes.

In a dynamic economy people always have new opportunity and the chance to lose a current job.


"creative destruction"

I agree 100%

Tax policy has a dynamic effect; lowering tax rates increases tax receipts. If one studies the IRS numbers, it is obvious.

So, if the goal is to increase tax receipts, whether one is a Democrat or Republican, lowering taxes is the way to go.

So why would any party still be for raising taxes? Because some people just make too much money? And people that make not so much money should get some of that money?

The tax code is screwed up; it allows politicians to pass out favors via special tax treatments to certain groups and it allows social engineering and behavior modification via taxation . . . and it supports an unnecessary "layer"of CPAs and lawyers that costs the Country billions and billions of dollars and countless hours of lost productivity.

There's nothing "good" about the US tax code; it is a tool misused by politicians of both parties.

FWIW.

Best,

Kurt

so if we cut taxes to .000001% the govt would be inundated with money. Who would be against that?

Trickle-down theory, AKA something-something economics, Anybody? Anybody? Anybody? voodoo economics :)

Ben Stein in ferris bueller's day off.

cut and pasted from wki:
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates. This can be contrasted with the classic Keynesian economics or demand side economics, which argues that growth can be most effectively managed by controlling total demand for goods and services, typically by adjusting the level of Government spending. Supply-side economics is often conflated with trickle-down economics. The term was coined by journalist Jude Wanniski in 1975, and popularised the ideas of economists Robert Mundell and Arthur Laffer.

The typical policy recommendation of supply-side economics is the reduction of marginal tax rates, beneficial because of the proponents' view that increased private investment generally brings higher productivity, which increases economic growth, and lowers costs for consumers. This is controversial because cutting marginal tax rates is perceived to offer benefits primarily to the wealthy, which commentators such as Paul Krugman see as politically rather than economically motivated.

Many early proponents argued that the size of the economic growth would be significant enough that the increased government revenue from a faster growing economy would be sufficient to completely compensate for the short-term costs of a tax cut, and that tax cuts could, in fact, cause overall revenue to increase. Attempting to model this is known as dynamic scoring, and leads many supply-side proponents to accuse their political rivals of overstating the decline in revenue as a result of tax cuts. Official CBO estimates on the effects of tax changes generally do not include dynamic scoring, primarily because the magnitude of this effect is not widely agreed upon.

Reaganomics
In the United States commentators frequently equate supply-side economics with Reaganomics. The fiscal policies of Ronald Reagan were largely based on supply-side economics. During Reagan's 1980 presidential campaign, the key economic concern was double digit inflation, which Reagan described as "Too many dollars chasing too few goods", but rather than the usual dose of tight money, recession and layoffs, with their consequent loss of production and wealth, he promised a gradual and painless way to fight inflation by "producing our way out of it".
Switching from an earlier monetarist policy, Federal Reserve chair Paul Volcker, began a policy of tighter monetary policies such as lower money supply growth to break the inflationary psychology and squeeze inflationary expectations out of the economic system. Therefore, supply-side supporters argue that "Reaganomics" was only partially based on supply-side economics. However, under Reagan, Congress passed a plan that would slash taxes by $749 billion over five years. As a result, Jason Hymowitz cited Reagan — along with Jack Kemp — as a great advocate for supply-side economics in politics and repeatedly praised his leadership.

Ronald Reagan made supply-side economics a household phrase, and promised an "across the board" reduction in income tax rates and an even larger reduction in capital gains tax rates. When vying for the Republican party presidential nomination for the 1980 election, George H.W. Bush derided Reagan's supply-side policies as "voodoo economics". However, later he seemed to give lip service to these policies to secure the Republican nomination in 1988, and is speculated by some to have lost in his re-election bid in 1992 by allowing tax increases. (See: "Read my lips: No new taxes.")

It doesn't work in the extremes. How about a 99% tax? Would that flood the government coffers with money?

If you simply look at the IRS receipt numbers and match up with tax increases and cuts, you will see that less tax burden on businesses and individuals increases tax receipts. You could also take a look at almost any nation or economic "zone" that has reduced tax burdens and you will see economic growth and tax receipt growth.

Best,

Kurt

I believe it is not as simple as the choices presented.

Supply side economics to my mind takes advantage of the selfish nature of homo sapiens, if indeed it is an advantage.

Then why were the tax men called "revenooers" ?

When I want to look at Budget numbers, I use the CBO site.

http://www.cbo.gov/budget/historical.pdf

they go back to 1962

And here's a contrarian view.

Do Tax Cuts Pay for Themselves? The Historical Record

Large tax cuts were enacted in 1981, with the centerpiece of the 1981 tax cut being a large reduction in marginal tax rates. If such tax cuts really pay for themselves, income tax receipts should have grown as rapidly in the 1980s as they did in the 1990s.

Indeed, in the 1980s, supply-siders argued that the economy would grow more rapidly because of the 1981 tax cut. They contended that a lower tax rate applied to a larger economy would produce at least the same amount of revenue. Then, when marginal income tax rates at the top of the income spectrum were raised in 1990 and especially when these rates were raised further in 1993, a number of supply-side advocates insisted this would harm economic growth. Presumably, higher tax rates applied to a smaller economy would mean that income tax receipts would not grow as much in the 1990s as in the 1980s.

Yet this is not what occurred. Income tax receipts grew noticeably more slowly than usual in the 1980s, after the large cuts in individual and corporate income tax rates in 1981. And income tax collections grew much more rapidly in the 1990s than in the 1980s. The graph and table on the next page illustrate this fact.

The Internet provided a once in a generation (once in a century?) boom where thousands of non-sustainable businesses paid hundreds of thousands of employees huge wages, and the stock market boomed in tech stocks, resulting in billions in capital gains revenues. The tax rate increase had little or nothing to do with it.

I think that's true.

Anyways, the question can't be answered in a vacuum. You have to know what the current tax rates are, the current environment, etc. etc. etc.

Obviously, assuming there is going to be a tax, the ideal rate is higher than 0% (at which rate there would be no tax revenue), and 99% (lowering from that rate would obviously increase revenue, as the economy would grind to a halt at that rate).

So whether increasing or decreasing taxes will increase revenue depends on the starting point, and lots of other factors.