Tax Policy

[Seahawk]

Originally Posted by jyl

"Effective tax rate" includes deductions.



I've read so many pieces on various sides of the supply side tax debate. I've seldom seen an issue where so much talk leads to so little clarity. Its like debating religion or philosophy.

So personally, I'm at a point where I say (1) if it is so clear that lowering tax rates either does, or does not, increase government tax revenue, then I expect to see it quite plainly in the data, and (2) rather than believing anyone else's characterization, I'm going to download the data and calculate, chart, and study it myself and reach my own conclusions.

No it doesn't...many households, mine included, lump business enterprises with earned income from non-business (i.e. jobs) sources. My effective tax rate is not based on common household deductions, I can include other business related deductions that mask my non-business income profile...

http://www.streetauthority.com/terms/e/effective-tax-rate.asp

So, then, why, exactly, does total revenue grow? It is my belief that lowering high marginal tax rates on households (stimulus at a personal level...more discretionary income) and businesses (stimulus to invest, moving dollars from static investments) occasions growth.

Total tax revenue and GDP is must be linked.

Edit: Supe, I provided the links, which included all the Supply-side, demand-side, Keynesian banter.

[jyl]

Most households are simply wage earners.

Quick search - about 25MM small businesses in the US, versus about 130MM individual tax returns filed. These numbers are a few years old, but I doubt the ratio has changed much.

Originally Posted by Seahawk

No it doesn't...many households, mine included, lump business enterprises with earned income from non-business (i.e. jobs) sources. My effective tax rate is not based on common household deductions, I can include other business related deductions that mask my non-business income profile...

http://www.streetauthority.com/terms/e/effective-tax-rate.asp

So, then, why, exactly, does total revenue grow? It is my belief that lowering high marginal tax rates on households (stimulus at a personal level...more discretionary income) and businesses (stimulus to invest, moving dollars from static investments) occasions growth.

Total tax revenue and GDP is must be linked.

We all have "beliefs" but the OP asked for proof as in correlations, graphs, etc. I'm not trying to "dis" anyone's beliefs, and I know there are lots of writings that every side can point to. I'm just saying that what I thought was interesting about this thread was the challenge to post actual data.

[jyl]

I am certain the question has been extensively analyzed by high-powered economists armed with all the econometric and statistical tools. Someone might have the time to search out those papers and extract the analysis . . . but I have to go to dinner, so won't be me.

Originally Posted by Superman

Some of the graphs I see above are tantalizing. At a glance, I thought they support the notion that lower tax rates cause higher revenues. Seat-of-the-pants first glance. But then I noticed there are plenty of instances where higher tax rates caused (in the following period or two or three) higher tax revenues and visa versa. So....I think they don't answer the query.

To really answer the query would be fairly complex, but most definitely do-able. A correlation/regression analysis would identify the most powerful predictors, and would quantify their ability to predict revenues. Multicollinearity could be backed out. Sure, the tables of data to be used as variables would need to be cleaned up and of course here is the best opportunity for shenanigans. But it is nearly impossible that some economist, or group of economists, have done this analysis. Independently. Out of honest curiosity. If they have, and I think they have.....then we would know how tax rates affect revenues, and how forceful the relationship is. And we would see other relationships also.

I would find this interesting. And quite frankly, if there is a variable out there that does a good job of predicting revenues, and if that variable were as simple as verifying that tax rates have a strong negative correlation to tax revenues beginning in the following year (or current year for that matter), then this is a no-brainer for Congress. Any congress member, liberal or conservative.

Don't tell me that Democrats know this and their agenda is to hurt American families more than raise revenues. It would mean you are an idiot.

If this connection is verifiable, which I believe it is NOT.....but if it were, then we could easily get Congress to act.

I will say that I've played around with some simple regressions on the data - turns out the sample size is small (we're only talking a couple dozen years), there are evidently many factors, and some of the coefficients you get (well, that I got) turn out to be statistically not significant. It is easy enough to find positive coefficients with some statistical significance when regressing tax rev gro on same-year effec tax rate. But finding statistically significant coefficients, pos or neg, for tax rev gro on prior-year effec tax rate - I could not. But, again, this was just playing around - time's probably better spent finding the papers written by the actual economists.

[Seahawk]

Originally Posted by jyl

Most households are simply wage earners.

Quick search - about 25MM small businesses in the US, versus about 130MM individual tax returns filed. These numbers are a few years old, but I doubt the ratio has changed much.



We all have "beliefs" but the OP asked for proof as in correlations, graphs, etc. I'm not trying to "dis" anyone's beliefs, and I know there are lots of writings that every side can point to. I'm just saying that what I thought was interesting about this thread was the challenge to post actual data.

John,

No issues...but economics and actual data are like lies and damn lies.

Stay engaged in this thread, it has been very civil.

[berettafan]

Originally Posted by Porsche-O-Phile

Who cares about raising tax revenues. The answer to our problems is in cutting government spending, not maximizing what they take in, even if it is ultimately more "efficient".

A-****ing-men.

we are content to talk about who's going to the gallows first. nobody ever says 'wtf do i have to go to the gallows for?'

[Tobra]

Originally Posted by Porsche-O-Phile

Who cares about raising tax revenues. The answer to our problems is in cutting government spending, not maximizing what they take in, even if it is ultimately more "efficient".

yeah, it is not a revenue problem

Seems to me President Kennedy got this result in the 1960's and President Reagan in 1980's. I recall when it was in the paper in the '80s. It does seem a bit counterintuitive, I will grant you that.