Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Of course the Laffer Curve makes no sense, it has been disproved many times. Only hayseed 'conservative' politicians like the previous governor of Kansas, Brownback, thought supply-side economics still work with tax cuts for the rich. It led the state to disaster with massive budget deficits, funding for education and roads down the drain, and a rapid out-migration of people out of the state entirely.
I think that the tax cuts and simplification of the tax code in 1987 really set up the boom of the 1990's. My opinion is that the simplification was more important than the tax cuts.
I understand that the Bush tax cuts really did not have the stimulative effect of the Reagan cuts, but like it said previously I think the simplification had more of an effect than the cuts themselves.
I did read one publication in which the author said the Bush tax cuts lead to the greatest economic boom in history. Unfortunately, the boom occurred in China as the money was reinvested there rather than the US. Interesting theory, really should be examined in greater depth. In the 1990's and 2000 it really was US Government policy to encourage US business investment in China. The theory being that people you trade with will never fight a war with you and second that economic freedoms lead to political freedoms. It doesn't look like that theory is working out well these days.
Likewise, the Trump "boom" is more due to the forced reparations of foreign profits by US companies and deregulation than the cut in the corporate tax rate. Though it seems that both parties were supporting a significant reductioin in corporate tax rate.
I agree with you that Kansas economic policy did not work. I don't think it works on a state level since there is no requirement for reinvestment at the state level.
In Washington state, we have had a liberal, left-wing government since 1984. They have passed significant tax cuts for Boeing, Weyerhauser, Amazon, Paccar, MicroSoft, and other corporations. So much so that corporations pay very little in taxes in Washington state. The entire tax burden is pretty much on the shoulders of consumers (sales tax) and small business (gross earnings (not net!!) on business revenues). According to the state Office of Financial Management corporations in Washington state pay a very small portion of state taxes.
So it didn't work in Kansas with a Republican administration. It hasn't worked in Washington state with a Democrat administration over the past 30 years. But it does prove that we have "the best government money can buy". And really it doesn't matter which political party is running things.
It doesn't disprove the Laffer Curve. Economics, at its root is about human behavior. So I suspect there is truth in the Laffer Curve.....the devil is in the details. Is 50% to high?? The Russians thought so and were not interested in working at the rate of taxation. In this country, a 50% tax rate for all local, state, and Federal taxes seems fairly reasonable.
Deficit increased to a record level under Trump (see link below). Trump's trade war would not increase import tax revenue either, because China lowered own currency and rendered import tax hike ineffective. Trade war also harmed domestic economy.
I think that the tax cuts and simplification of the tax code in 1987 really set up the boom of the 1990's. My opinion is that the simplification was more important than the tax cuts.
I understand that the Bush tax cuts really did not have the stimulative effect of the Reagan cuts, but like it said previously I think the simplification had more of an effect than the cuts themselves.
...
Some blamed the Reagan tax change on passive income for contributing to the real estate collapse in the late 80's and early 90's. If you look at the economy as cycles where bust precedes boom, a point can be made. On the other hand, the economy was considered moribund during the first half of the 90's due to the overhang of high debts from the 80's and the cleanup of the Resolution Trust Corporation from 1991 to 1995. Interest rates were around 10% in 1994.
The boom occurred in the late 90's because US, Europe, and Japan collaborated to rig US interest rates and support the US dollar to spur their economies which were dependent on exports. The governments were spurred to act as NAFTA had caused the Mexican economy to collapse and Japan's economy was still weak at the time of the Kobe earthquake. The Fed would lower short-term interest rates. Long-term interest rates would fall by 400 basis points as Japan bought US bonds. As a result, the US dollar rose by 30 percent which stimulated their exports and artificially kept down inflation.
I remember the Reagan changes on passive income. I was working as a financial representative and started seeing lots of LMP that were out and out scams. Basically, using the tax code to "scam" the money out of the Federal treasury. Of course, with the tax law changes under Reagan these became worthless and investors were left holding the empty bag. I am pretty sure you are correct on the real estate collapse.
It seems since the 1990's we as a country have had one financial scam after another. AND each time the banks and elites got bailed out by the taxpayers. That is one reason why people are so fed up with the people we elect.
One interesting point getting back to Kansas. The Washington state Democrats gave Boeing 10 BILLION dollars and even leaned on the unions to give back their pensions to Boeing. The socialist city council member in Seattle proposed that the state of Washington BUY OUT Boeing. Everybody laughed at her. I looked it up. 10 Billion dollars would have bought controlling interest in Boeing at that time!!! She was right, the state could have bought Boeing in a hostile takeover and then broken up the company keeping the aircraft division in Washington state.
Oh, then Boeing continued moving more jobs out of state!!! Wow, makes you madder than hell.
Before you think impossible..... the county I live in asked the out-of-area utility company to extend power line to rural areas in the 1930's. The out-of-area company said no....so the county condemned their dam and took it over as a public utility. More than 50 years later we have the cheapest power rates in the country and services like 1Gbps fiber service for the past 20 years.
Politically the tide is shifting against the corporations just like it did with Roosevelt at the turn of the century. It will be interesting if the Elites manage to find their President Wilson to co-op the movement.
If I was a member of the Elites I would be doing everything possible to make sure President Trump is a success. The alternatives coming either from the right or left will not bode well for the ruling class.
Of course the Laffer Curve is a joke. You can draw an infinite number of curves between two points. And I'll argue that even the two end points are not real and fixed because there are assumptions behind them. An economy built on slavery for example could be the 100% end point. Or feudalism came arbitrarily close.
Any real scientist would be laughed out of science if they proposed something based on so little. Only in Economics, where you pick the desired political result first and then work backward to create a theory to justify the result would you see anything so ridiculous as the Laffer Curve.
It just boggles my mind that there are people who actually believe it.
Of course the Laffer Curve makes no sense, it has been disproved many times.
Incorrect.
Arthur drew the now-famous curve on a napkin at a Diner to explain a very simple concept that is ineluctably self-evident:
At an income tax rate of zero, no tax dollars are collected. No one who passed Econ 101 disagrees with this.
At an income tax rate of 100% (or higher), no one has an incentive to work, thus no income is generated, and thus no income tax dollars are collected. No one who passed Econ 101 disagrees with this.
At every income tax rate greater than zero but less than 100%, some tax revenue is collected. No one who passed Econ 101 disagrees with this.
THEREFORE, as surely as night follows day, there exists at least one tax rate (possibly more than one) for which the total tax dollars collected will greatest. Anyone who passed geometry and calculus and econ 101 agrees.
In Washington state, we have had a liberal, left-wing government since 1984. They have passed significant tax cuts for Boeing, Weyerhauser, Amazon, Paccar, MicroSoft, and other corporations. So much so that corporations pay very little in taxes in Washington state. The entire tax burden is pretty much on the shoulders of consumers (sales tax) and small business (gross earnings (not net!!) on business revenues). According to the state Office of Financial Management corporations in Washington state pay a very small portion of state taxes.
Taxes levied on businesses do not stay there. They flow through to a combination of:
a) consumers in the form of prices higher than they otherwise would be
b) employees in the form of total compensation and hours worked lower than they otherwise would be
c) business owners in the form of lower profits.
All taxes -- and hence all tax cuts and all tax increases -- are borne by actual people. The only question is which people? There is an old adage that goes "Don't tax me; don't tax thee; tax that fellow behind the tree."
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
