Thomas wrote:okie wrote:So, I think those examples are clear evidence. I am sorry you don't choose to see the same effects that appear to be very clearly demonstrated, especially with the Kennedy tax cuts.
I'm curious what you make of the Clinton tax hikes, which were followed by a boom in productivity, economic growth, and government revenue. They're as clear evidence against the general supply side tax theory as the Kennedy tax cuts are for it.
Good question, Thomas. This issue is not easily proven because you have multiple factors superimposed upon tax rate policy, which makes it difficult to unravel and draw direct conclusions about the effect of tax rates upon tax revenues. I don't know if we can look at single periods or cases as proof, but look at general trends in several cases or periods. Maybe you have a graph you can cite? The following was the best I could come up with that discussed this.
http://www.cato.org/dailys/6-06-97.html
Within that site, the argument is made that the Reagan years surpassed growth of revenues during the Bush Clinton years of the 90's.
"The turning point in tax policy was not 1993. Tax rates began to rise in 1990, during the Bush administration. The top income tax rate on earned income rose from 28% to 31% after the 1990 budget deal and then to 42% in 1993 as part of President Clinton's first budget. So we have now had a seven-year experiment with higher income tax rates on the wealthy. From 1990 through the most recent estimates for 1997, total federal tax collections have risen from $1.03 trillion to $1.55 trillion annually. After inflation, this has been a 21.6% rise in federal receipts over seven years.
How does this stack up against the growth of tax payments during the Reagan years, when tax rates fell sharply? From 1982 (the first year of the Reagan tax cut) to 1989, the top tax rate was chopped from 70% to 28%. Despite the deep recession of the early 1980s, federal receipts grew from $618 billion in 1982 to $991 billion in 1989. After inflation, this was a 24.1% increase in tax collections."
During previous discussions here about this, I have never argued that we are on one side or the other of the peak of the Laffer Curve, so I might concede that tax revenues might be enhanced by raising the rates, especially short term. Most importantly, I think there is a short term effect and a long term effect, with perhaps the long term effect being more significant, simply because of how an economy growth rate can compound itself over a period of years, and a huge difference results if an economy is dampened only slightly in favor of enhanced revenues in the short run, but over the long run, the revenues will suffer.
I do not honestly know what the optimum tax rates might be. I do not think the Reagan tax policies are nearly as good of an example of tax rate cuts spurring revenues as the JFK tax policies were. I do think those policies of drastically lowering the highest marginal rates probably do coincide with the increased revenues. They may have increased anyway, but I doubt seriously they would have increased as fast.
I am very convinced of one thing, and that is that something like a Laffer curve does exist, by simply understanding math, basic economics, and human nature. I also think the peak of the Laffer curve may shift location and magnitude over time, depending upon other economic factors, but at any given time, I firmly believe there is a point at which higher tax rates will return lower revenues, perhaps not that year or next year, but at least over the long term the revenues will fall short of what they would have attained otherwise with lower rates. Because the effects are not altogether immediate, it is difficult to chart, and we cannot relive history to simply test that one factor at a different rate.
And I think the Bush tax cuts helped deter a recession and has helped us maintain the growth that we have.
