Is the Liberal Political Mind one dimensional?

The curve is only a theoretical construct and not really useful in the real world, for there are a host of other factors which affect revenues besides just taxation.

Here's Joefromchicago's excellent response to your point on page 3 of this thread, which you didn't respond to:

Quote:

We don't need to speculate. The highest marginal income tax rate in US history was 92% for incomes over $400,000 in 1952-53, and the rate was above 90% for the period from 1950 to 1963. In that time period, the US GDP rose from $293.8 B (2005 dollars) to $617.7 B, an increase of about 211%. Taking a broader perspective, the top marginal tax rate was above 70% for the period from 1936 to 1980, during which time the GDP rose from $83.8 B (2005 dollars) to $2,789.5 B, an increase of around 3,329% (GDP figures from here -- download with MS Excel).

Now, to be fair, that's just the top marginal tax rate. The effective rates were, at all times, substantially less. If the tax were truly a confiscatory 100% on all wages, then we would expect somewhat different results. But since no one is proposing such a rate, and no such rate has ever been imposed, the most that we can do is look at how people reacted to changes in the marginal rates. And, from the historical evidence, it seems quite clear that economic output, in general, was not adversely affected by high marginal tax rates.

You say that

Quote:

but it would seem that recent tax breaks by Bush bringing higher revenues seem to indicate the rates are still on the high side of optimum.

Yet, we experienced growth far above what we are seeing right now, during a time in which tax rates were far higher. I have a hard time understanding why you would believe that the tax rate is still too high given the body of historical evidence showing that the opposite is true.

Simulateneously, I find it difficult to understand how the tax rate is too high if we are so deep in deficit and debt. Our country is not actually growing when we add an average of 1/2 trillion a year to the debt; we are merely putting off our bills and calling it growth.

Cycloptichorn

It is better than no evidence at all, oe.

Now, here we have some common ground, Joe. At least there is an admission of a probable curve.

There has to be a curve.

Now, I am sure there is much disagreement as to what the curve is shaped like. However, what I think you are talking about here, optimum tax revenues, is slightly different than optimum economic activity, which are related, but not the same. If taxes are necessary, and I think most everybody agrees that they are, we have to balance one against the other, rather than debating each one separately as often happens. Bottom line, tax rates have to affect economic activity because they are extracted from the same equation.

I do not know for sure which side of the optimum we are on, but it would seem that recent tax breaks by Bush bringing higher revenues seem to indicate the rates are still on the high side of optimum.

My goal here on this thread is to point out the obvious, and that tax rates are not independent, and we should all admit there is a relationship, that the debate is not one dimensional, and then perhaps both Democrats (liberals) and Republicans could agree to bring in the best economic minds to study the curve and how it is shaped. That would be far better than denying the existence of a curve.

Well, a relationship is at least indicated. We can argue exactly what and how much at another time.

Quote:

Anecdotal evidence isn't evidence.

I disagree with that, and further, it may be worth quite alot in some cases, or almost nothing in some cases. It is evidence, sometimes more direct than in other cases, and it varies as to its worth, but that can be debated in each instance.

A valid point, but the key to the equation is what you point out that taxes can reach a threshold where effort expended is simply not worth the comparable increase in return. I beleive this factor is real and does happen, including my anecdotal examples.

I was aware of that. Trickle down economics is another term wherein politicians on each side of the fence take potshots at it. Take the terms and names out of the discussion, Joe, and the fact is there is a curve and there is a benefit of job creators higher upon the ladder giving jobs to job seekers a bit lower on the ladder. It isn' rocket science to figure out that hardly any poverty sticken people provide jobs.

okie wrote:

It is better than no evidence at all, oe.

I think that's a false dilemma, okie. You don't either have anecdotal evidence or no evidence at all. You have anecdotal evidence, and then you have facts that you could, but don't want to research.

You rather prefer to believe anecdotal evidence. And I would assume that you prefer to believe the anecdotal evidence because it chimes with the beliefs you already hold.

Let me give you an example: What if someone you knew told you that he had personally known a member of the Communist party in the USSR, and that this guy had been living in a luxurious house, driving a big car and eating excellent meals.

Would you tend to agree with him that Soviet communism must have been fabulous - extrapolating from these facts?

okie wrote:

Now, here we have some common ground, Joe. At least there is an admission of a probable curve.

No there isn't.

okie wrote:

There has to be a curve.

No there doesn't.

okie wrote:

Now, I am sure there is much disagreement as to what the curve is shaped like. However, what I think you are talking about here, optimum tax revenues, is slightly different than optimum economic activity, which are related, but not the same. If taxes are necessary, and I think most everybody agrees that they are, we have to balance one against the other, rather than debating each one separately as often happens. Bottom line, tax rates have to affect economic activity because they are extracted from the same equation.

I have never heard anyone debate "optimum economic activity," either in conjunction with a debate over optimum tax revenues or not.

okie wrote:

I do not know for sure which side of the optimum we are on, but it would seem that recent tax breaks by Bush bringing higher revenues seem to indicate the rates are still on the high side of optimum.

No, not really. Even if taxes are on the "good" side of the Laffer Curve and rates are cut, tax revenues will still increase from their new, lower level as a consequence of increases in population and other factors. And that's exactly what happened with the Bush tax cuts. Revenues decreased in the wake of the 2001 tax cut, and then increased from the new, lower level, starting in 2004. Supply siders would have us believe that the tax cuts caused the eventual increase, but much of that increase can be explained by factors that would have occurred regardless of the tax cut.

okie wrote:

My goal here on this thread is to point out the obvious, and that tax rates are not independent, and we should all admit there is a relationship, that the debate is not one dimensional, and then perhaps both Democrats (liberals) and Republicans could agree to bring in the best economic minds to study the curve and how it is shaped. That would be far better than denying the existence of a curve.

The Laffer Curve is unproven, and you have certainly done nothing to substantiate it, aside from your bare ipse dixit. I don't know why we can't debate its existence.

If I know enough people, I think I might get a roughly accurate picture of the situation there, not as exact as economic data for all citizens, but if I have a statistically sufficient sample of anecdotal evidence, it is certainly not useless.

joefromchicago wrote:

okie wrote:

Now, here we have some common ground, Joe. At least there is an admission of a probable curve.

No there isn't.

okie wrote:

There has to be a curve.

No there doesn't.

Please answer the following questions, Joe.

If the tax rate was 100% vs 0%, would economic activity be affected?
If it was 99% vs 0%, would it be affected?
If it was 98% vs 0%, would it be affected?
If it was 90% vs 0%, would it be affected?
If it was 75% vs 0%, would it be affected?
If it was 50% vs 0%, would it be affected?
If it was 25% vs 0%, would it be affected?
If it was 10% vs 0%, would it be affected?

Now, if your answer to all the above questions is no, I think you are nuts, but regardless, the graph would be a straight line, not a curve, and your opinions about this would be correct.

If your answer is yes to only the first one, then the graph would not be flat, but a straight line through 99%, then with a precipitous jump or slope to whatever the effect would be at 100%, and there is a curve that results. It would not look like I think it would look because I would answer yes to all questions, however the effect of 10% might be fairly minimal, so my curve as visualized would start out fairly flat or gently sloping with a steeper climb at the higher tax rates, or drop however you plot the numbers.

But the point is, Joe, you have a curve if you answer even one of the questions yes.

okie wrote:

joefromchicago wrote:

okie wrote:

Now, here we have some common ground, Joe. At least there is an admission of a probable curve.

No there isn't.

okie wrote:

There has to be a curve.

No there doesn't.

Please answer the following questions, Joe.

If the tax rate was 100% vs 0%, would economic activity be affected?
If it was 99% vs 0%, would it be affected?
If it was 98% vs 0%, would it be affected?
If it was 90% vs 0%, would it be affected?
If it was 75% vs 0%, would it be affected?
If it was 50% vs 0%, would it be affected?
If it was 25% vs 0%, would it be affected?
If it was 10% vs 0%, would it be affected?

Now, if your answer to all the above questions is no, I think you are nuts, but regardless, the graph would be a straight line, not a curve, and your opinions about this would be correct.

If your answer is yes to only the first one, then the graph would not be flat, but a straight line through 99%, then with a precipitous jump or slope to whatever the effect would be at 100%, and there is a curve that results. It would not look like I think it would look because I would answer yes to all questions, however the effect of 10% might be fairly minimal, so my curve as visualized would start out fairly flat or gently sloping with a steeper climb at the higher tax rates, or drop however you plot the numbers.

But the point is, Joe, you have a curve if you answer even one of the questions yes.

Actually, if you only answer one question yes, you would have a straight line, not a curve.

The simple truth is that tax rates during the Clinton years were higher than during the Bush years but economic growth was greater during the Clinton years. Explain this in light of your argument that lower tax rates create for greater growth.

Taxes as % of the economy under Clinton ranged from 18.5-20%
Taxes as % of economy under Bush ranges from 16.5% to 17.9%

GDP growth under Clinton was above 4% for 4 of the 8 years.
GDP growth under Bush has only hit 3.9% once in 6 years.

Of course that is before we factor in the increase in GDP due to deficit spending. Suddenly the argument that lower taxes increase GDP or revenues blows up completely. It might on the extremes but in the range of 17-20% of GDP in taxation it has no effect.

Please answer the following questions, Joe.

If the tax rate was 100% vs 0%, would economic activity be affected?
If it was 99% vs 0%, would it be affected?
If it was 98% vs 0%, would it be affected?
If it was 90% vs 0%, would it be affected?
If it was 75% vs 0%, would it be affected?
If it was 50% vs 0%, would it be affected?
If it was 25% vs 0%, would it be affected?
If it was 10% vs 0%, would it be affected?

Now, if your answer to all the above questions is no, I think you are nuts, but regardless, the graph would be a straight line, not a curve, and your opinions about this would be correct.

If your answer is yes to only the first one, then the graph would not be flat, but a straight line through 99%, then with a precipitous jump or slope to whatever the effect would be at 100%, and there is a curve that results. It would not look like I think it would look because I would answer yes to all questions, however the effect of 10% might be fairly minimal, so my curve as visualized would start out fairly flat or gently sloping with a steeper climb at the higher tax rates, or drop however you plot the numbers.

But the point is, Joe, you have a curve if you answer even one of the questions yes.

I addressed the curve issue already in the above, so I think that should be pretty well nailed down...

I am not an economist, Joe, so I am debating this issue in plain language, so you may hear terms you haven't heard before. "Optimum economic activity" relative to tax rates would occur at 0% tax rate I would assume. Hopefully, you can agree with a concept that basic.

Since we obviously have to tax to run the government, then we have to balance the relationship of optimum tax revenues and rates with the best economic activity attainable. If taxes were 100%, I do not think that offers much potential for either economic activity or tax revenues. So somewhere in the middle, Laffers curve again, is the level of taxation we can both run a reasonable government and thrive economically.

Good observations, Joe, at least there is an acknowledgement of factors working here. I think it is reasonable for there to be a lag time between the driver of economic stimulants and the stimulation itself, don't you think.

As I said before, since so many factors are present besides tax rates, I doubt the pundits will ever agree whether Bush's tax cuts were responsible or not, but I think the argument for them is very defendable by what has happened, if you consider the lag time to be reasonable and expected. The economy is a bit like an ocean liner and does not turn on a dime.

Well, the curve is unproven in your mind. Laffer did not invent the effect, as it was recognized before he wrote it on a napkin, and really, Joe, it is nothing more than a mathematical equation with proven economic principles plugged in. I believe it is a foregone conclusion long ago, way before Laffer, and I fail to see why it is so difficult for liberals to accept. The curve may not be shaped as Laffer has it, but it has to be a curve nonetheless.

I think we have had larger growth in the last few years then we had before.

The economy is in much better shape now then it was when Clinton left (dot com bust, companies cooking the books).

okie wrote:

If I know enough people, I think I might get a roughly accurate picture of the situation there, not as exact as economic data for all citizens, but if I have a statistically sufficient sample of anecdotal evidence, it is certainly not useless.

If you have a statistically sufficient sample, it is a statistically sufficient sample and no longer anecdotal evidence.

I wonder what you would regard as a "statistically sufficient sample", though. okie, in your opinion: how many people would you have to ask a specific question to get a statistically sufficient sample out of a total population of 300,000,000 people?

okie wrote:

joefromchicago wrote:

okie wrote:

Now, here we have some common ground, Joe. At least there is an admission of a probable curve.

No there isn't.

okie wrote:

There has to be a curve.

No there doesn't.

Please answer the following questions, Joe.

If the tax rate was 100% vs 0%, would economic activity be affected?
If it was 99% vs 0%, would it be affected?
If it was 98% vs 0%, would it be affected?
If it was 90% vs 0%, would it be affected?
If it was 75% vs 0%, would it be affected?
If it was 50% vs 0%, would it be affected?
If it was 25% vs 0%, would it be affected?
If it was 10% vs 0%, would it be affected?

Now, if your answer to all the above questions is no, I think you are nuts, but regardless, the graph would be a straight line, not a curve, and your opinions about this would be correct.

If your answer is yes to only the first one, then the graph would not be flat, but a straight line through 99%, then with a precipitous jump or slope to whatever the effect would be at 100%, and there is a curve that results. It would not look like I think it would look because I would answer yes to all questions, however the effect of 10% might be fairly minimal, so my curve as visualized would start out fairly flat or gently sloping with a steeper climb at the higher tax rates, or drop however you plot the numbers.

But the point is, Joe, you have a curve if you answer even one of the questions yes.

Actually, if you only answer one question yes, you would have a straight line, not a curve.

The simple truth is that tax rates during the Clinton years were higher than during the Bush years but economic growth was greater during the Clinton years. Explain this in light of your argument that lower tax rates create for greater growth.

Taxes as % of the economy under Clinton ranged from 18.5-20%
Taxes as % of economy under Bush ranges from 16.5% to 17.9%

GDP growth under Clinton was above 4% for 4 of the 8 years.
GDP growth under Bush has only hit 3.9% once in 6 years.

Of course that is before we factor in the increase in GDP due to deficit spending. Suddenly the argument that lower taxes increase GDP or revenues blows up completely. It might on the extremes but in the range of 17-20% of GDP in taxation it has no effect.

Sorry, I made a mistake in the Bush column. Here is the correction. The correction doesn't substantially affect the bottom line, though.

Code:Annual growth of real GDP, x years into presidency

"0 years into presidency" means 1993 for Clinton, 2001 for Bush


Year Clinton Bush
0 2.7 0.8
1 4.0 1.6
2 2.5 2.5
3 2.9 3.9
4 3.7 3.2
5 4.5 2.5
6 4.2 3.3*
7 4.5 2.2*
8 3.7 n/a
Average 4.1 3.0

source: Bureau of Economic Analysis (www.bea.gov)
* prediction by The Economist magazine.