Is the Liberal Political Mind one dimensional?

joefromchicago wrote:

okie wrote:
]It is nothing more than intellectual dishonesty to admit 100% would affect the economy, but to continue to contend that 99.9% tax rate would not, so face it, there is a curve.

I never contended that a 99.9% tax wouldn't affect the economy. I've never said anything about a 99.9% tax rate.

Rather than rehashing the same points over and over, perhaps this point needs to be clarified then. What is your answer concerning the above. You've already admitted a 100% tax would impact the economy. Would a 99.9% tax rate impact it, or would it have no impact whatsoever? While we're at it, would a 99% tax rate impact it or not at all. Try those two questions. If you don't have a clue as to the answer because you don't have a graph from some technical book, fine, I will accept that answer as well, but hopefully, just as the sun comes up in the east, you may not have absolute proof, an informed opinion will do. After all, you seem to know alot about economics. Remember, however, your answers can be used later in my arguments.

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joefromchicago wrote:

I have no idea why you keep insisting that the Laffer Curve says anything about the labor market. It doesn't. It says that there's a relationship between tax rates and tax revenues To the extent that it says anything about the labor market, it says that people will increasingly flee those activities that are taxed when tax rates climb.

Yes. And because that's a pretty big extent, I'm saying the Laffer curve says something about the labor market.

joefromchicago wrote:

I have no problem rejecting (1) and (2), although (3) needs further explanation.

There is some disagreement among reputable economist about the amount of monopoly power in the labor market. To the extent that there is monopoly power, it upsets the usual relations between supply, demand, prices and wages. Depending on how large this extent actually is, it may be used as an argument against the validity of the Laffer curve.

joefromchicago wrote:

The Laffer Curve reflects a mistaken theory because it assumes that there are only two variables -- tax rates and tax revenues -- and that everything else would remain the same. It's an interesting thought experiment, to be sure, but as a guide to policy it is hopelessly naive.

I don't think it assumes there are no other variables. It only isn't inerested in them. But I am curious: Do you have any thoughts on what other variables a rising income tax might affect?

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Thomas wrote:

joefromchicago wrote:
I have no idea why you keep insisting that the Laffer Curve says anything about the labor market. It doesn't. It says that there's a relationship between tax rates and tax revenues To the extent that it says anything about the labor market, it says that people will increasingly flee those activities that are taxed when tax rates climb.

Yes. And because that's a pretty big extent, I'm saying the Laffer curve says something about the labor market.

joefromchicago wrote:
I have no problem rejecting (1) and (2), although (3) needs further explanation.

There is some disagreement among reputable economist about the amount of monopoly power in the labor market. To the extent that there is monopoly power, it upsets the usual relations between supply, demand, prices and wages. Depending on how large this extent actually is, it may be used as an argument against the validity of the Laffer curve.

joefromchicago wrote:
The Laffer Curve reflects a mistaken theory because it assumes that there are only two variables -- tax rates and tax revenues -- and that everything else would remain the same. It's an interesting thought experiment, to be sure, but as a guide to policy it is hopelessly naive.

I don't think it assumes there are no other variables. It only isn't inerested in them. But I am curious: Do you have any thoughts on what other variables a rising income tax might affect?

Isn't it the other way around - the question should be, 'what other variables affect the labor market besides tax rate,' not 'what else does a tax rate effect.'

At least, if the question is the accuracy of the curve in describing the labor market.

Cycloptichorn

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Cycloptichorn wrote:

Isn't it the other way around - the question should be, 'what other variables affect the labor market besides tax rate,' not 'what else does a tax rate effect.'

As so often in life, what the question should be depends on what you want to find out. The supply-siders' claim is that raising income taxes too much is bad because it will eventually reduce tax income. Joe disagrees with this prediction. Therefore, the right question to ask is "what other variables will a raise in the tax rate have, besides the ones already reflected in the Laffer curve?"

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Thomas wrote:

Cycloptichorn wrote:
Isn't it the other way around - the question should be, 'what other variables affect the labor market besides tax rate,' not 'what else does a tax rate effect.'

As so often in life, what the question should be depends on what you want to find out. The supply-siders' claim is that raising income taxes too much is bad because it will eventually reduce tax income. Joe disagrees with this prediction. Therefore, the right question to ask is "what other variables will a raise in the tax rate have, besides the ones already reflected in the Laffer curve?"

Doesn't that question posit acceptance of the laffer curve, though?

The thing about the Laffer curve is it assumes that people are going to stop working at some point of taxation. This is erroneous to assume will happen at any point other than violent economic breakdown, because high taxes do not reduce one's need to eat. Basically the curve is a description of how bad things have to be before the economy grinds to a halt, and that's it. It is useless for any other function.

Cycloptichorn

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Cycloptichorn wrote:

Thomas wrote:
Cycloptichorn wrote:
Isn't it the other way around - the question should be, 'what other variables affect the labor market besides tax rate,' not 'what else does a tax rate effect.'

As so often in life, what the question should be depends on what you want to find out. The supply-siders' claim is that raising income taxes too much is bad because it will eventually reduce tax income. Joe disagrees with this prediction. Therefore, the right question to ask is "what other variables will a raise in the tax rate have, besides the ones already reflected in the Laffer curve?"

Doesn't that question posit acceptance of the laffer curve, though?

The thing about the Laffer curve is it assumes that people are going to stop working at some point of taxation. This is erroneous to assume will happen at any point other than violent economic breakdown, because high taxes do not reduce one's need to eat. Basically the curve is a description of how bad things have to be before the economy grinds to a halt, and that's it. It is useless for any other function.

Cycloptichorn

Here again, cyclops, it is not a question of stopping working in the vast majority of cases, it is a matter of not working quite as hard, simply because the rewards are not as great. In the case of a marginal tax rate becoming prohibitive above $100,000 for example, people might work pretty hard to make the 100 grand, but might tend to take more time off after that. Again, it is a variable, not an "either / or" scenario. Again, get out of the one dimensional thinking.

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Thomas wrote:

Cycloptichorn wrote:
Isn't it the other way around - the question should be, 'what other variables affect the labor market besides tax rate,' not 'what else does a tax rate effect.'

As so often in life, what the question should be depends on what you want to find out. The supply-siders' claim is that raising income taxes too much is bad because it will eventually reduce tax income. Joe disagrees with this prediction. Therefore, the right question to ask is "what other variables will a raise in the tax rate have, besides the ones already reflected in the Laffer curve?"

You want the Lagrangians on that one, Thomas? Please consult the Nobel prize winner for 1999 - he worked it out in one of his early articles.

And oh, I don't recall if you know my new name here (the one I had years ago wasn't available any longer) but Walter may oblige by sending it to you (no IMs in new account); we've had this discussion once before Smile

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Cycloptichorn wrote:

Doesn't that question posit acceptance of the laffer curve, though?

No.

Cycloptichorn wrote:

The thing about the Laffer curve is it assumes that people are going to stop working at some point of taxation.

This is wrong twice over. For one thing, the Laffer curve doesn't assume, it predicts. If you think the prediction is wrong, then you must be having a different prediction about how tax rate affect tax revenue. Secondly, it doesn't predict that people stop working once they reach a bracket with a high enough marginal tax rate, it predicts they will stop putting in extra hours. That's a plausible enough prediction for income tax rates around 90 per cent. I happen to think it's bogus for any income tax rate currently discussed, but I'm sure there is some marginal tax rate at which people cease to put in extra work. No violent economic breakdown needed.

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High Seas wrote:

And oh, I don't recall if you know my new name here (the one I had years ago wasn't available any longer) but Walter may oblige by sending it to you (no IMs in new account); we've had this discussion once before

If you and I are talking about the same discussion involving Robert Mundell, that was about whether Euro-land is an optimal currency zone. It wasn't about supply-side economics.

At first sight, I admit, Mundell's support of supply side economics seems to refute my statement that no serious, peer-reviewed economist believes this stuff. So let me make this statement more specific: I would not be surprised at all to see a peer-reviewed paper that Mundell wrote in the 60s, defending with supply-sider arguments the Kennedy tax cuts. After all, Kennedy cut the top marginal income tax from about 90 to about 75 percent; I have no problem accepting that the 90 percent were on the prohibitive side of the Laffer curve. I also wouldn't be surprised to see Mundell defend the first Reagan tax cuts of the top bracket, from 70 to 50 percent.

Moreover, it would be no surprise for me to see Mundell take a "wrong side of the Laffer curve" position on the post-Reagan income tax -- but only in a publicatition that isn't peer-reviewed: Reason, say, or maybe some think tank rag. Many academics, after all, use their credentials to push political agendas not strictly rooted in their science. For an example on the left, consider Joseph Stiglitz's popular work on globalization, in which he takes positions quite different from those in the entry level textbook he wrote. If Mundell did something similar on the right, that wouldn't shake up my worldview.

But I would be very surprised indeed to see a peer-reviewed paper, published in a reputable economics journal, in which Mundell argues that post-Reagan income tax rates are on the wrong side of the Laffer curve. I dare you to show me such a paper. If you can, I am, as always, willing to learn.

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okie wrote:

Rather than rehashing the same points over and over, perhaps this point needs to be clarified then. What is your answer concerning the above. You've already admitted a 100% tax would impact the economy. Would a 99.9% tax rate impact it, or would it have no impact whatsoever? While we're at it, would a 99% tax rate impact it or not at all. Try those two questions. If you don't have a clue as to the answer because you don't have a graph from some technical book, fine, I will accept that answer as well, but hopefully, just as the sun comes up in the east, you may not have absolute proof, an informed opinion will do. After all, you seem to know alot about economics. Remember, however, your answers can be used later in my arguments.

I'll save you some time: any tax will have some sort of impact on the economy and on economic behavior.

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joefromchicago wrote:

okie wrote:
Rather than rehashing the same points over and over, perhaps this point needs to be clarified then. What is your answer concerning the above. You've already admitted a 100% tax would impact the economy. Would a 99.9% tax rate impact it, or would it have no impact whatsoever? While we're at it, would a 99% tax rate impact it or not at all. Try those two questions. If you don't have a clue as to the answer because you don't have a graph from some technical book, fine, I will accept that answer as well, but hopefully, just as the sun comes up in the east, you may not have absolute proof, an informed opinion will do. After all, you seem to know alot about economics. Remember, however, your answers can be used later in my arguments.

I'll save you some time: any tax will have some sort of impact on the economy and on economic behavior.

Why did you waste 11 pages trying not to admit it?

Another factor here that I did not emphasize, is that there is alot more factors besides a tax rate affecting working hard and altering the business, but the other very large factor is the available money for people to spend. A higher tax rate not only affects the supply of goods and services, but also the demand for them, a double whammy so to speak. Instead of buying another car, remodeling their house, buying new carpet or furniture, or taking a vacation, and so forth and so on, citizens pay higher taxes to the government, which admittedly recycles the money into the economy, perhaps by more social programs, but the important point is that this money may not be utilized or recycled in the same way or as efficiently and it will hurt the private sector.

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Thomas wrote:

Yes. And because that's a pretty big extent, I'm saying the Laffer curve says something about the labor market.

Whatever it says about the labor market isn't worth saying.

Thomas wrote:

I don't think it assumes there are no other variables. It only isn't inerested in them.

It should be. Or, rather, the people who use the Laffer Curve to justify their tax policies should be interested in them.

Thomas wrote:

But I am curious: Do you have any thoughts on what other variables a rising income tax might affect?

Once the tax rises to near a confiscatory level, people will, all other things being equal, abandon those activities that are taxed. But that assumes that all other things remain equal. If we imagine a society that imposed a 90% or 100% tax on all income, however, I don't think we can fairly assume that everything would remain equal. A society that imposed a confiscatory tax on all income would also most likely be a society that divided its tax receipts in some fashion among the people -- such as in my example with the restaurant service staff. Although tips are "taxed" at 100%, people don't immediately quit their jobs as waiters, which is the result Laffer would predict on an "all other things being equal" basis. That's because all other things aren't equal in that system, and they can't be if that system were to work.

So, in sum, the entire political and economic system would look different at the tail end of the Laffer Curve's "bad" side (it also looks pretty different at the other end of the curve). Now, does the tax change affect system or does the system affect the tax? That I can't say, although I'd guess it would be some kind of an iterative process.

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okie wrote:

Why did you waste 11 pages trying not to admit it?

Please identify those posts in which I denied that taxes affect the economy and economic behavior. Or, if you can't, I will expect you to acknowlege your error.

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joefromchicago wrote:

A society that imposed a confiscatory tax on all income would also most likely be a society that divided its tax receipts in some fashion among the people -- such as in my example with the restaurant service staff. Although tips are "taxed" at 100%, people don't immediately quit their jobs as waiters, which is the result Laffer would predict on an "all other things being equal" basis. That's because all other things aren't equal in that system, and they can't be if that system were to work.

This works in a restaurant because all waiters know each other, know the colleagues who bring in a lot of tips, and accord respect to them. (You are welcome to check this with Occom Bill, who has worked in the business both as a waiter and as a restaurant owner.) That way, waiters end up getting not just the average tip, but also a non-pecuniar, reputational incentive to do good work.

Similar systems have been tried on a larger scale, up to the scale of countries. These experiments have worked in Socialist Kibbuzim, Amish parishes, and similar intentional communities. But they have failed every time they were tried on a larger scale. As soon as the community grows so large that its member don't the other members personally, no reputational subsidy substitutes for the pecuniary tax anymore, and the 100% tax regime breaks down -- just as Laffer would have predicted.

Your counterexample to the Laffer curve isn't really a counterexample. It introduces substantial non-pecuniar incentives that don't exist on the level of cities, states, and nations, which are the levels the Laffer curve talks about.

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joefromchicago wrote:

okie wrote:
Why did you waste 11 pages trying not to admit it?

Please identify those posts in which I denied that taxes affect the economy and economic behavior. Or, if you can't, I will expect you to acknowlege your error.

It amazes me that someone can argue into 11 pages, and then all of a sudden deny they ever argued a point. Quite slick on your part, Joe. I only have selected a few posts, but all of your posts appear to deny the very admission you have made on Page 11.

On Page 2:

Quote:

Do you have any empirical evidence that people work less when the marginal tax rates are increased?

Not a straight denial, but seriously implied denial.

On Page 3.

Quote:

okie wrote:

To argue the curve would be flat from 0 to 100% marginal tax rate would be an utterly preposterous position to take.

What you're describing, of course, is the Laffer Curve, which isn't worth the napkin that it was first written on.

To refresh your memory, Joe, you clearly deny the Laffer curve, which by definition, argues that taxes affect the economy and economic behavior. The primary purpose of the Laffer curve, I think, is to illustrate the principle or the existence of the general shape of the curve rather than asserting definite values to various points on the curve.

Then as the discussion progresses, this on Page 5.

Quote:

okie wrote:

Joe from Chicago says anecdotal evidence does not count. If I saw the wind blow trees down on my farm, and concluded there would likely be less trees than before, I suppose my observation of the trees blowing down does not count, that I would need empirical evidence by hiring tree counters to go count every tree before and after these observations to prove my assumption, which is merely nothing more than common sense. Common sense is not acceptable on this forum, is that right, Joe?

This is some kind of joke, right? I respond to each one of the points that you raised in your post and all you can do is address one of mine -- and in a response to Thomas, not me. Look, okie, if you're not up to the intellectual rigors of this discussion, then admit it and we'll both move on. Otherwise, I have no interest in engaging in any kind of serious exchange of ideas if that exchange is going to be entirely one-sided. You made some claims that are completely baseless, and I patiently explained why they are baseless. If all you can do is come back with this pathetic response, then I don't know why you even bothered to waste your time. You certainly wasted mine.

Here, you appear to do the same as call me inferior, intellectually. I am just "not up to the intellectual rigors of this discussion" blah blah blah. To refresh your memory again, Joe, the main point that all of this discussion revolves around was my assertion that taxes affected the economy, which of course requires a curve by definition, to which all you can muster is skepticism, denial, and calling someone not intellectually up to your level.

Then on Page 7:

Quote:

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:

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

What are you talking about? You're arguing that now! You can't delay a discussion of the relationship when that's the basis of your entire argument. If there's no relationship, then your argument is bunk.

That seems to be a pretty strong denial. Can you read your own posts, Joe?

There are many more quotes I could use, Joe, but I think the above should be sufficient to clearly illustrate your flip-flop at the end.

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Thomas wrote:

joefromchicago wrote:
A society that imposed a confiscatory tax on all income would also most likely be a society that divided its tax receipts in some fashion among the people -- such as in my example with the restaurant service staff. Although tips are "taxed" at 100%, people don't immediately quit their jobs as waiters, which is the result Laffer would predict on an "all other things being equal" basis. That's because all other things aren't equal in that system, and they can't be if that system were to work.

This works in a restaurant because all waiters know each other, know the colleagues who bring in a lot of tips, and accord respect to them. (You are welcome to check this with Occom Bill, who has worked in the business both as a waiter and as a restaurant owner.) That way, waiters end up getting not just the average tip, but also a non-pecuniar, reputational incentive to do good work.

Similar systems have been tried on a larger scale, up to the scale of countries. These experiments have worked in Socialist Kibbuzim, Amish parishes, and similar intentional communities. But they have failed every time they were tried on a larger scale. As soon as the community grows so large that its member don't the other members personally, no reputational subsidy substitutes for the pecuniary tax anymore, and the 100% tax regime breaks down -- just as Laffer would have predicted.

Your counterexample to the Laffer curve isn't really a counterexample. It introduces substantial non-pecuniar incentives that don't exist on the level of cities, states, and nations, which are the levels the Laffer curve talks about.

Interesting discussion, Thomas.
In the restaurant/tips example, I would break it down into several possibilities, and will mention three that come to mind:

If the help made no hourly wage, but worked only for tips, and the restaurant kept all the tips, I would visualize this as a capitalistic system where the government did not give back any money to the people after they were taxed 100%, which of course would soon dictate the reality of nobody doing any work at all, thus no tips to the restaurant, and it would soon go out of business. this would illustrate the most extreme results at one end of Laffers curve.

If the help made no hourly wage, but worked only for tips, and the restaurant confiscated all of the tips, then re-distributed the tips back to the help, plus giving some of the tips to people that did not even work at all or not much, and perhaps some to the family of the owners of the restaurant, then I would liken this to a form of communism. In this scenario, the help would continue working, but since they get the same whether they work hard or not or whether they treat the customers decently or not, the business suffers greatly and tips decline significantly, so instead of 0 tax revenues at 100% taxation at the end of Laffer's curve as in the previous example, their are tax revenues, but they are greatly reduced, and eventually the restaurant will probably go out of business, example the Soviet Union.

The third scenario could include the help keeping at least, let us say 50% of their tips that they themselves receive, with the rest going back to the restaurant to redistribute back to the people that run the restaurant as well as the help. So in this scenario, the business perhaps does not thrive as well as it would if the restaurant did not get any of the tips to re-distribute, but at least the help receives enough reward to work fairly hard and serve the customers better, so that the restaurant stays in business.

It is obvious therefore that the third scenario is the only workable scenario, but the question becomes - what is the optimum percentage of tips that should be taken by the restaurant to re-distribute back to everybody, while still keeping the help happy, working hard, and making the restaurant thrive and stay in business? In other words, where is the peak of the Laffer Curve?

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Thomas wrote:

This works in a restaurant because all waiters know each other, know the colleagues who bring in a lot of tips, and accord respect to them. (You are welcome to check this with Occom Bill, who has worked in the business both as a waiter and as a restaurant owner.) That way, waiters end up getting not just the average tip, but also a non-pecuniar, reputational incentive to do good work.

That is an empirical problem that is not part of the theory. As you mentioned before, Laffer was only interested in tax rates and tax revenues. If his theory cannot be criticized for failing to consider other factors, then it also cannot be defended by relying on other factors.

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okie wrote:

It amazes me that someone can argue into 11 pages, and then all of a sudden deny they ever argued a point. Quite slick on your part, Joe. I only have selected a few posts, but all of your posts appear to deny the very admission you have made on Page 11.

Nope, not even close.

To refresh yor recollection, here is what I wrote:

joefromchicago wrote:

...any tax will have some sort of impact on the economy and on economic behavior.

In order to show that I was somehow being inconsistent, you then proceed to bring up instances where I denied that the Laffer Curve was valid. But that's all wasted effort on your part: the Laffer Curve doesn't say anything about the economy and economic behavior, except indirectly.

The Laffer Curve does one thing: it posits a relationship between tax rates and tax revenues. I think that relationship is unproven. More to the point, I think it is probably wrong. But that is a far cry from saying that tax rates have no impact on economic behavior. Now, you may want to assume that the Laffer Curve is correct, and that any attempt to question it is the same as attempting to question the effect of taxes on the economy, but you can't make that assumption and you can't assume that connection. You're still jumping up and down screaming that the curve exists and hoping that everyone will just shut up and believe. But a falsehood doesn't become the truth through repetition, no more so than a bad theory becomes a good one through a refusal to listen to contrary viewpoints.

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joefromchicago wrote:

okie wrote:
It amazes me that someone can argue into 11 pages, and then all of a sudden deny they ever argued a point. Quite slick on your part, Joe. I only have selected a few posts, but all of your posts appear to deny the very admission you have made on Page 11.

Nope, not even close.

To refresh yor recollection, here is what I wrote:

joefromchicago wrote:
...any tax will have some sort of impact on the economy and on economic behavior.

In order to show that I was somehow being inconsistent, you then proceed to bring up instances where I denied that the Laffer Curve was valid. But that's all wasted effort on your part: the Laffer Curve doesn't say anything about the economy and economic behavior, except indirectly.

The Laffer Curve does one thing: it posits a relationship between tax rates and tax revenues. I think that relationship is unproven. More to the point, I think it is probably wrong. But that is a far cry from saying that tax rates have no impact on economic behavior. Now, you may want to assume that the Laffer Curve is correct, and that any attempt to question it is the same as attempting to question the effect of taxes on the economy, but you can't make that assumption and you can't assume that connection. You're still jumping up and down screaming that the curve exists and hoping that everyone will just shut up and believe. But a falsehood doesn't become the truth through repetition, no more so than a bad theory becomes a good one through a refusal to listen to contrary viewpoints.

So now you admit any tax will have some sort of impact on the economy, but you continue to deny a relationship between tax rates and tax revenues. So 1% tax rate or 10% tax rate or 50% tax rate or 99% tax rate, pick a number, must all have an impact on the economy, but apparently you now argue the impact must be the same under all, and that there is no relationship or variation as tax rates vary, on the the economy, and the resultant tax revenues? You must be a mental giant, Joe. I hope you don't consider yourself an economist.

I have never asserted the Laffer curve to have certain and definite values, only that there is a curve, and I doubt Laffer assigned definite values, but only described an approximate shape of the curve. In fact, it was you that brought up my discussion of the connection between tax rates, revenues, and the economy, and likened it to the Laffer curve.

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joefromchicago wrote:

That is an empirical problem that is not part of the theory. As you mentioned before, Laffer was only interested in tax rates and tax revenues. If his theory cannot be criticized for failing to consider other factors, then it also cannot be defended by relying on other factors.

No, it's a logical problem on your part. Suppose you claimed you can kill with milk. Your evidence is a story where you once poisoned someone with arsenic-fortified milk. I think we agree that in this case, you haven't proven your point. The killing happened not because of anything related to your claim about milk, but because of an additional element you introduced in your example.

Your argument about the Laffer curve has a similar logical problem. Your claim is that the Laffer curve is wrong as economic theory. Your evidence introduces an important extra factor -- reputation -- that's negligible in the systems the Laffer curve talks about. Ergo, you haven't proven your point about the Laffer curve. At most, you have shown that it doesn't apply to restaurants.

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