Did the tax debate just end?
Even the most casual observer of U.S. politics notices that The Debate, whatever The Debate may be, rarely ever ends. Long after the votes are counted, after the Supreme Court issues its decision, after all but the faithful few have ceased to care, The Debate continues.
Except when it doesn't. There have been a precious few times in history when a piece of evidence so incredibly important and indisputably true has been discovered, that rational minds cease to debate the issue. The world is round(ish). Porcupines do not throw their quills at dogs. And raising the tax rate does not raise tax revenues as a percentage of GDP.
Kurt Hauser has ended the tax debate in the U.S.
Or at least he should have, IMVHAPUO, fifteen years ago.
What gives?
--
"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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References -
No.
This has been another episode of simple answers to simple questions.
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)I expected more. Not much, mind you, but more.
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )There continues to be disagreement over tax policy.
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| parent )cut taxes on the middle class to counterbalance the GDP hit. In other words, the real implication of "Hauser's Law" (actually a bill languishing in committee) is that since revenue and GDP are joined at the hip, it makes not a whit of difference whether the marginal rates are regressive or progressive, long as GDP keeps rising.
We should go back to letting those who own 91% of the country pay 91% of the taxes, while leaving the middle class plenty of money to invest & spend. A disincentive to owning everything in sight? Bet your bottom dollar. :)
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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)The question being "how badly can we soak the rich before it starts to affect GDP?". Somehow I suspect that GDP will tank long before the top tax rate hits 91%.
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )according to Hauser's data. Even at a 91% top rate, GDP scaled nicely with population.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )I suggest that Senator Obama make re-introducing the 91% tax bracket (or any bracket over 50%, for that matter) a centerpiece of his campaign. I'm sure Democrats will be pleased with the results.
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| parent )Go Barry, Go Barry! :^)
But alas, Jordan tacitly admits that this is a non-starter in his reply below. More the pity that even a Prgressive pol like Barry isn't stupid enough to take your suggestion....
--The urge to save humanity is almost always a false front for the urge to rule.
- H.L. Mencken
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| parent )to hike the rates. Maybe we'll send the people who own 35% of the country on vacation -- they'd fit comfortably on a Moroccan beach. When they get back, surprise!
Or, more likely, when Wall Street yahoos start another Great Depression, they'll have to give most of it up to save what's left.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )The top tax rate rarely had much connection with the actual taxes paid by those at the top -- just a nice bit of smoke and mirrors while loopholes and accounting did their dirty work.
I'm no expert, but when I see economists left, right, and center overwhelmingly agree on an issue, I pretty much consider that one decided. And I've seen them agree on three things so far:
1 -- Free trade is good for America and good for the world.
--2 -- The gas tax holiday is a crock.
3 -- Lowering tax rates lowers revenues and raising them raises tax revenues -- though I take it that there's some upper point at which raising the rates would stop generating more revenue. But we're not there and unlikely to get there since simply maximizing the bucks the government gets isn't our priority.
Steven Palmer Peterson
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). . .basically destroyed the life of an American hero. Aside from the whole "despicable thievery" thing about the government demanding ninety cents of a dollar even in principle, that alone would be reason enough for me to implacably oppose it--and those IRS officials should have been lined up against a wall and shot for what they did to Joe Louis.
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| parent )Which is one of the reasons I think draconian laws are toxic. They're so severe that any reasonable person is forced to find some way to skirt them -- thus they only punish those who are too honest for their own good.
--Steven Palmer Peterson
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| parent )Thanks for bringing it to attention. Max Schmeling's story is inspiring enough in its own right as well.
--Manish Ghosh
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| parent )Max made some bad decisions and ended up being used by evil men for a time, but as a whole he lived his life with honor and dignity--and it speaks volumes that Joe Louis later formed a friendship with him that lasted until Joe died.
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| parent )#3 is a major debate, Laffer curve and all (and now possibly including Hauser's law).
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )...has been widely discredited.
You will not find a data set that supports it. It is a concept that works at the extremes (zero tax or 100% tax), so in principle there should be a curve that starts at zero, goes up, goes down, and ends in zero.
But Laffer never came up with any math to define just how flat the curve is, where the inflexion point is, and so on. In other words, beyond the obvious (don't tax zero, don't tax 100%), it has no useful information. It certainly has nothing to tell you if a 40% take will result in less or more revenue than a 35% take.
Nor could it, even in principle, because there are other factors involved. Namely, basic questions is just what the government is spending revenue on, and what the fiscal situation of the government is (since a need to borrow directs capital away from other investments, for example).
--We are in serious, worsening trouble.
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| parent )http://www.youtube.com/watch?v=fIqyCpCPrvU
...among others. And it seems that the main problem with the Laffer curve isn't that it has been discredited; it's the fact that it has never been fully quantified. So it's still open to debate.
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )saying Communism had never really been tried, either.
The Laffer Curve is horrid economics. As someone once said if it, the Laffer Curve and Trickle Down fertilizes your garden by the elephant defecating on the gardener's head.
There might me something to the notion of an equilibrium, wherein taxation can be fine tuned to match the taxed economy. We tax for various reasons: sin taxes supposedly punish. Tax breaks supposedly encourage. But it's not quite so simple: tariffs and subsidies warp markets, for both good and ill. Entitlement spending acts as handcuffs on government. Neglecting infrastructure and maintenance only postpones an ever more apocalyptic day of reckoning. Bureaucracy becomes burdensome, but laws without bureaucrats to enforce them are moot. Furthermore, he who has a good tax attorney can generally game the system.
The populists and libertarians alike all cry out for Tax Simplification. The libertarian's motive I can understand, he won't call the fire department if his house is burning down, on principle. But the populist, well I'll never figure him out.
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| parent )MA seems to subscribe to the interesting notion that there must not be a curve because nobody knows what it looks like. This takes Krugman's somewhat more reasonable argument a step too far. It's quite possible, as Kruggy claims, that the curve has multiple inflection points and/or discontinuities because of the complexity of the tax code and the effects of the revenue collected as it flows back into the economy. This is no way implies or could imply that it only holds true at the far extremes.
It might well be (and seems quite plausible) that the curve is montonic down on either side of the peak, but not strictly so due to the effects described above. Or not. I say, let's find out! :^)
--The urge to save humanity is almost always a false front for the urge to rule.
- H.L. Mencken
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| parent )What I said is that the curve does not exist because if it did it would mean that you can capture the economic implications of totally different fiscal policy options in only one dimension.
The thing is, the effect on economic growth is not the same if you spend tax money to build bridges to nowhere rather than spend it on bridges to somewhere.
You could at best say that, for each possible set of spending patterns, there is a corresponding Laffer curve. Each one with different inflection points. The conceit of the Laffer curve is that one variable, the tax rate, determines GDP.
I subscribe to the notion that within reasonable total tax burden ranges, the what is more important than the how much.
--We are in serious, worsening trouble.
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| parent )It is also completely irrelevant to discussions of tax policy, in the same way that the boiling point of steel is irrelevant to my dishwashing.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )what people consider "fair" taxation, their perceptions of gov't corruption/accountability, perceived need for public expenses, personalities in charge of enforcement and/or enforcement culture at different income percentiles might make the "curve" more like an endless alpine switchback. I.e. there's no way to account for cultural/ethical changes over time or by region.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )Debate, after all, requires even a passing nod to a shared notion of objective reality.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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)Civil debate, after all, also requires a passing nod to a shared notion of civility. Something that is obviously not shared by all.
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )If it's impossible to raise tax revenue as a % of GDP, how come some countries have twice the revenues we have by that criteria? Do they exist in some different universe with different economic laws? And if the author is correct in saying:
Then why should we worry when most of our competitors have higher tax rates than we do?
--More Wagster!
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)Good questions. Obviously it's not impossible to raise tax revenue as a % of GDP, but I don't think that Hauser claims that. What his data shows, however, is that raising the top marginal federal tax rate hasn't changed the amount of tax revenue collected (as a % of GDP) in 50 years. Why? I don't know, but it is worth looking into. As for other countries and their revenues being higher as a % of GDP, they are from the same universe, but most of them have different economic laws. Sales taxes, VAT taxes... basically different taxes + different rates + different laws = different results. My question is, with all the different tax rate and tax law changes in the U.S., why has tax revenue as a percentage of GDP been remarkably consistent? What implications does that have for tax policy?
There's always room for improvement. =)
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )He says lowering the top tax rate hasn't lowered revenues. The simplest explanation is that the other brackets made up for the difference. The rate curve was flattened, but the area under it remained roughly the same.
The "data" is incomplete. It's like if you made a statement about the educational system based on the performance of the top 1% of students. It is only a part of the picture. Classic fudging with statistics.
--We are in serious, worsening trouble.
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| parent )Granted, I'm not a tax historian, but I can't think of a time when the top rate has been lowered and the lower rates have been raised. If that's the case (I'm googling, I'm googling...) then how could the lower brackets make up the difference?
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )the top tax rates were lowered drastically, and SSI and Medicare taxes were doubled. Since SSI and Medicare have an income cap (you only pay on the first x dollars of income, currently about $90,000), it was in effect raising taxes on the lower income workers.
--I blame it all on the Internet
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| parent )It's Laffer Curve: The Return.
The top tax rate by itself has no statistical meaning. If you lowered the top rate while collecting more taxes from lower brackets, you would tax the rich less and the middle class more.
As it happens, income distribution in the US has become more polarized. The rich find it easier to accumulate, the middle classes find it harder. The tax burden has been shifted. GDP growth is not faster now than in the 1950's, so this is a bogus reason.
Also, if one were to accept the argument in the piece, the GDP growth would have had to occur in large, sudden steps with each tax reduction. Yet GDP charts for the era show nothing of the kind.
--We are in serious, worsening trouble.
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)Your contention is that tax revenues as a % of GDP have not changed in the past 50 years because more taxes have been collected from lower tax brackets?
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )...that at each step shown in the graph that is what happened.
As for the overall trend, look at this, which compares with 1970.
I can say that the rich bear a lower burden today as a percentage of their income than they did in 1970. Conservatives usually show that they pay more taxes than before, but this is a function of the fact that the rich are richer. The top 1% of income earners simply has a bigger chunk of the GDP than in the 1945 to 1985 period (here).
It's hard to find good graphs going back before 1960 for some reason.
--We are in serious, worsening trouble.
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| parent )...but isn't that the point of the Laffer curve? That lowering excessive tax rates and allowing the rich (and everyone else) to get richer has the effect of raising tax revenues because GDP rises faster as the tax burden is lessened?
In other words, if the rich are paying more taxes at a lower rate than they were at a higher rate, why is this a bad thing?
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )there is no evidence whatsoever under any US tax regime that shows any correlation between GDP growth and the high marginal tax rates. Supply-side economics was absurd when it was proposed and has been utterly empirically discredited.
I'm sorry to sound so strident, but I feel like I'm a biologist discussing Spontaneous Generation because meat processors don't want to engage in hygenic practices -- there are people with vested interests who say a lot of patently false things for the purpose of confusing laypersons. As someone in the business, it enrages me.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )For the empirical discussion, I mean. I'm quite keen to extend my knowledge in this field, PM.
--Manish Ghosh
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| parent )The literature is uniform in its conclusions.
This is characteristic:
On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture.
Abstract:
"n 1964 Harberger conjectured that, although theory predicts that changes in tax rates affect investment and growth in the long-run, in practice tax policy is an ineffective instrument to influence growth. This paper provides theoretical and empirical evidence in favor of this view. The growth effects of tax policy in the class of endogenous growth models driven by human capital accumulation are examined, and numerical simulations of these models confirm the results Harberger predicted. Cross-country panel regressions, estimated using a new method for measuring effective tax rates, produce significant investment effects from taxes that are consistent with negligible growth effects. These results are robust to the introduction of other growth determinants."
Even if the theory isn't there, the empirics are overwhelming. Within the band of vaguely responsible tax policy, there just isn't much effect.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )But I wonder if the percentage stays flat if you take out social security taxes. The meaningful chart would be a comparison of "top tax rates" vs. tax revenue from that income group as a percentage of GDP.
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| parent )that even those numbers are probably going to be screwy since those "decreases" in the top tax rates in the early 80s weren't actually decreases at all, but wholesale eliminations of those top brackets. In '82 the "top tax rate" was for everyone making $200K+ per year. In '83, the "top tax rate" was for everyone making over $80k.
My guess is over those two years, the tax revenues from the "top tax bracket" probably stayed about the same, since in '83 it included a ton more people, maybe even enough to make up for the decrease at the top. What you'd actually need for a good analysis is a graph showing the tax revenue from the top X% (set "x" at 1,5, whatever) income earners as a percentage of GDP. And I can guarantee you that figure went down with the effective tax rate in the 80s.
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| parent )I'll think about the content of the article in a second.
But before we begin here's what I predict based on past experience w. the WSj Op-ed pges re: taxes + wealth.
1. This will contain at least one glaring fallacy that should insult the intelligence of the reader.
2. It will be a fallacy that happens to lend support for the position that taxes should be lowered/not raised on the wealthiest members of society.
If I'm wrong, I'm wrong, but that's pretty much what I see every time I read the WSJ Op eds. In fact that seems to be their total purpose for existing.
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)...actually, no that's not true. I would really, really like this to be true, so I'm probably suffering from quite a bit of confirmation bias, but I'm open to being proven wrong.
--"In large states public education will always be mediocre, for the same reason that in large kitchens the cooking is usually bad."~Nietzsche
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| parent )You've got marginal tax rates graphed against total taxes received as a % of GDP
And then you've got the claim that this shows that the overall tax rate (whereas the graph only plots the marginal rate) doesn't affect total taxes received as a % of GDP.
As others have pt.ed out this is ridiculous. It's an insult to everyone's intelligence and a glaring fallacy that just happens to support a non-progressive tax code.
That Op ed pg. is the most mendacious in the country + the most egregious purveyor of class warfare in the media.
We could go throough this exercise roughly every other day, certainly multiple times a week. As I say, that seems to be the main purpose of that WSJ Op ed pg.
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| parent )