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originally posted in:Liberty Hub
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Edited by Stallcall:
7/11/2016 6:04:58 PM
32
Taxes: Less is More
Ages ago, I posted a similar topic. We're going to reevaluate the Laffer Curve, and how less taxes can actually increase revenue for the state.
The relationship between tax rates and state income is [i]not[/i] linear. If you double tax rates, you will not double the state's revenue. Higher taxes are a disincentive to earn more money.
Let's examine the Laffer Curve in action.
(http://object.cato.org/images/Mitchell_Forbes_1108.jpg)
In 1980, the top tax rate was a crippling 70%. In 1988, it was down to 28%. However, the IRS collected 5 times more from the rich (200k and above) when the top tax rate was just 28%.
This is, as Daniel Mitchell puts it, "the Laffer Curve on steroids." Now, there are other factors that explain this disparity in income, including inflation, population growth, and other policy changes under Reagan. However, it would be ridiculous to suggest that the Laffer Curve doesn't play a part in the disparity.
Here's a small clip from a Democratic Debate in 2008, between Clinton and Obama. It's 1:22 - not too long. It features a textbook example of leftist ideology - that taxes are meant to create "fairness," not growth or maximum revenue.
(https://www.youtube.com/watch?v=gJimLZRC9N8)
A question is directed towards Obama. It goes along the lines of, "We saw that a decrease in the capital gains tax actually increased tax revenue. If we assume that the lower rate will bring in more taxes, would you still support raising the rate from 15% to 28%?" Obama's answer is, surprisingly (or not), yes. Food for thought.
There are two important points on the Laffer Curve: the revenue-maximizing point and the growth-maximizing point. Policy-makers should ideally be arguing within the bounds of those two points. Instead, we sit far beyond them.
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8 RepliesFirst off; your statistics are tainted because you're not using constant dollars. Adjusted for inflation, the "rich" people you talk about in 1980 would be making over $600,000 a year now. See http://taxfoundation.org/sites/taxfoundation.org/files/docs/fed_individual_rate_history_adjusted.pdf Second, the real GDP increased by approximately 33% in that decade, coming out of the recession of the late '70s. Incomes for the wealthy shot up, so they naturally paid more taxes, even at a lower rate. Imagine what the collection would have been had they been paying the tax rates we had under, for instance, Eisenhower, when the top marginal rate was 91% (and the economy was booming, by the way). The connection between taxation and the overall economy is tenuous at best, and exists mostly in the minds of the wealthy and in the minds of those they have persuaded to their point of view. The truth is, there's no such thing as "a disincentive to earn money". Money is its own incentive. Those who want to make money above all things will still strive to make money, no matter the tax rate. What's undeniable is that the top 5% has seen nearly a 900% increase in its real income since the 1960s, while the bottom 20% still makes less than $20,000 a year. That [i]is[/i] a fairness issue. The private sector has left so many behind that it is up to the government to step in somehow; not by a direct redistribution, but by funding education and health care, mandating a living wage, etc. These things are going to cost the rich money; they will have to pay more taxes; and they will complain. But if the gap between rich and poor continues as it is, then people like Trump will be first against the wall when the revolution comes.
