In the Arena

Rattner Refutes Laffer

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In 1974, the economist Arthur Laffer drew a protuberance on a napkin at a White House meeting “demonstrating” that the higher the tax rates are, the lower the revenues they produce. Thus, the birth of supply side economics, a theory that has been disproved dispositively over the past 40 years. The reason why the Laffer Curve is nonsense was demonstrated in a single sentence by Steve Rattner in a New York Times op-ed over the weekend:

During my 30 years on Wall Street, taxes on “unearned income” have bounced up and down with regularity, and I’ve never detected any change in the appetite for hard work and accumulating wealth on the part of myself or any of my fellow capitalists.

Masters of the Universe have hunting and gathering hard-wired. If money is how they keep score–and it is, in most cases–they would be hustling to become market legends if the marginal tax rate were 99%. There have been instances when a lower capital gains tax rate spurred increased revenue–the 1998 balanced budget deal, for example–but that’s usually a one year phenomenon, as investors take advantage of lower rates to sell off assets they’ve held for a while. The notion that a change in the marginal tax rates from 35% to 39.6% would diminish economic activity, or spending, on the part of the mega-wealthy is ridiculous. (Indeed, the Laffer argument has been used as camouflage by those like Grover Norquist who really just want to see a smaller government.)

The fact is, tax rates for the wealthy are at historic lows. They will soon rise. The effect on the economy will be negligible. Kudos to Mr. Rattner for speeding this understanding along.

109 comments
OzarkGranny
OzarkGranny

If taxes are really slowing the economy, let’s have no taxes for the next two years. With the extra money I would buy an iPad, a new computer, some new clothes, take a vacation in Italy and buy a new Honda. Imagine all the people that would be put to work … in other countries.

Marky_D_Sodd
Marky_D_Sodd

Long before the mythical jesus was born, the world had a saviour: Mithras.  In order to make the new christer cult palatable, the early church had to suppress Mithras, and in doing so stole elements of his legend.  Mithras:

- was born on December 25, of a virgin

.- was god made man.

- performed miracles

- raised the dead

- healed the sick

-was murdered, died and was buried

-he rose from the dead

- he bodily ascended into heaven

etc., etc.

(Does any of this sound familiar?)

Now that the Poop (the one in Rome, not the REAL Pope in Alexandria) has publicly admitted that the birthdate stolen from Mithras (Dec. 25) is not the "real" birthdate of the mythical christ, what are we to do with all those mid-winter holidays, closed schools, midnight shopping madness events, eggnog, etc.?

Fortunately for us, there WAS a real person born on December 25 -- Isaac Newton.So, in the spirit of the approaching season, and acknowledging yet another christ-cult lie, I would like to be the first to wish each and everyone a MERRY NEWTONMAS!

JohnDavidDeatherage
JohnDavidDeatherage

A mind is a terrible thing to waste....  I surrender.  I can't convince you and have lost interest in trying.  

JohnDavidDeatherage
JohnDavidDeatherage

No not true.  Revenue as a % of GDP isolates expansions and contractions of the economy.

outsider
outsider

The need for a “grand bargain” involving taxes and entitlements — in the next few years, if not immediately — has moved to the center of discussion in Washington. But it’s the wrong grand bargain — and a very bad deal for Middle America.

According to the conventional wisdom, any grand bargain should be modeled on plans like the Bowles-Simpson plan or the Rivlin-Domenici plan — financing lower tax rates on the rich by closing tax loopholes and cutting Social Security and Medicare. In the aftermath of an election in which the candidates of the rich were trounced at the polls, America’s plutocratic conservatives might be satisfied with merely maintaining existing low tax rates on the rich, while capping loopholes and cutting Social Security and Medicare.

This entire approach should be rejected. It is based on two fallacies — first, that the existing low (or lower) personal income tax rates on the rich promote growth, and second, that America can’t afford Social Security, Medicare and Medicaid in the decades to come. A number of “astroturf” propaganda groups in Washington and elsewhere will be paid tens of millions of dollars in the next few months by the conservative Republican billionaire Pete Peterson and his allies to repeat these fallacies and get Beltway pundits and journalists to parrot them. But endless repetition does not turn fallacies into facts.

America does need long-term reforms to its entitlement system and tax system — but they have nothing to do with the specious reforms peddled by Alan Simpson, Erskine Bowles, Alice Rivlin, Pete Peterson and allied CEOs. In addition to regulating excessive healthcare costs, the United States needs a middle-class welfare state that is bigger, not smaller. It’s the restricted, elitist private welfare state that needs to be cut, not the universal public social insurance system.

Let’s start with the spending side. As the two charts below demonstrate, the U.S. is unique among advanced industrial countries in relying heavily on private social expenditures rather than public programs to provide economic security to its citizens:

http://www.salon.com/2012/11/27/the_fiscal_cliff_is_a_lie/

shepherdwong
shepherdwong

"...the birth of supply side economics, a theory that has been disproved dispositively over the past 40 years."

Actually, it was disproved by the post-war boom for the thirty years prior to that. Revenues were flowing to government and the economy was humming along nicely under Eisenhower's 92 percent marginal income tax rate for top earners. The question is, were you calling it ridiculous when Ronald Reagan was selling his Voodoo Economics? Liberals were.

PaulDirks
PaulDirks

From Wikipedia:

Empirical dataA possible non-symmetric Laffer Curve with a maximum revenue point at around a 70% tax rate, based on "How Far Are We From The Slippery Slope? The Laffer Curve Revisited" by Mathias Trabandt and Harald Uhlig.[9][edit]Tax rate at which revenue is maximizedThe New Palgrave Dictionary of Economics reports that for academic studies, the mid-range for the revenue maximizing rate is around 70%.[2] Economist Paul Pecorino presented a model in 1995 that predicted the peak of the Laffer curve occurred at tax rates around 65%.[10] A 1996 study by Y. Hsing of the United States economy between 1959 and 1991 placed the revenue-maximizing federal tax rate between 32.67% and 35.21%.[11] A 1981 paper published in the Journal of Political Economy presented a model integrating empirical data that indicated that the point of maximum tax revenue in Sweden in the 1970s would have been 70%.[12] A recent paper by Trabandt and Uhlig of the NBER presented a model that predicted that the US and most European economies are on the left of the Laffer curve (in other words, that raising taxes would raise further revenue).[9]

PaulDirks
PaulDirks

Here's the problem in a nutshell:

http://rricketts.ba.ttu.edu/Do%20Tax%20Cuts%20Increase%20Revenues.jpg

Conservatives have published a version of this chart which smooths out all the variability and runs from WWII when the top marginal rates WERE astronomical. They insist that the 2003 tax cuts raised revenue while ignoring the fact that this utter failed to make up the loss caused by the 2001 tax cut. They use the noise in the data to cherry-pick the period they want to highlight in order to sell a lie.

MrObvious
MrObvious

This falls under the magic category of 'maybe people just don't like to make money' that some subscribe too. You'll also find all these companies who won't invest nor hire people unless they're operating under bare bone tax rates. The same companies who seem to prosper in countries with higher taxes and more regulation in other countries.

There are two fundamental truths to company or individual fortune - drive and demand. Drive to succeed followed by filling demand to make lots of money. Higher demand leads to more people hired.

There's not one single company out there that operates differently. Of course if they pay off enough politicians to make their drive more lucrative they will - but increasing the tax rates won't change drive. It might change demand however if it squeezes the middle class even more.

We've proven this through history; I mean even fully socialistic or communistic countries still experience demand. Otherwise we wouldn't have the infamous lines in Communist Soviet to stores.

Everyone need something and dependent on the economic system demand can or cannot be met.

But all of that gets thrown out the windows when righties argue economy history; then there is a theoretic point where somehow drive hits a brick wall and demand is not met. And apparently this abyss of economic ruin happens if we increase the tax rate a few points beyond the first 250k - there will be zombies roaming the street, Talibans enforcing Sharia law on our women and children and some untold mass of chaos never seen in history before.

Plus my favorite excuse is that even if we tax all rich people 100 percent then our deficit won't be paid down right away. Eventually, sure, but not right away so we shouldn't even try it. But not funding planned parenthood and NPR etc will fix this right off.

Ohiolib
Ohiolib

In 1974, the economist Arthur Laffer drew a protuberance on a napkin at aWhite House meeting “demonstrating” that the higher the tax rates are,the lower the revenues they produce

-

Not true, Joe. a Laffer curve shows that higher taxes MAY produce lower revenue, depending on the current rates verses the proposed rates, among other factors.

KevinGroenhagen
KevinGroenhagen

Slow Joe has no idea whatsoever how the Laffer Curve works, as shown by his opening comment: "In 1974, the economist Arthur Laffer drew a protuberance on a napkin at a White House meeting “demonstrating” that the higher the tax rates are, the lower the revenues they produce." 

According to Robert L. Bartley in "The Seven Fat Years," "No theory could say where the prohibitive range lay, and empirical data was lacing. On its face, the curve is not an assertion that all tax cuts will produce more revenue, only that some tax cuts mights.  The extreme example at Michael I was a 300 percent tariff on, say ,cashews. At this level, no cashews would be imported, as least not legally, so revenue would be zero. A more reasonable rate would allow imports, and start to raise revenues."

DonQuixotic
DonQuixotic

@JohnDavidDeatherage 

Awfully pompous to just claim that you're right and everyone else is inferior to you.  I've been following the posts you all have been making on the Laffer Curve; it seems to me like everyone else has been making concise statements as to why it shouldn't be taken seriously (with strong data to back up their claims to boot) and you haven't.  Don't be so intractable in your opinion, it belittles your argument.

outsider
outsider

@JohnDavidDeatherage 

Regardless - this is plain:

Elections are supposed to have consequences. So why does the GOP think it can strong-arm the president into compromising on entitlements without first giving in on taxes?

On the one hand, it’s possible to look at all these Republicans distancing themselves from Grover Norquist and his famous pledge as an encouraging sign that they can read and understand election results. On the other, let’s not get carried away. The “compromise” they are offering is no compromise at all, really. And what they want in return from Democrats—which they are keeping intentionally vague—shows very clearly that they haven’t yet quite accepted the idea that elections have consequences

It’s nice to see Norquist’s Maginot Line holding about as well as the real one did. It’s been a long time coming. But let’s break down what this really amounts to, because it’s not something to be celebrated in and of itself just yet.

Norquist’s anti-tax position all these years has been so totalizing that he has counted lots of things as tax increases that aren’t explicitly tax increases. You may remember the tiff he got into with Oklahoma GOP Senator Tom Coburn over oil-and-gas subsidies. Coburn, who is retiring, was willing to end those subsidies, which amount to a few billion dollars a year. To Norquist, this was a tax increase on oil companies. I can see the logic in a way, but if you’re going to go down that road, then you are taking loads of policy options off the table.

It’s an extreme definition, and it’s the very fact that it’s an extreme definition that allows Republicans breaking from it to appear to be taking a bold position while they are in fact doing nothing of the sort. Because under the big headlines about Breaking From Grover, the actual news content is that they will consider increased revenue but not increased rates. The vehicle of choice right now seems to be a limit on deductions, of maybe $40,000, which would reduce the amount rich people can deduct and, in effect, raise their taxes and bring in more revenue.

That’s fine as far as it goes. But it’s not enough. Barack Obama ran on raising rates on dollars earned above $250,000 from 35 to 39.6 percent. He said it a thousand times. The other guy said the opposite a thousand times. Obama won a clear victory. It was a victory for raising tax rates, period. But Republicans won’t grant that they lost and their pet position lost. And just you watch—even as they give a little temporary ground on this deduction limit business, they’ll continue to push for Simpson-Bowles-ish lower overall rates in the long term, rates closer to what Mitt Romney was proposing, which were resoundingly rejected on Election Day.

So all in all, that’s a pretty lame olive branch. As I said, it looks semi-reasonable only because the opening position, the position they’ve held for 20 years, was so utterly unreasonable. So that’s what they’re offering. Actually, it’s what a few of them are offering—no sign from Mitch McConnell yet that he’s offering anything like this. But let’s move on from that and now discuss what they want in return, which is even worse.

They haven’t really said it, but they want Obama and the Democrats to agree to sizeable cuts in Social Security, Medicare, and Medicaid. Now, here again, we had an election. The stakes could scarcely have been clearer. One side said, basically, we will protect Medicare and Medicaid. The other side said, we will go after them. It was a little more complicated than that, but that was roughly the size of it. The side that said we will protect them won.

So now, having won, the Democrats are supposed to cave in? Sure, they’ll have to play a little ball. That’s politics. But the party that lost the election—lost the presidency, lost Senate seats, and yes, held on to the House, but lost seats there too—doesn’t get to dictate terms.

And most appallingly of all, how in the world is Social Security getting dragged into this? Social Security is the one thing that wasn’t debated at all during the campaign. Even the Ryan Budget didn’t touch Social Security. And now Republicans like Bob Corker of Tennessee think they can come along after an election in which they didn’t even put Social Security on the table and now do so, in such a way that will cut benefits dramatically for people who commit the error of living into their 80s and 90s? Yes, I know: establishment panjandrums want the entitlement “crisis” solved. But does it not strike you as maybe a little odd that only weeks after an election in which both parties vowed not to touch Social Security, they would agree to cut benefits?Obama will have to give to get. That’s how it goes. But he’d better not forget, and he’d better not let the Republicans forget, that he just won an election in which the American people were given a clear choice—and they made it. Republicans walking away from Norquist deserve a few brownie points for coming back to planet Earth, but that sure doesn’t entitle them to start calling any shots.

http://www.thedailybeast.com/articles/2012/11/27/michael-tomasky-on-how-obama-shouldn-t-back-down-to-the-gop.html

ahandout
ahandout

@shepherdwong Dream on shep.  Nobody ever paid 92%; although the thought of stealing that much from a producer gives liberals a 4 hour erection. 

ahandout
ahandout

@PaulDirks Do you have the chart that shows how much more the liberals will spend once they raise taxes?  That's the one that counts.  You can dream socialists fantasies of higher taxes adding to the pot of gold in the governments kitty all you want.  Barry's tax hike is going to raise $86 billion a year, maybe.  Or, maybe it will cause another recession and the deficit will grow larger.  Guess we'll find out.  But, one thing it won't do is reduce the deficit.  It's the spending stupid. 

ahandout
ahandout

@MrObvious  Where do you park your brain?  If you tax the rich at 100 you won't get anything.  Or, do think that people that are smart enough to make money, unlike yourself, will just be slaves?  There will not be any revenue to tax, moron.

 Stick to eating twinkies while you can still find them.

DonQuixotic
DonQuixotic

@MrObvious 

Maintaining historically low tax rates (which are already too high and bordering on Neo-Marxism) while refusing to cut any of the real meat of the budget busters like the military will solve the debt and deficit.....somehow.  Republicans will reveal their magic plans to do so once elected of course.

DonQuixotic
DonQuixotic

@KevinGroenhagen 

Still waiting on that DD 214 Kevin.  It would only take you five minutes to scan it and black out any personal information short of your name.

TyPollard
TyPollard

@KevinGroenhagen  I'll posted this again regarding the welching on a bet.

If there was no time frame stated then that means you would leave FOREVER.The loser (you KG) doesn't get to retroactively decide for himself a length of banishment...unless the loser has no honor.

jmac
jmac

@KevinGroenhagen Voodoo economics hasn't worked, as George Sr. took the fall for being responsible on paying the bills.  He also didn't triple the National Debt, like Reagan, or double it like his son.  

Marky_D_Sodd
Marky_D_Sodd

@DonQuixotic @Marky_D_Sodd As did a very long list of others.  The point is that the Poop is finally admitting that the Atheists were right: "Christmas" is a hoax.  Newtonmas makes much more sense.

JohnDavidDeatherage
JohnDavidDeatherage

@DonQuixotic @JohnDavidDeatherage I give. If you don't understand the Laffer Curve, then you don't.  You can't prove or disprove a macro economic theory by using historical data. Too much noise that can't isolated.  I believe the Laffer Curve.  As I've said, what is uncertain is the point at which raising tax rates diminishes tax revenue.

shepherdwong
shepherdwong

@ahandout Just like the fact that corporations pay nothing like the "world's highest taxes," as claimed by Republican liars: "U.S. corporate taxes that were actually paid (the effective rate) fell to a 40 year low of 12.1 percent in fiscal year 2011..." I believe that your point that our oligarchs haven't paid their fair share of taxes from the bounty they've enjoyed from the greatest economy on earth, in it's entire history, is entirely correct. Of course, that gives "conservatives" the excitement they can otherwise only receive from a little blue pill.

http://thinkprogress.org/economy/2012/03/30/456005/reminder-corporate-taxes-very-low/

bobell
bobell

It's unclear because it's never been reached, not even at 92 percent.

Enough already!

PaulDirks
PaulDirks

@ahandout @PaulDirks Reading is fundamental  The chart I posted also SHOWS outlays. Feel free to look again and note that the sharpest increase is from 1980-1983 and the sharpest decline is from 1992-2000.

DonQuixotic
DonQuixotic

@ahandout @MrObvious 

It never ceases to amaze me how little you offer to a conversation, or how frequently you can be wrong.  Do you ever get tired of it, or is ignorance truly bliss?

MrObvious
MrObvious

@DonQuixotic

I'm sure they will be spending most of their time screaming socialism and Dems don't want to co-operate before they'll offer a valid solution to our problems. I mean they've done so since 2008 so why would that change now? Getting spanked in two elections? Nah - that's just the 'free stuff' crowd. Not the real Americans (TM).

KevinGroenhagen
KevinGroenhagen

@DonQuixotic @KevinGroenhagen And then, of course, you and your fellow anonymous cowards here would claim that the document was Photoshopped. The only way to tell if it's authentic is to see it in person, which we know you would never do since you would have to leave the security of your mother's basement.

MrObvious
MrObvious

@DonQuixotic

Take his word for it; he's currently saving the world playing veteran Marine in Black Ops 2. I'm sure my younger son is battling KevinDBwelcherElite all day long.

MrObvious
MrObvious

@TyPollard

It's logic by absence of actual logic; so no one mentioned a period of time other than gone, vamos, never to be, stop posting...so I will determine the exact time I can remain gone for good.

He must really have that itch down bad - you know to come here and tell everyone just how dumb and anonymous they are and how smart he is.

KevinGroenhagen
KevinGroenhagen

@jmac @KevinGroenhagen Wrong, Skippy. Tax revenues ballooned under Reagan. In fact, they were 111% higher when Reagan left office than when he entered office. Unfortunately, the Democrats spent 134% more during those eight years. And note that Reagan and the Bushes were amateurs when compared to Obama the Incompetent, who has added $6 trillion to the national debt in just four years.

JohnDavidDeatherage
JohnDavidDeatherage

@DonQuixotic @JohnDavidDeatherage First you said "proved me wrong"... now your saying "outlined"....  BIG DIFFERENCE.  

I'll say it again S L O W L Y for you... Macro Economic theories can never be proved nor proven false.  I  B E L I E V E the Laffer Curve is true but I can't prove it.  You clearly believe it's false but you CAN'T prove it.  

I wonder if you really understand the Laffer Curve. Perhaps that is the problem.

JohnDavidDeatherage
JohnDavidDeatherage

@OzarkGranny @JohnDavidDeatherage @DonQuixotic I'll tell you a secret.... I'm in favor of raising the top marginal rate.  My first comment in this thread was to support the Laffer Curve.  The LC does not say that ALL tax increases result in lower revenue but rather that at some point increasing the tax rate does result in a drop in tax revenue. What that point is is uncertain.... That so many people failed to grasp that simple concept makes me fear for our future.

DonQuixotic
DonQuixotic

@KevinGroenhagen @DonQuixotic 

As I said a moment ago Kevin, I won't care.  It would be pretty obvious to see if it was photoshopped or not but I'd just like to see you post it regardless.  You can either do that or fly out to meet me here at a bar in Alexandria, VA and show it to me in person.  Your choice Skippy.

DonQuixotic
DonQuixotic

@MrObvious @DonQuixotic 

He's just looking for ways to worm out of it just like he wormed out of his bet.  Kind of funny that he's the one that's the "anonymous internet coward"; I wonder if that's even his real name or his real picture.  I'll have to do a backwards Google search of it later.

MrObvious
MrObvious

@DonQuixotic

He sure goes through a lot of trouble to not prove who he is and to tell us how dumb we are.

Proof by absence of verification.

Righies believe wholeheartedly in the 'trust me' factor.

DonQuixotic
DonQuixotic

@MrObvious @DonQuixotic 

He claimed in another thread that it's impossible to tell if it's fake when one is posted online and then called me an anonymous coward again.  It would be kind of amusing if it wasn't so sad.  

shepherdwong
shepherdwong

@KevinGroenhagen Of course, "easy-to-understand" is still a relative framework. For instance, a typical sixth-grader could understand the data represented by the chart but for primates, Republicans and other lower intellects, it is still quite incomprehensible.

bobell
bobell

Once again -- The chart was not prepared by Ezra Klein, who actually got it from the Center on Budget and Policy Priorities.  Shoot-the-messenger doesn't work here.

shepherdwong
shepherdwong

@KevinGroenhagen No, Center on Budget and Policy Priorities for those who have graduated from crayons to first grade reading ability. Seriously.

KevinGroenhagen
KevinGroenhagen

@jmac @KevinGroenhagen Clinton handed Bush a recession. Check the record. And note that the wars, Medicare Part D, and the tax cuts were all in place in FY 2007, the last budget passed by a GOP-controlled Congress and signed by Bush. Nevertheless, we had a primary budget SURPLUS that year. Therefore, you can't blame Obama and the Democrats trillion-dollar deficits on those items.

jmac
jmac

@KevinGroenhagen @jmac Revenue ballooning doesn't do you much good when you're a Reagan/Bush jr. and think that massive military spending will solve our economy as the deficit balloons.   It was a reasonable amount until Reagan tripled it and Bush handed Obama a 1.3 trillion budget to start (he got handed a budget surplus btw) AND he doubled it (bigger than REagan's triple) as he handed O. a Great Recession.      The deficit is now dropping and thank god we didn't have a Republican to carry us to a second Great Depression - not that the House didn't give it the ole Republican try as they ignored (and continue to ignore) that banks that took us there.  

PaulDirks
PaulDirks

@KevinGroenhagen @jmac the amount of revenue collected is dependent on a large number a variables, the tax rates being only a single example. What's the current GDP growth rate? What's the inflation rate? Are equities climbing rapidly or falling. All of these have significantly more effect of collections than simply the top marginal tax rate. And has been endlessly pointed out, this lack of correlation is precisely how anti-tax activists get away with false claims about tax rates.