This is what we fight on a daily basis. Feel free to leave a comment if you are on Instagram:
Dan Mitchell does what Dan Mitchell does with the Laffer Curve: He learns from it, applies lessons elsewhere, and makes us all smarter.
As far as I’m concerned, no sentient human being could look at what happened in the United States in the 1980s and not agree that high tax rates on upper-income taxpayers are foolish and self-destructive.
Not only did the economy grow faster after Reagan lowered rates, but the IRS even collected more revenue (a lot more revenue) because rich people earned and reported so much additional income.
That should be a win-win for all sides, though there are some leftists who hate the rich more than they like additional revenue.
Anyhow, I raise this example because there are politicians today who think it’s a good idea to go back to the punitive tax policy that existed in the 1970s.
Dan Mitchell loves the Laffer Curve, and we love learning when and where he see the Laffer Curve doing its thing.
Journalists are especially susceptible to silly statements when writing about the real-world impact of tax policy.
They don’t realize (or prefer not to acknowledge) that changes in tax rates alter incentives to engage in productive behavior, and this leads to changes in taxable income. Which leads to changes in tax revenue, a relationship known as the Laffer Curve.
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But don’t hold your breath. We have an overseas example of the Laffer Curve, and one of the main lessons is that politicians are willing to sacrifice just about everything in the pursuit of power.
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P.S. I’m not quite as pessimistic about the future of tax policy in the United States. The success of the Reagan tax cuts is a very powerful example and American voters still have a bit of a libertarian streak. I’m not expecting big tax cuts, to be sure, but at least we’re fighting in the United States over how to cut taxes rather than how to raise them.
Larry Kudlow joined the Big John and Ray Show out of Chicago. They mostly talked about health insurance issues, important to hear from a supply-sider on this.
☕ Dan Mitchell is back again today using the Laffer Curve to educate the masses:
“Wow, not just an admission of supply-side economics, but also an acknowledgement of the Laffer Curve.”
Our friend Bob Landry, who runs Supply-Side Revivalist brings our attention to a recent post about Say’s Law. This is great, spend some time with it.
☕ Our friend Dan Mitchell is back to educating folks using the Laffer Curve.
And if I can use those example to teach them the basic lesson of supply-side economics (if you tax something, you get less of it), hopefully they’ll apply that lesson when contemplating higher taxes on thing they presumably do like (such as jobs, growth, competitiveness, etc).
Here’s a list of “successful” leftist tax hikes that have come to my attention.
- The big drop in soda purchases after a tax on sugary drinks was imposed in Berkeley.
- The big drop in home sales after a tax was imposed in Vancouver on purchases by foreigners.
- The big drop in tobacco sales after a big increase in D.C.’s tobacco tax.
- The big drop in soda purchases after a tax was imposed in Philadelphia.
☕️ Also, John Tamny has a new column at Forbes.com:
What will those jobs performed by we humans be? Those who can predict now what is a certainty will be billionaires many times over, and possibly trillionaires for seeing what is presently opaque, but also inevitable. So while it’s impossible to predict what our work will look like in the future (was anyone “demanding” the internet in the 80s, or Uber in the 90s?), the automation and robots that Gates decries are the certain sign of exciting new forms of work in the future, much as Gates’ software version of the robot gifted us with exciting and new forms of work in the 80s, 90s and beyond.
One prediction from this writer is that as automation of everything becomes the norm, so will it increasingly become the norm that humans will be able to combine work with what they’re passionate about. My next book is titled The End of Laziness, and with good reason. A robot-driven future will be one defined by an erasure of laziness as more and more people get to do what they love thanks to automation rendering the getting of life’s necessities (and much, much more) immensely cheap.
Gates wants robots to be taxed in order to help the elderly and others less capable of getting by in today’s world, but then it’s robots that are already doing what governments can’t. The same Google that automated away the telephone operator has made it possible with Google Maps for the blind to navigate cities, and then Google’s driverless cars will increasingly make it possible for the elderly to get around without relying on other, younger humans.
☕️ Man on the Margin also has an interesting post today:
☕️ John Catsimatidis interviewed Larry Kudlow on Sunday on his radio show, The Cat’s Roundtable. Here is the podcast:
☕ Professor Brian Domitrovic writes at Forbes.com about the Laffer Curve and its real anniversary. This column is pretty interesting and informative.
It was not the first time that Laffer had sketched the curve, even for Rumsfeld. Laffer, a professor at the University of Chicago business school, had been putting it on the chalkboard for years. George Shultz, Laffer’s dean at Chicago and then his boss at the Office of Management and Budget, along with Shultz’s Chicago buddy Rumsfeld, had surely been treated to the curve before.
So it sort of was not the anniversary of the Laffer curve in December. Now, the reason that that meeting became famous was because of attendee #4, Wanniski. He is the one who let the story out about that evening. The first reference to the curve came forty years ago not last month but just now, care of Wanniski. In the spring 1975 issue of the journal The Public Interest, Wanniski set down in print (without calling it expressly the “Laffer curve”) Laffer’s argument about tax rates and receipts, in a footnote in fact.
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The John F. Kennedy tax cut—the book Larry Kudlow and I are writing about it forthcoming—had Laffer-curve argumentation all over it. Kennedy himself said that a “creative” tax cut such as he was offering (a cut in rates) would have the “paradoxical” effect of enhancing receipts.
When Kennedy was trying to ram the bill through Congress in 1963, he lowered the capital gains rate by four points to make it more palatable to budget “scorers” in the House, in that it was clear to all that capital really responds to incentives. The bill passed the House much on the strength of the revenue-reflow argument concerning capital-gains rate cuts. The Senate took that part of the bill out a few weeks later. Albert Gore of Tennessee, sitting on the Finance committee, was offended because it was so kind to the rich, even if a boon to the Treasury. “Tax the Rich!” by lowering their rates, the Wall Street Journal would blare.
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It was a missed opportunity, 25 years ago, that this country did not permit the 28 percent top rate to survive any more than three years, 1988-90. This low rate surely would have proven itself productive of receipts. Had we discovered this, given a little time in the 1990s, we would have comprehended the real dynamics of marginal tax cuts. They can be so productive of receipts and growth that low rates can lead to a virtuous cycle of a sequence of tax cuts.
President George H.W. Bush broke his “no new taxes pledge” in 1990, raised the marginal rate past 28 percent, and we never got the clarity. His son’s “tax cuts” in the 2000s were largely non-marginal, damaging the clarity even further. As the Laffer curve turns 40—or is it 50?—the lesson that tax rates can stifle real economic activity remains one of the great flashes of insight of modern public policy.
Dan Mitchell provides an excellent post today.
The Left’s Position on the Laffer Curve and Dynamic Scoring: Being Exactly Wrong Is Better than Being Inexactly Right
Since I’m a big advocate of the Laffer Curve, that means I favor dynamic scoring. This is the common-sense observation that you can’t figure out the effect of tax changes on revenue without first estimating the impact on taxable income.
And I’ve shared some very persuasive data and analysis in favor of the Laffer Curve and dynamic scoring.
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The evidence strongly indicates we need less government rather than more. Unless, of course, you think the United States would grow faster if we were more like France or Greece.
* There are some “micro-economic” feedback effects in the current system, so even the JCT wouldn’t assert that revenues would double if tax rates rose by 100 percent.