Who said this?

[chuck34]

Ok.
http://www.budget.gov.au/2007-08/bp1...p1_bst7-01.htm

Australia introduced a Goods and Services Tax in the year 2000. With a small reduction in income tax, the additional consumption tax effectively caused a net overall tax increase in real terms.
So much so that in 2007, the net debt was lowered to zero.

An increase in the effective rate of taxation, led to an increase in revenues for the government collected by taxation, and therefore a discharge of debt.

QED.

How does that disprove the point that a reduction in income taxes will result in higher tax revenue? Seems that the oposite is true.

Al-Qaeda.

Committing government spending to counter the threat of terrorism, boosted aggregate demand. Government spending as an injection into the economy, has a far greater influence over aggregate demand, than fiddling with tax rates will.

As a percentage of GDP, defense spending only went back to the '96 level by '03, and well below the 80's and before.

http://www.truthandpolitics.org/mili...ative-size.php

No I'm not. I'm referring to the $12 trillion and rising in government debt.

But govenment debt is a two sided coin, revenue and SPENDING. If the revenue went up by that $12 trillion, but spending went up by $14 trillion, we'd still be in debt.

What evidence?!

"Receipts by Source. Retrieved from the Government Printing Office Access.". GPOAccess.gov.2009.
http://www.gpoaccess.gov/usbudget/fy...s/hist02z1.xls

For the years 2001-2003 which acording to you "When Bush cut taxes in '01-'03, revenues went UP", they did not. They FALL in each of those years across the board. In fact there isn't even one single set of reciepts from tax which goes up.

The economy hadn't rebounded yet in '01-'03, and the cuts hadn't really taken effect yet. Look past that to the period '03-'06 when all the effects were really being seen.

http://www.cbo.gov/doc.cfm?index=8116&type=1
"Total federal revenues grew by about $625 billion, or 35 percent, between fiscal year 2003 and fiscal year 2006."
"Had revenues grown at the same rate as the overall economy between 2003 and 2006, federal receipts would have increased by only $373 billion."
"In the other direction, higher realizations of capital gains (including any effects associated with legislated reductions in tax rates) added 0.3 percentage points to the ratio of individual income tax revenues to GDP."
"Revenues from both corporate and individual income taxes have continued to grow faster than GDP."

Laffer's theory IS crap and official government data shows it to be crap.

My government data is better than your government data. :P

[Rollo]

"Had revenues grown at the same rate as the overall economy between 2003 and 2006, federal receipts would have increased by only $373 billion."
"In the other direction, higher realizations of capital gains (including any effects associated with legislated reductions in tax rates) added 0.3 percentage points to the ratio of individual income tax revenues to GDP."
"Revenues from both corporate and individual income taxes have continued to grow faster than GDP."

My government data is better than your government data. :P

Your government data states the reason why receipts went up: an increase in realizations of capital gains.

And to answer this:

How does that disprove the point that a reduction in income taxes will result in higher tax revenue? Seems that the oposite is true.

Reread the sentence:
With a small reduction in income tax, the additional consumption tax effectively caused a net overall tax increase in real terms.

Of course a "net overall tax increase" would lead to an increase in "net overall tax" receipts; and it did.

[chuck34]

Your government data states the reason why receipts went up: an increase in realizations of capital gains.

Yep a realization in captial gains was part of it. Why do you think capital gains went up? Could it be that the economy was stronger since people had more money in their pockets, and that increased corporate profits, then in-turn also raising stock prices?

And to answer this:
Reread the sentence:
With a small reduction in income tax, the additional consumption tax effectively caused a net overall tax increase in real terms.

Of course a "net overall tax increase" would lead to an increase in "net overall tax" receipts; and it did.

Yep you're right it was an overall tax increase. However had the consumption tax not been coupled with the decreased personal income tax then people would have had less money to spend. Therefore their consumption would have gone down.

Why is this so hard? If you take $1 out of my pocket. Then I don't buy that Coke at break. And many of my co-workers will make the same or simmilar decisions. That means the vending company doesn't have as much profit. So they have to make decisions like not giving their employees a raise. which means now they have less money, and the effect is amplified, and has a knock-on effect with other industries.

[Alexamateo]

Let's put this in perspective a little bit:

There's nothing wrong with Laffer's curve, as it's basically a price/demand curve as it relates to total revenue. It may not function well in the extremes (i.e. 100%), but really, how often do the extreme conditions exist? Also, a 100% marginal rate is almost never the effective rate.

That said, to me it's not that useful, because like Rollo said, Where is t*, on the curve? I don't think anyone can say with any accuracy in the broader economy as a whole. It would be useful in a situation with less variables, such as a local government trying to work out property tax rates, but I think the general economy has too many variables.

Now, when JFK said this in 1961, the top marginal rates were 91%. It's fairly safe to say that t* was on the right side of the graph. What happened when people approach that level of income? They spent more time trying to shelter, hide, defer income rather than reinvest it into the economy as a whole.

It's now 35% and if the Bush Tax cuts expire, it will go back to 39.6%. Honestly, other than a short term price shock I don't see it as having that much effect. Empirical evidence may suggest that's actually the apex of t*. It's a little higher than I agree with philosophically, but not that much out of line.

[Rollo]

Yep you're right it was an overall tax increase. However had the consumption tax not been coupled with the decreased personal income tax then people would have had less money to spend. Therefore their consumption would have gone down.

But the overall tax take would have still gone up because of a new tax.

Why is this so hard? If you take $1 out of my pocket. Then I don't buy that Coke at break. And many of my co-workers will make the same or simmilar decisions. That means the vending company doesn't have as much profit. So they have to make decisions like not giving their employees a raise. which means now they have less money, and the effect is amplified, and has a knock-on effect with other industries.

Your example relies on the premise of zero inflation, and a net leakage from the economy. Sadly, this isn't true for the real world. There is an overall net increase in dollar figures due to inflation, and if governments keep on running budget surpluses, then there isn't a net leakage from the economy either but a net injection.

[chuck34]

But the overall tax take would have still gone up because of a new tax.

Clearly. I'm not disputing that. But the fact the the consumer has more money in his pocket, thanks to the personal income tax cut, is the reason that this increases revenue. Had the consumer not had the extra money, consumption would have faltered, and the net taxes collected would have been lower.

Your example relies on the premise of zero inflation, and a net leakage from the economy. Sadly, this isn't true for the real world. There is an overall net increase in dollar figures due to inflation, and if governments keep on running budget surpluses, then there isn't a net leakage from the economy either but a net injection.

My example relies on zero inflation because in the short term inflation is zero. That is unless we are living in Zimbabwe, or pre-war Germany. Plus it seems many economists are talking about signs of deflation right now, not inflation. Same with leakage, I'm not an economist but the way I understand that, it's also more of a long-term issue.

I'm talking about the realities of what will happen on Jan. 1, 2011 when the Bush tax cuts expire and people actually (not theoretically) have less money in their pockets. Are you honestly telling me that you think that will be a good thing? Demand is down right now across the board. That is why all the Keynseianist out there are saying we need more "stimulus". So your answer to stimulate the economy is to take more money out of the consumer's hands and blow it on things like studying why pig sh!t stinks?

[Rollo]

Clearly. I'm not disputing that. But the fact the the consumer has more money in his pocket, thanks to the personal income tax cut, is the reason that this increases revenue. Had the consumer not had the extra money, consumption would have faltered, and the net taxes collected would have been lower.

By definition if the money is being spent on consumption rather than taxation, there is less money collected in taxation. It does increase revenue for firms, but not for the government.

Besides which, people's short term consumption doesn't really change according to how much they do or do not pay in taxes. Consumption is mainly determined by someone's real wealth, not their current real disposable income.

I'm talking about the realities of what will happen on Jan. 1, 2011 when the Bush tax cuts expire and people actually (not theoretically) have less money in their pockets. Are you honestly telling me that you think that will be a good thing?

Yes I am telling you that this is a good thing.

To fund "tax cuts" means that there is a shortfall in the government's accounts. This can either be achieved by drawing down government savings or the accumulation of debt.
The US Government Debt currently stands at $12 trillion, there will be some point in the future where the debt bubble will burst.

Have you already forgotten that the current "Global Financial Crisis" was/is essentially caused by and fueled by debt? People actually having less money in their pockets must surely be a good thing, especially when it's all on credit and wasn't theirs to begin with.

Demand is down right now across the board. That is why all the Keynseianist out there are saying we need more "stimulus". So your answer to stimulate the economy is to take more money out of the consumer's hands and blow it on things like studying why pig sh!t stinks?

I'd prefer to spend stimulus monies on great public works, so that you had something to show (ie infrastructure) for spending stimulus money. It's funny you should mention blowing money on "things like studying why pig sh!t stinks" because that was what the Stimpack of 2008 may as well have done.

[chuck34]

By definition if the money is being spent on consumption rather than taxation, there is less money collected in taxation. It does increase revenue for firms, but not for the government.

Besides which, people's short term consumption doesn't really change according to how much they do or do not pay in taxes. Consumption is mainly determined by someone's real wealth, not their current real disposable income.

That's the dumbest thing I've ever heard. By that logic there should be no limit on what the government takes. Why stop at 39%? Why not 90 or 100%? Can you just give me all your money? I promise I'll use it for "good" things.

Yes I am telling you that this is a good thing.

To fund "tax cuts" means that there is a shortfall in the government's accounts. This can either be achieved by drawing down government savings or the accumulation of debt.
The US Government Debt currently stands at $12 trillion, there will be some point in the future where the debt bubble will burst.

Again, you completely ignore the most obvious solution to "fund tax cuts".(which brings up something interesting, how does keeping tax rates where they currently are become a tax cut?) The best way to "fund tax cuts" is to cut spending! Why do you ignore this? Can't we all agree that government spends too much money, and quite a bit of it is on really stupid stuff?

Have you already forgotten that the current "Global Financial Crisis" was/is essentially caused by and fueled by debt? People actually having less money in their pockets must surely be a good thing, especially when it's all on credit and wasn't theirs to begin with.

What the hell are you talking about? You completely contridict yourself. If the current "Global Financial Crisis" was/is caused by debt, which I agree a large part of it was. How on earth is MORE debt a good thing?

I'd prefer to spend stimulus monies on great public works, so that you had something to show (ie infrastructure) for spending stimulus money. It's funny you should mention blowing money on "things like studying why pig sh!t stinks" because that was what the Stimpack of 2008 may as well have done.

Yes great pubic works would be ok, or at least better than the crap they spent "stimulus" on. However, things like the Hoover Dam and Golden Gate Bridge didn't really do much the last time those things were tried. I know that "studying pig sh!t" is what was in "Stimpack 2008", that's why I brought it up. Are you under the impression that "Stimpack 2008" worked? I'm sure not. It was a boondoggle from start to finish and an incredible waste of money.

[Rollo]

That's the dumbest thing I've ever heard.

Milton Friedman proposed the theory of the Permanent Income Hypothesis.
http://en.wikipedia.org/wiki/Permane...ome_hypothesis
If it sounds dumb to you then so be it.

Again, you completely ignore the most obvious solution to "fund tax cuts".(which brings up something interesting, how does keeping tax rates where they currently are become a tax cut?) The best way to "fund tax cuts" is to cut spending! Why do you ignore this?

Really? In this thread:

The other option is to decrease government spending. I would suggest slashing Social Security, Medicare, Medicaid and the Department of Defence spending, because those are the biggest areas pulling the budget, and it is impossible to decrease the interest bill unless you first start running surpluses.

If I've ignored something, then it seems strange that I would have already mentioned it previously.

What the hell are you talking about? You completely contridict yourself. If the current "Global Financial Crisis" was/is caused by debt, which I agree a large part of it was. How on earth is MORE debt a good thing?

You tell me. Haven't I stated and restated that the $12 trillion in debt is a very big problem?

If the government collects more in taxes then it spends, then it sinks debt. If it spends more than it collects then it raises debt.
If you intend to offer a tax cut, then government spending needs to be lowered by at least an equal if not lower amount than the revenue lost as a result of the tax cut.

Aggregate Demand though equals Consumption plus Investment Spending plus Government Spending and all three components have vastly different effects. It's just that Government Spending has the greatest single capacity to radically alter Aggregate Demand, by virtue of it being the biggest policy directed factor.

[chuck34]

Milton Friedman proposed the theory of the Permanent Income Hypothesis.
http://en.wikipedia.org/wiki/Permane...ome_hypothesis
If it sounds dumb to you then so be it.

OK, let's assume Friedman is right. Now, how much of your money can I have? Afterall it won't have any effect on you, right?

Really? In this thread:

If I've ignored something, then it seems strange that I would have already mentioned it previously.

Ok, but in your last few posts you have been arguing solely for increased taxation, not spending cuts. If you now want to cut spending great, I'm with you. Many agencies that have overgrown budgets that produce little to no results.

You tell me. Haven't I stated and restated that the $12 trillion in debt is a very big problem?

Yes, but your solution only appears to be raise taxes. And as has been demonstrated historically, and explained by Laffer's theory, raising taxes will NOT bring in more revenue to the government.

If the government collects more in taxes then it spends, then it sinks debt. If it spends more than it collects then it raises debt.
If you intend to offer a tax cut, then government spending needs to be lowered by at least an equal if not lower amount than the revenue lost as a result of the tax cut.

A) The point of this discussion is that lowering taxes, to a point, will INCREASE revenue, and the opposite as well. I'll grant you that we are probably at or near the t point. But why would you want to raise taxes at that point?
B) Yes! Lets LOWER spending.

Aggregate Demand though equals Consumption plus Investment Spending plus Government Spending and all three components have vastly different effects. It's just that Government Spending has the greatest single capacity to radically alter Aggregate Demand, by virtue of it being the biggest policy directed factor.

That's what FDR thought too. How'd that work out for him? Let's ask Henry Morgenthau, Treasury Secretary and archetect of the New Deal.

http://www.businessandmedia.org/arti...104085447.aspx

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!