Republican tax cut shell game [Updated]
I was perusing my new favorite wingnut blog when I came across a story on how tax cuts lead to more tax revenue. I have heard this argument many times before but this particular piece does a great job of highlighting the most ridiculous part of this argument. Here is the money paragraph from the story (I put the really dumb part in bold letters):
So what does raising or lowering taxes have to do with increasing revenues? Well, where do you think the money that comes into a business is originated? It comes from the consumers, of course. If the consumers feel times are tight and uncertain, of course they will not be interested in spending money, it's just too risky, which attitude naturally slows down the economy. And when the economy slows down, so does tax revenue. Now, when on the other hand taxes are lowered, this provides taxpayers with more money, and a lot of that gets spent, which revs up the economy ... and in spite of the lower rate, increases the amount of money which comes in to the government. It's the same reason why stores put products on sale; the lower price is made up and more by the jump in volume sales if the manager has planned it right. Basic economics, really.
Got that everyone? According to Republican economic theory $1,000 spent by a private citizen affects the economy more than $1,000 spent by the government. The title of the post is "Government Economics - Why Lowering Taxes Means More Revenue" but I don't think the author understands how to calculate Gross Domestic Product (GDP). If he did then he would know that government spending is added to consumption, investment and the difference between exports and imports to arrive at GDP. If the author knew that equation then he would also know that reducing government spending by the same amount that you reduce tax revenue is a zero sum transaction in regard to the size of the economy. What the author doesn't mention and which actually does affect the size of the economy is deficit spending.
Borrowing money to pay for a tax cut not only increases consumption and investment because non-gov't entities have more money to spend/invest but it also prevents the government from lowering spending. It is a pretty good racket until you have to pay the money back. Repayment of the debt is something the Republicans don't mention much because it is the fatal flaw in their argument and it doesn't sell very well. Their economic theory basically boils down to maxing out your credit cards and hoping the interest rates stay low and you have enough money and time to repay the debt.
So the next time you hear a Republican claim tax cuts pay for themselves ask them how much we have to borrow to pay for the tax cuts or what Government programs they plan on cutting to pay for the tax cuts. If they can't answer those questions then they are just playing a high stakes shell game with you.
UPDATE:
For the past few days I have been locking horns with supply siders on a number of blogs about the idea that tax cuts pay for themselves and I have been surprised at how vehement their defense of this idea has been. It is almost like this particular idea is the keystone to their economic platform and they refuse to question it or in some cases even defend it.
Be that as it may, the supply siders who did defend their arguments kept repeating the idea that the private sector can spend money much more efficiently than the Government and that is what increases tax revenues. After hearing that about 37 times in three days it got me thinking how much better would the private sector would have to perform in order to pay for a tax cut. I started to write up an example of how this would happen but luckily for me, and anyone reading this, I found someone who already did:
You are confusing tax cuts increasing output with revenues themselves increasing. They are very different.For example, let taxes be 25% and income be $100. Tax revenue is then $25. Now cut tax rates by 5% to 20%, not a big change. At the new tax rate of 20%, income must grow from $100 to $125, or 25%, so that taxes are unchanged [(20%)($125) = $25]. Thus, a tax cut from 25% to 20% requires a 25% increase in income to leave revenue unchanged. Yes, a tax cut will increase income, but nowhere near 25% and revenues will fall.
That simple example does a lot to discredit the supply siders, IMO. Anyone who thinks the private sector can perform that well should rethink that position.
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How do you get money out of a C Corporation? (keep in mind that we were discussing income taxes)
Keep this up and someone here will have to start fact checking you at your blog whorehouse.
In the immortal words of Dubya, Bring it on!!!
Blue
I've just now had a chance to review what you wrote, and posited here, with what you wrote at the Wizbang site.
Your mention of the discussion topic above (income taxes) was specific only to the debate on incremental federal receipts as they relate to lower marginal rates. We can argue that point forever. However, you said on Wizbang, "How do you get money out of a C Corp". I admonished you that there was a distinct difference between getting "money" out of a C Corp and getting "Profits" out of a C Corp....a point you tacitly surrendered.
As I visit this site site today, I see that you have disingenuously spun the argument. I apologized to you for saying that your polemic was "stupid: and you accepted the apology but rejected the terms (that you not refer to the wizbang commenters and posters in a similar fashion).
Your grasp of the vernacular of public and private (GAAP)accounting is poor. Your integrity is less so.
--hslatery
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)I admonished you that there was a distinct difference between getting "money" out of a C Corp and getting "Profits" out of a C Corp....a point you tacitly surrendered.
Great, thank you for explaining to me that a C Corp has a checkbook and can therefore spend money. I wasn't aware of that fact before you lectured me about it. Now, that we both know that I was discussing getting profits out of a C Corp would you please address the point I made earlier in the week. Thank you.
As I visit this site site today, I see that you have disingenuously spun the argument.
You may not be aware of this but I can't read your mind. If you think I am spinning something then please let me know what it is.
Your grasp of the vernacular of public and private (GAAP)accounting is poor. Your integrity is less so.
Let it go man. We are discussing politics on a blog it isn't worth getting upset like this.
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| parent )Those like him unused to having to back their preconceived notions don't last long in a place like The Forvm.
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| parent )First, welcome, and stick around.
Second, we don't allow attacks on fellow commenters, even those you know from other blogs. That's why your last two sentences are out of bounds. (We do allow, as you've no doubt noticed, attacks on comments. Big healthy snarky attacks. But not on the folks who post them.) I understand that it seems like a distinction without a difference. But experience has taught me that it's not.
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| parent )http://www.washingtonpost.com/wp-dyn/content/article/2006/05/14/AR2006051400806.html
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)Mr. Gabriel,
We have been over that before.
The whole thing is stuck in the zone of predicting macroeconomic effects - increase in GDP. This is just plain blinkered.
Teh results of that blinkered outlook has led the CBO - whether or not it is run by conservatives - to have missed the boat on revenue predictions since 2003.
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| parent )Please. The CBO and Mankiw agree as does every other serious economist. there is no debate here.
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| parent )- Login or register to post comments
| parent )but the point stands. Luis's posts are repeating, over and over, something proven false over and over.
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| parent )...have a distinct drift toward making Repubs look good. When Bush 43 was pushing his tax cut, suddenly the CBO was replete with predictions of enormous surpluses. Now that Bush 43 is generating deficits, the CBO reports even larger projected deficits so that the White House can claim that it is doing better than projected expectations
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )Mr. Maximus,
The CBO was providing sunny numbers from 1999/2000 onwards, driven by poor analysis of the sources of revenue I believe. Both Democrats and Republicans wanted to make political hay of this, the Democrats arguing for spending policies and the Republicans for tax cuts.
The CBO under Democrats has also overestimated the deficit, they are doing it now.
The CBO estimates from 2002-03 on were also used by the Democrats and their hangers-on to attack the Republican tax cuts. That was done throughout the argument on the JGGTRA. Who was the CBO working for ?
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| parent )I wouldn't characterize "lockbox" as a spending policy - quite a bit less spendy than current policy, even, I'd call it.
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| parent )Mr. Neponset,
Consider the history of tax rates and tax revenues as a % of GDP. The fact is that reductions in marginal rates do not predict reductions in tax revenues, except maybe on a very short time horizon. Marginal rates on the individual income tax have declined consistently (from 90+% to 35%) for forty years, but the US is still collecting the same proportion of GDP as individual income tax. How then have tax cuts not paid for themselves ? If you want data, I have data, and a nice chart too.
Add another argument - lets leave supply-side theory alone, let us just consider tax rates as disincentives to report income - and I am not just talking of cheating or avoidance, but of recognizing profit. I have shown that the tax cuts of 2003, on dividends and capital gains, yielded much greater revenues through, for instance, a doubling of declared dividends reported as personal income.
International comparisons also bear this out - there is no pattern in specific tax collection as a proportion of GDP and tax rates. Countries that collect greater proportions of GDP than the US tend to do it by imposing more taxes, like VAT's. There was an interesting chart in the WSJ a few weeks ago that showed corporate tax rates and tax collections as % of GDP across developed countries - no pattern - the US collects less than average in corporate taxes but has one of the highest rates.
So the next time you hear Republicans say that tax cuts can pay for themselves, it would be wise to give them a respectful hearing. They have an excellent track record.
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)The top marginal rate is not the only marginal rate which is of note -- in particular, payroll taxes increased as income taxes decreased.
The last paragraph in the post above is pure fantasy, and it is the reason why engagement is useless.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )Mr. Maximus,
I don't know why I bother, but here goes -
I am talking about income taxes alone, not payroll taxes. This is Income Tax (only, not SSI, not Medicare, not what you pay the park ranger to enter Yellowstone)
Year %GDP Top Rate
1962 8.0 91
1963 7.9 91
1964 7.6 77
1965 7.1 70
1966 7.3 70
1967 7.6 70
1968 7.9 75.25
1969 9.2 77
1970 8.9 71.75
1971 8.0 70
1972 8.0 70
1973 7.9 70
1974 8.3 70
1975 7.8 70
1976 7.6 70
1977 8.0 70
1978 8.2 70
1979 8.7 70
1980 9.0 70
1981 9.3 69.125
1982 9.2 50
1983 8.4 50
1984 7.8 50
1985 8.1 50
1986 7.9 50
1987 8.4 38.5
1988 8.0 28
1989 8.3 28
1990 8.1 28
1991 7.9 31
1992 7.6 31
1993 7.7 39.6
1994 7.8 39.6
1995 8.1 39.6
1996 8.5 39.6
1997 9.0 39.6
1998 9.6 39.6
1999 9.6 39.6
2000 10.3 39.6
2001 9.9 39.1
2002 8.3 38.6
2003 7.3 35
2004 7.0 35
2005 7.6 35
2006 8.0 35
I suggest you plot that.
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| parent )the top marginal rates are not the only relevant rates; there are other marginal rates which are part of the discussion.
I have no interest in plotting cherry-picked data which ignores the complexity of the issue for dogmatic adherence to a patently incorrect ideology.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )Why do you think payroll taxes, etc. are relevant in addition to top marginal rates?
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| parent )What we saw starting with Kennedy was a reduction in the top marginal tax rates, which finally settled in the 35% range under Reagan. In the early 80s, Reagan agreed to a compromise on SS funding (proposed by the (Alan) Greenspan Commission) which raised the SS rates from about 12% to about 15% of gross income (not adjusted gross income, SSI comes right off the top). It also made SS benefits taxable and made some other adjustments to how the program was funded. Since SS taxes are limited to the first $90,000 of income (adjusted annually for inflation) it is a very regressive tax that hits lower and middle income wage earners the hardest. Also, since the US uses unified government budgeting, the 1983 adjustments provided excess funds which are used to purchase special bonds (the "trust fund") but the additional revenue shows up as reducing the size of the deficit. The idea is that SS will run a surplus and can then redeem the bonds when annual benefit payments exceed annual SS taxes.
The reason they are an issue is that US wage earners have been paying a higher rate than they needed to for the past 24 years in order to ensure that there would be surplus funds available when the "baby boom" demographic bulge retired (which is starting right around now). These excess payments increased the tax burden on lower and middle income wage earners as the top marginal rates were being cut, and the excess funds they provided masked the extent of the deficits that were incurred due to cutting taxes without reducing spending. For most lower income wage earners, the income tax burden is very low, but the SS tax burden has increased (for very low wage earners, SS taxes are the only federal taxes that they actually pay).
The trust fund currently has about $2 trillion in nominal assets, when the SS system starts cashing them in the US will need to cut spending, increase taxes or increase debt to redeem them.
Does that answer your question?
--I blame it all on the Internet
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| parent )Mr. HankP,
Its all (SSI/FICA plus income tax plus whatever) just an excessively complex progressive income tax.
Have a look at this - effective tax rates -
http://www.cbo.gov/ftpdocs/77xx/doc7718/SupplementalTables.xls
Check out table 1A, total effective Federal tax rate.
Thats the effective rate, and not only is it extremely progressive, SSI notwithstanding, but it became even more progressive post SS compromise.
There is plenty more of interest in the tables, including an explanation for the collapse in tax revenues in 2002.
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| parent )That's a useful summary of how FICA has been used to offset cuts in the top marginal rates and is masking the deficit. I'm sorry to report that I learned something!
Still unclear, though is Luis's statement:
Marginal rates on the individual income tax have declined consistently (from 90+% to 35%) for forty years, but the US is still collecting the same proportion of GDP as individual income tax.
You claimed below that this left out median/average income tax rates. And Luis countered that the top 10% accounted for more than 50% of all incom tax revenue.
So where does that leave us?
Is this a point in favor of the tax cuts pay for themselves crowd? Granted it's only a single instance and no case has been put forward to generalize to other taxes, but still.
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| parent )...only applies to income over some point -- say, 100,000. One can bring down the top marginal rate and bring up the lower marginal rates to get the same result.
Also, marginal rates are not the end of the discussion; taxes are enormously complicated beasties, so a decline of the marginal rate could be coupled with the closing of some loopholes to create a higher effective marginal rate. Tax policy analysis is fantastically complicated and detail-oriented.
Finally, Mr. Alegria is not being entirely candid; income tax receipts as a percentage of GDP were as low as 7.9% in the tax-cutting Reagan years and as high as 10.3% in the Clinton years. (source), a 25% difference over 15 years.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )bring down the top marginal rate and bring up the lower marginal rates to get the same result.
But has it happened?
If the top 10% have had their marginal rates lowered by 50% over 40 yrs. and they pay more than 50% of income tax, the bottom 90% would need an increase of more than 100% in marginal rates to make up the difference.
... Your last para is a bit of cherry picking. 25% is the highest differential. Sometimes the differential went the other way. Eyeballing the figures 82-88 and 94-00 I'd say maybe 10% tops.
But thank you for:
a decline of the marginal rate could be coupled with the closing of some loopholes to create a higher effective marginal rate. Tax policy analysis is fantastically complicated and detail-oriented.
If i were going to defend Mr. Alegria's position, I would say that loopholes are always possible to create and that a reduction in the top marginal rates itself closed loopholes, or at least the need to create them.
But then I don't have a dog in this fight. I'm just trying to learn sumthin amidst all the barking.
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| parent )If the top 10% have had their marginal rates lowered by 50% over 40 yrs. and they pay more than 50% of income tax, the bottom 90% would need an increase of more than 100% in marginal rates to make up the difference.
Not if the top 10% is making proportionately more of the money, which they are.
cherry-picking
Heeuw. I mean, yes, I picked the biggest possible differential, but we're only talking about 15 years here. There are only so many data points.
That said, tax policy is tremendously arcane, and I haven't taken the time to educate myself on anything other than the basics. I don't have good information on which loopholes opened and closed when.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )...the tax code was recodified. Many many loopholes, including tax shelters, were gotten rid of. In 1969 the Alternative Minimum Tax arrived on the scene and blocked up a bunch of loopholes, etc., etc.
The tax code is definitely a fluid kind of a thing and, as others have noted, it is difficult to draw broad conclusions about how marginal rates affect tax revenues.
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| parent )Mr. Neponset,
In the end margins are margins, after one runs out of loopholes and shelters. The last dollar will get taxed at the margin, and that is where the decision is made to recognize taxeble income or not. And the people affected by margins pay the bulk of taxes.
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| parent )Mr. Alegria,
How then have tax cuts not paid for themselves ?
The economy has grown over the last 40 years. If we didn't cut tax rates would the economy be exactly the same size it was in 1965? If the answer is no then perhaps there were other factors involved in the growth of the economy besides tax cuts.
I have shown that the tax cuts of 2003, on dividends and capital gains, yielded much greater revenues through, for instance, a doubling of declared dividends reported as personal income.
It is a tax savings strategy. There are only two ways to get money out of a C corporation, payroll or dividends. If the dividend tax rate is lower then it makes sense to pay more dividends and less payroll out of the corporation.
So the next time you hear Republicans say that tax cuts can pay for themselves, it would be wise to give them a respectful hearing. They have an excellent track record.
Since when? You ignored the point I made about deficit spending. Pay for tax cuts with government spending cuts and then maybe we will finally find out about how tax cuts pay for themselves. Until then your argument seems to be that deficit spending pays for itself.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )Mr. Neponset,
"The economy has grown over the last 40 years. "
That is why I said "% of GDP" - regardless of rates the income tax is still taking the same bite out of the economy.
"It is a tax savings strategy."
Exactly, my point precisely. The net result in this case is greater tax revenues.
"Until then your argument seems to be that deficit spending pays for itself."
No, my argument is that tax cuts pay for themselves - the effect of changes in incentives/disincentives to report taxable income seems to come to a consistent equilibrium - which is a pretty mysterious thing really. This has nothing to do with forcing growth through deficits. We are talking about % of GDP here.
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| parent )Mr. Alegria,
That is why I said "% of GDP" - regardless of rates the income tax is still taking the same bite out of the economy.
Sorry I misunderstood. I believe Hank made a relevant point below about average tax rates.
Exactly, my point precisely. The net result in this case is greater tax revenues.
Actually, no. The taxes are just coming from a different source not increasing overall. Instead of paying income taxes on wages at a higher rate people chose to pay income taxes on dividends at a lower rate. That doesn't mean total tax revenues increased. Any time you can shift your income to a lower rate you will do it.
No, my argument is that tax cuts pay for themselves - the effect of changes in incentives/disincentives to report taxable income seems to come to a consistent equilibrium - which is a pretty mysterious thing really. This has nothing to do with forcing growth through deficits. We are talking about % of GDP here.
I'm not talking about % of GDP. I am talking about increasing consumption and investment by borrowing to pay for a tax cut. That is what we do. We don't cut spending we just borrow more, and the effect from that has little to do with a tax cut.
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| parent )Mr. Neponset,
"I believe Hank made a relevant point below about average tax rates. "
Most income tax is paid by people who do not pay average tax rates. Income tax revenues are highly skewed.
"The taxes are just coming from a different source not increasing overall."
But they did increase overall. Post-2003 revenue growth was much greater than anticipated.
"I'm not talking about % of GDP."
I am. This avoids the problem of growth.
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| parent )that the Fed Funds rate was below 1.5% from mid 2002 - early 2004. If you don't think that increased liquidity had anything to do with corporate tax receipts and swamped the tax rate differentials we're talking about, well, I guess I'm not surprised.
--I blame it all on the Internet
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| parent )Mr. HankP,
We did not see an explosion in dividends (or corporate profits, or capital gains revenues) in 2002. We saw these towards the end of 2003, as the new tax treatment came in then.
We are still seeing increases in income tax collections driven by high-end earners now, still growing faster than GDP, in spite of the current federal funds rate.
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| parent )there's a lag time involved in economic issues like this, a lag for the effects to start and a lag for them to finish. Add in tax avoidance strategies and you can get all kinds of non-intuitive results.
Sorry, Luis, the statement that "tax rates don't matter" is simply untrue, as is the contention that tax cuts pay for themselves. The best estimates I've seen (I believe from Greg Mankiw, a conservative) is that corporate tax cuts claw back about 50% of the revenue, and income tax cuts claw back about 20% (under the rosiest possible scenarios).
--I blame it all on the Internet
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| parent )Mr. HankP,
Like this interesting case -
Reported dividends in income tax filings -
2002 94
2003 183 (105 + 78) - May 2003 Tax Reform
2004 242 (137 + 105)
the + XXX refers to dividends qualifying for a 15% tax rate.
Note that somehow there were, in 2003, $80B in dividends reported for this favorable treatment. Dividends doubled - not a usual thing - from one year to the next.
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| parent )Mr. Alegria,
Most income tax is paid by people who do not pay average tax rates. Income tax revenues are highly skewed.
I have been looking for average marginal tax rates for the last 50 years but I haven't found that info yet. If I do it should be helpful.
But they did increase overall. Post-2003 revenue growth was much greater than anticipated.
And that much greater than anticipated growth is all related to tax cuts? If so, how?
I am. This avoids the problem of growth.
The growth of the economy is the whole point of the discussion. What is causing it? a) Tax Cuts b) Deficit spending c) other d) all of the above
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| parent )Mr. Neponset,
Not growth. One would expect that growth would increase tax revenues but that is not the only driver of tax revenues, else the CBO would be much more accurate in forecasting. My point is that income tax revenues seem very robust regardless of rate.
"Average Marginal Tax Rates" ? I'm not sure what you mean by that.
"And that much greater than anticipated growth is all related to tax cuts? If so, how?"
Timing. Reported dividend income, Capital gains revenues, and Corporate taxes all began to grow like crazy right after the JGGTRA law in mid-2003, cutting effective rates on dividends and capital gains.
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| parent )When people want to believe in fairy tales, in this case that tax cuts pay for themselves, there's little you can do about it. Mankiw, a top economist who was Bush's chief economics advisor until recently, calculates that the clawback may be 25%, but when someone wants to believe it's 100% how can you possibly argue with that?
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| parent )Mr. Gabriel,
Well, you could try address the facts.
Mankiw was making a very narrow point with respect to the effect on revenues through economic stimulus btw. This is a consistent fault with economists.
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| parent )Your posts clearly show you don't understand this topic. Mankiw and Doug Holtz (among others) were VERY CLEAR. They looked at the numbers and tax cuts simply don't pay for themselves. Even Stephen Moore admits that.
I don't know why time and time again you make these posts on technical matters you simply have not studied. People don't just wake up one day and get to claim expertise on any subject. What you wrote on CA's GDP per capita or that governments can't save should have been enough for you to realize that you are way over your head. These are not differences of opinion here, we are talking basic facts.
That's why I wrote that some debates are unlikely to go anywhere. You post things that conservative economists have already repeatedly said are false yet it doesn't faze you.
--This place is my vacation.
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| parent )but rather than yelling at Luis, could you tell those of us who don't know whether Mankiw was only referring to a 25% return on tax cuts as a result of stimulus, and not, say, extra revenue as a result of more taxable income reported?
I don't think that would take any longer than what you posted and if you're trying to shame Luis would actually work out better.
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| parent )Mr. Catchy,
And that is clearly an insufficient avenue of analysis. One could say that there is a valid consensus on the matter of a net positive revenue effect as a result of stimulus, but that is a narrow point.
Neither attempted anything like specific behavioral responses to specific changes in policy, in spite of the fact that there is plenty of data to come up with interesting results.
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| parent )You admitted elsewhere that you don't even know how these studies are conducted. Your claims that governments can't save and your attempt to adjust Californian's income with the wrong index are further indication of your lack of understanding of these issues. Yet you feel comfortable criticizing someone like Mankiw, whose research you don't even understand.
Strange, to say the least.
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| parent )and they vary a lot depending on the assumptions made. Most of the clawback (the increase in revenues resulting from the tax cuts over what a simple static analysis would predict) seems to come from a combination of increased spending and increased activity. Different models come up with different ratios.
What they ALL agree on is that tax cuts DO NOT pay for themselves, that there is a net loss in tax revenues due to the tax cuts. This is no longer debated among economists, at least not at the levels we are talking about in the US. The only ones that mention it are either GOP politicians (Rudy Guliani is the latest) or members of the GOP who have no understanding of this issue.
I am not sick of talking to Luis but I am bothered by the fact that he pretends that he knows something about this and clearly does not. It's not just tax cuts. His posts on California's average income or his claim that governments can't save all indicate a lack of knowledge about the fundamentals. As I wrote elsewhere this may not be rocket science but neither is it something you pick up reading a weekly magazine.
Luis keeps claiming that Bush's tax cuts pay for themselves and that comment is nonsense. Not even the WH economists believe that.
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| parent )you're talking about the top marginal rates, not the average (or even median) marginal rates. A very small percentage paid 90+%. Also, the doubling of the SSI contributions in the 80s was extremely regressive and helped fund the rate cuts at the top.
As for the insanely stupid WSJ chart you mention, here's a sample of an economist describing it with the ridicule it deserves (at least I think this is the chart you were describing, please let me know if it was a different one).
Tax cuts do not pay for themselves, end of story. Anyone who says they do is either pushing and agenda or woefully ignorant of economics.
--I blame it all on the Internet
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| parent )Mr. HankP,
a. The top marginal rates affect the bulk of income tax collections - who do you think pays income taxes ? I think its consistently the top 5% who pay half of income taxes.
b. This has nothing to do with SSI collections, I am talking about income tax collections only.
c. There is nothing stupid about the chart. The line drawn through it was foolish, but the data speaks for itself. Forget Norway. And you could make the same sort of chart for income tax and come to the same conclusion - tax rates don't matter.
You can call me ignorant all you like, but facts are facts.
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| parent )that was designed to show a Laffer curve, but you aren't endorsing a Laffer-curve relationship between corporate tax rates and corporate tax revenues as a % of GDP.
In fact you're claiming there's 'no pattern' between the two:
There was an interesting chart in the WSJ a few weeks ago that showed corporate tax rates and tax collections as % of GDP across developed countries - no pattern - the US collects less than average in corporate taxes but has one of the highest rates.
That's a little confusing and unfortunately conflicts with what the data on the chart actually shows -- a positive correlation between corporate tax rates and corp tax revenues as a % of GDP.
Here's the chart w. the relevant linear regression
UPDATE: you know, looking at that thing, it's a pretty mild correlation. But I wonder, if there's 'no pattern' as you say, then why do you believe that tax cuts pay for themselves? P and -P.
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| parent )Mr. Catchy,
Much better, I think. If you have the data I can try it on Excel.
A Laffer curve ? Not really, but sufficient to indicate a "sweet spot" well below the maximum - or a very poor response for revenues vs rates, which is my point.
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| parent )If you throw out Norway and Luxembourg (as outliers, but the results are qualitatively the same whether they are included or not) and do a linear regression, the chart shows that revenues rise as tax rates rise. (Also, corporate taxes are such a maze of inclusions and exceptions that it's difficult to say why there is a variation between countries using a simpleminded graph like this, but I digress).
Really, this is getting ridiculous.
--I blame it all on the Internet
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| parent )I hadn't realized Luis was talking about that chart!
--This place is my vacation.
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| parent )I was thinking of posting something at the weblog you link to but, really, what for? Clearly the author doesn't know much about the topic. No serious economist, from the left or the right, believes that cutting tax rates raises revenues. The CBO under the GOP, Mankiw, Bruce Bartlett, are but some conservative economists that have clearly said that cutting tax rates REDUCES tax revenue. At this stage arguing with people who think otherwise is like arguing with a flat-earther.
--This place is my vacation.
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)It is about stopping the Right Wing noise machine from repeating its bogus talking points. I don't think the crowd at Wizbang will ever admit that reducing taxes doesn't increase tax revenue but if you can prove them wrong then they will use that talking point less and less.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )Mr. Neponset,
Or perhaps your mind is not so closed as some ?
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| parent )the trick is not to leave your mind so open your brain falls out.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )It's just that people who write what this blogger wrote appear immune to facts. It's not clear to me that anything will ever lead them to accept they are wrong.
--This place is my vacation.
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| parent )Blue Neponset
The next time you blog whore yourself over here at the "wingnut site" (wizbang) make sure you have a cogent argument to offer. You said...
"There are only two ways to get money out of a C corporation, payroll or dividends."
That is the most remarkably ignorant statement I have ever read. Have you ever taken an accounting class? Run a business? Are you employeed by a business? Know how to read a financial statement? Private or Public?
Money is gotten out of C Corps in myriad ways...but when I dumb myself down to your level I think I know what you were trying to say but failed so miserably to do....you're talking about profits, correct? Then say so you moron. And as to what stimulates the economy, those "above the line expenses" (go look that up Einstein)are a major factor .
Keep this up and someone here will have to start fact checking you at your blog whorehouse.
My apologies to the Forum for this abrupt comment from a newcommer, but Blue's preening here and here snide reference to wizbang as a wingnut site begged for a reply....particularly in light of here poorly informed post here.
--hslatery
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| parent )and while I don't know if "wingnut" is the proper term, "economically illiterate" certainly seems to fit. Try factoring in the deficit and debt next time you discuss the benefits of tax "cuts" (which are deferrals, not cuts, when the debt keeps steadily rising).
--I blame it all on the Internet
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| parent )Mr. HankP,
A deferral is a useful concept in state financing, because the state is a peculiar institution. The first rule is that states rarely die, and when they do they tend to wipe out their debt. So it happens that Britain is still paying for the Seven Years War and the Napoleonic wars, because debt issued to finance those is still current - look up consols.
The second point is that a states revenues depend on the economy it lives off of, and this (with reasonable historical luck) can be counted on to grow and yield ever-increasing revenues. The problem of debt is really the ability to pay, and if debt grows more slowly than revenues (or the economic basis from which to collect revenues) then debt can increase in perpetuity.
Britain's economy grew fast enough to render its Napoleonic debts inconsequential in relation to its state revenues. The same thing happened with respect to the US and its WWII debts also.
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| parent )it impacts us right now. Last year the budget contained ~$400 billion in interest payments on the debt. You may feel that there's no problem with that, I disagree. Also, nothing goes on in perpetuity. There are several events that could happen in the near future (reduced appetite of foreign central banks for US T Bills, oil trades to start taking place in Euros or Yen in addition to dollars, loss of exclusivity as a global reserve currency) that would have dire effects indeed. Sloppy economic policies are not painless, just because we haven't had problems so far doesn't mean that we can run up debt like there's no tomorrow.
--I blame it all on the Internet
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| parent )very much economically illiterate. What's strange is that no real economist from the right believes that nonsense yet for some reason too many of the GOP base do.
--This place is my vacation.
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| parent )Link
--Fence post turtles -- They don't get up there by themselves, some moron had to put 'em there.
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| parent )I blame it all on the Internet
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| parent ).
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )How do you get money out of a C Corporation? (keep in mind that we were discussing income taxes)
In the immortal words of Dubya, Bring it on!!!
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent ).
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| parent )Mr. Alegria,
You can't really take money out of the company through stock options, and depending on the type of options they may be treated as payroll but that is a good answer.
It also helps to make my earlier point. Once capital gains rate were less than ordinary income rates it made more sense from a tax savings standpoint to pay someone with stock options rather than with cash. That helps explain why capital gains tax revenues might increase.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )"keep in mind that we were discussing income taxes"
That explains nothing about your comment. You made no reference whatsoever to after tax income or after tax profits. Please don't ask me to keep in mind or read your mind...state your position plainly and clearlrly...the first time.
--hslatery
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| parent )How the hell do you get money out of a C Corporation?
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )will be running back to the safety of his blog. I don't think he's used to actually having to defend his opinions with facts. But I could be mistaken.
--This place is my vacation.
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| parent )Over on his blog he claims I called him stupid and he won't answer my question until I admit I know about accounting.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )I am curious. Are you aware that no serious economist, and I include those on the right, believes that tax cuts pay for themselves?
--This place is my vacation.
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| parent )Gabriel
Does Laffer agree with your point? Does Friedman?
Let's put aside the academics and look at the budget. Between 1980 and 2006 the highest marginal rates have fallen and tax revenues have risen.
What is the cause/effect conclusion? A growing economy? What effect does tax policy have on economic growth?
Hslatery
--hslatery
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| parent )what do you know about economics? I mean, do you think that that is how economic research is done, you look at two points in time and that's it? I am trying not to be rude but from what you are writing it seems you don't understand this issue and are simply repeating talking points.
If you are interested you can read something here:
or here:
or here:
Or read the original research (pdf file):
http://www.remi.com/downloads/seminar/mankiw%20dynamic%20scoring.pdf
--This place is my vacation.
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| parent )Gabriel
I had the same question for you....except I'm not arguing research...I'm arguing budgets and actual results. That's what we do in business. Projections and economic theory have a hard time when the rubber meets the road....sorry for the cliche, but ask some folks in Detroit if it is apropos.
My basic argument is this: the highest marginal tax rates have fallen from +70% to 39% and Federal tax receipts have risen in the same period of time. Explain this phenomena.
http://www.cbo.gov/ftpdoc.cfm?index=3521&type=0
--hslatery
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| parent )I'm sorry, you are trying to make this like some simple point A vs point B and that's not how this is done.
--This place is my vacation.
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| parent )how pray tell is it done...?
--hslatery
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| parent )It's very technical, as you can see.
--This place is my vacation.
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| parent )..
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| parent )Mr. HSlatery,
Address the comments not the commenter.
--For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise - B. Franklin
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| parent )Noted
--hslatery
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| parent )Me: We! -- Ali
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| parent )Zelig
--Mother always admonished me to be polite first....forgiveness not desired.
hslatery
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| parent )