Again, The Laffer Curve! And A Tease For Tomorrow! Kansas Is Key!!!

 

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So, I had a couple of things to deal with today, and I’m not feeling as spry as I wish, so I won’t get to lay out some things as I wanted to today.  But, with rain, there’s a rainbow!  I’ll split this, and, hopefully, by splitting, make more sense to the lay person.

For the people who already know of such, it never hurts to see this.

Wiki does a piss poor job of explaining the Laffer curve, but, I’ll quote a bit of it.

In economics, the Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity—i.e., taxable income will change in response to changes in the rate of taxation. It postulates that no tax revenue will be raised at the extreme tax rates of 0% and 100% and that there must be at least one rate where tax revenue would be a non-zero maximum.

The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. The actual existence and shape of the curve is uncertain and disputed.[1]

One potential result of the Laffer curve is that increasing tax rates beyond a certain point will be counter-productive for raising further tax revenue. A hypothetical Laffer curve for any given economy can only be estimated and such estimates are controversial.

I do this in hopes some leftard will read the criticisms and come here to argue the points leftards attempt to make against this simple thought.

You see, leftards hate this notion.  But, the notion is logical, provable in theory, and demonstrable in practice.  In other words, by now, any other notion which can be held to such scrutiny would be declared a “law” in economic theory. 

Laffer’s curve is illustrated above.  The notion is of two parts.  One addresses tax rates and government revenue, and the other tax rates and economic growth. 

Clearly, if the tax rate of an economy was zero, then, the government would receive no money from the economic activity of said economy.  Additionally, and clearly, if the tax rate was 100%, the government would receive no revenue from the taxes because no one would willingly work for nothing.  <—-  This is really what the leftards get exercised about. 

Laffer says, paraphrasing, there’s a point between 0% and 100% which maximizes government revenue.  Again, this isn’t hard to conceive.  Any idiot would know this.  Laffer doesn’t say what percentage, but, there is a point with maximizes government revenue, the tax rate being somewhere between 0 and 100%.  On the graph above, it is represented as point “B”. 

But, as clear as point “B” being true, this also, then, states that any point beyond point “B” causes a decrease in the government revenue of said economy. 

That is to say, if the maximizing point of the taxation rate is 50%, then a taxation rate of 51% would then cause a decrease in government revenue because it decreases the incentive to work. <— Leftards hate this obviously true statement!

But, there’s more to the curve.  And, I think, this is where it gets hard for some people who don’t typically think about economics and the like. 

If the above is true, which it is most obviously so, then, there must be a point in taxation which optimizes economic growth! 

For the people who screamed, “yeh, it’s called zero taxes!!!” …….. I’m sorry, but, that’s not true.  An economy, which doesn’t provide for governance will not be an economy for very long.  Just like no one will work for nothing in an economy which taxes 100%, no one will work for an economy for nothing. 

In all economies, things must be provided and maintained.  This is true in micro and macro.  For those who screamed “tariff the imports and do away with taxes!!!” ……  A tariff is simply another form of taxation.  Sure, the importers would pay the tariffs, and do, but, the people pay the price difference.  If we decided to tariff all computer processors imported by $25, then they would sell for $25 more than they would have, had they not been tariffed.  So, anyone buying the imported good, would be the one’s who paid the tax.  If they didn’t sell, they wouldn’t be imported, and thus, no revenue gained.   Tariffs are a form of taxes.   

So, we must have taxes of some sort to maintain and provide.  By provide, I mean things such as providing for the common defense of the people, paying judges, maintaining law and order, ……  etc. …. etc. ….. these things, and much more must be done.  How much more and where to draw the line?  That’s up to the people.  But, there are things which government does which is conducive for economic growth.  Defense is primary, that is to say, if your country was frequently marauded because the defense wasn’t funded, then, the economy would not grow.  If the US, for instance, decided to no longer support the highway systems because of lack of tax revenue, then, that too, would have a negative effect on our economy. 

So, our economy must be maintained by a certain level of taxation to maximize the economic growth of the people.  The level of taxation to maximize economic growth, obviously, will never exceed the level of taxation to maximize government revenue.  Again, this is simple to understand.  If an economy raises the tax rate, and decreases it’s revenue, then, obviously, there was less money to be taxed.  Elementary math dictates this. 

Additionally, if the economy’s government isn’t properly funded, or properly managed, then we’ll see a decline in the economy.  For instance if the roads were not properly maintained. 

What does this have to do with anything? ……  Well …. KANSAS!!!!!!!!!

The world should be focused on Kansas, right now, today, and watching the left.  The left is pulling every dirty trick, pouring money in from …… well God knows where, to defeat conservatives in Kansas.  Yes, the Senate may very well be in the balance this election, but, more, Governor Brownback instilled (with the legislature) a series of tax cuts.  Unfortunately, because of the global and national economy, the projected growth didn’t happen.  The lunatics are pouncing.  And, the conservative notion that lower taxes are better is being attacked, and, poorly defended.

Tomorrow, we get to play a bit of show and tell.  It took me a while to find the official data, and I can’t help but wonder why.  But, where’s there’s smoke, there’s fire, and I’ve got some smoke.  Had I more time and feeling better, I’d light some fire, as well.  But, this should have already been done. 

While the notion of the Laffer Curve is simple, and easy to understand, it produces things which are more profound and things more complex.  But, literally, it is a notion which can grow things. 

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20 Responses to Again, The Laffer Curve! And A Tease For Tomorrow! Kansas Is Key!!!

  1. cdquarles says:

    Thank me. I put the question to James that prompted this :).

  2. Jason Calley says:

    “The actual existence and shape of the curve is uncertain and disputed.”

    Just a couple quick points about the shape of the curve…

    This is a minor quibble, but it does not necessarily go to zero revenue at zero tax rate. If governmental services were actually valued as highly (or higher) as the taxes needed to provide them, many people would voluntarily send money to the government even when the rate was zero. many people voluntarily give donations to their church, simply because they see the church is making worthwhile usage of their donations.

    This is maybe a more important point — the shape of the curve is variable depending on the circumstances. During war time (at least during the time of wars which the populace see as justified) the point of maximum revenue is moved toward the higher rates. Someone living in London during the WWII blitz is much more likely to continue working hard and paying the majority of his wages in taxes if he sees his efforts as being crucial to surviving. This is important. One of the great reasons why the people of the world (OK, especially here in the US) are constantly bombarded with fear mongering news is that it makes us willing to feed more taxes to the the government and to allow it to continually metastasize. Your politicians want you to be afraid so that they can harvest more of your resources without having you resist.

    • DirkH says:

      War economies entail coercion. Poroshenko’s Ukraine recently drafted all men up to 60 into either the army or mandatory “community service”. Meaning slavery.
      Similarly, economy under FDR during WW 2 was a command economy .
      “War is the total action of the state” (That old Prussian guy whose name currently escapes me)

    • cdquarles says:

      That’s a pretty big if. The only ones that I know of are national defense and courts as far as the Feds go. Locally, it is the cops and courts, too. Keep the laws simple, few, well known and properly enforced, most will self-govern, so you won’t need much in the way of taxes and court fees to run the system. One/two percent of the economic product would do (and did, if you look at historical data). As recent as 1901, $7 per year per capita ran all of government in the US.

      • Jason Calley says:

        Hey cdquarles! “That’s a pretty big if.”

        Well, yes, it is… There is an easy and slightly cynical way to see what services the public (not me specifically, but rather the majority of the people) actually values. Just look at what the first services cut off are, every time the politicians want to raise taxes. The politicians might be spending 90% of the budget on cronies and donors, but you can bet that if they ever want to raise the tax rate, the first things cut (just to prove how limited the budget is) will be things like libraries, fire departments, police on the beat, ambulance services, sanitation workers and public parks. They never cut off their good buddy’s sweet no-bid contract to research whether the color red makes hookers more profitable. Of course the reason why popular services are cut first is obvious.

        • cdquarles says:

          That won’t work where I live.

          Sanitation services, other than sewage service, is private. Ambulance service? We have some cities that run services but there are private companies here, too. Library? Yeah, that’s nominally staffed by either volunteers or city paid staff. It is privately funded mostly, though. We have both city fire departments and volunteer services, too. In some parts of the county, even water service is private, though the larger incorporated entities have utility departments. We also have ‘city’ and private parks. The only thing really ‘public’, exclusively, is police departments. Security services are private, but they don’t do law enforcement outside of citizen arrests (which still happens).

          So, what happens is that if the folk refuse the tax increases (it happens) they raise fees. Those are real popular ;p . Recent attempts to raise property tax rates and sales taxes (the largest sources locally) failed. The state has not raised income tax rates (recent attempt failed, but the modernization of the deductions and indexing them did happen). The state has not raised its sales tax rate in my lifetime, I believe (it was 4% when we moved here in 62 and it is still 4% (auto rate is 1.5%). The state did extend the standard rate to things previously exempt, back in the ’01 recession.

  3. DirkH says:

    Bunch of guys in Leipzig stage a mock decapitation ISIS style in city centre, disappear. Photos appear on internet.
    Our crazy insane Dhimmy justice now tries to find them, saying, staging a decaptitation is illegal because it obviously has the intent of enticing people to imitate it. Everything for the cause, project Eurabia!
    http://www.focus.de/politik/deutschland/scharia-polizei-in-leipzig-stecken-rechte-hinter-dem-enthauptungs-schauspiel_id_4174182.html

  4. DirkH says:

    NYT fires 100 newsroom people, 7.5% of employees, says a scared Der Spiegel .
    http://www.spiegel.de/kultur/gesellschaft/new-york-times-streicht-100-stellen-im-newsroom-a-994902.html
    Shape of Things To Come, Spiegel!

  5. Pingback: Laffer, Kansas, And Mother Jones On Time!!!!! | suyts space

  6. manicbeancounter says:

    A couple of points about the Laffer Curve.
    The first, emphasizing what you say, is that three points are true by definition. That is the zero and 100% rates, and the revenue-maximizing tax rate.
    The second is about the left. they want to go beyond point B. They want to harm the “rich” by penal tax rates, such as Britain in the 1960s where the top income tax rate was 98% and still 83% in 1979.
    A point I would make is that the growth maximizing point is conditional on the type of tax. Many taxes are simply transfers back to the taxed, less a large administration fee. Those are anti-growth. conversely, using taxation to maintain the Rule of Law is a prerequisite to sustain even current levels of output, let alone growth.
    Another point is that the growth maximization is also dependent on how effectively the tax revenue is spent.

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