They say keep the tax cuts for folks making less than 250k. Most people make less than that and they figure ya you’re right screw the fat cats. In reality small businesses have to gross more than 250 just to survive and pay a couple of employees. Letting the tax cuts expire will hurt small business, forcing some out and making less competition for big business. All these payouts to the TO BIG TO FAIL corporate welfare bums makes it impossible for their smaller counterparts to compete. Once the competition is out of the picture they are free to set prices at will. They are also free to set salaries too. So if you let them screw small business you may as well bend over cause you’re next.
The Laffer curve is important because, if you’re above it maximum, it’s way easier to convince people to go under. From the maximum downward, that is the real tricky part.
And it wouldn’t take 50 years for revenue to increase due to tax cuts: in the extremely globalized world we live in, a good choice gives results in a few years top. Capital is mobile, and low US rates would attract back capital that has fled for greener pastures. The problem is that the democratic system allows for no coherent decision-making. The king could sit down with his advisors and weigh the pros and cons of tax cuts. Parliaments can’t do that. Every single deputy has been elected by folks who want something, irrespective of the situation. He has no choice to make, all is set.
In this sense, I agree that the Laffer effect should not be overplayed, not because it is irrelevant, but because a democracy does not even tell its own benefit, and would not see higher revenue if it hit it in the face.
Does anyone here subscribe to the Molyneux view that short term “tax cuts” are actually a negative for liberty in the long run since they allow the state to obtain more revenue?
Excellent point. I suppose you’re right, except I still don’t see any evidence that we’re capable of gaining higher federal income tax revenues (as % of GDP) through tax cuts. It didn’t happen under Reagan or Bush 43. My suspicion is Ricardian equivalence. Huge deficits=higher taxes and/or inflation in the future, so tax cuts don’t necessarily make for a tax haven. Not for long, anyway. And even if taxes don’t go up, there will still be a faultering economy due to the debt problem caused if income increases don’t make up for revenue losses (because we can’t count on spending cuts.)
Excellent point. I suppose you’re right, except I still don’t see any evidence that we’re capable of gaining higher federal income tax revenues (as % of GDP) through tax cuts. It didn’t happen under Reagan or Bush 43. My suspicion is Ricardian equivalence. Huge deficits=higher taxes and/or inflation in the future, so tax cuts don’t necessarily make for a tax haven. Not for long, anyway. And even if taxes don’t go up, there will still be a faultering economy due to the debt problem caused if income increases don’t make up for revenue losses (because we can’t count on spending cuts.)
Doesn’t Ricardian equivalence kind of fall to the ground in a regime with very high capital mobility? Who cares whether the US is going to raise taxes 5 years from now, if by than I can move my investment elsewhere? Enjoy the moment. Act latter.
Now, Reagan failed in mending the deficit, so it’s patently clear that playing Laffer is not an exact science, and quite far from it. Still, one must take into consideration the rest of the world. Back than, US tax rates were quite low by global standards, so not much capital was gained by further lowering taxes. Nowadays even Europe has lower rates than the US, so the benefits from lower rates would be more palpable. But again, this is no exact science.