Arthur Laffer’s Anti-Stimulus Curve Ball is a Foul

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Thad Allton / Topeka Capital-Journal via AP

Arthur Laffer testifies before the Kansas House Tax committee at the statehouse, Jan. 19, 2012 in Topeka, Kan.

Economist Arthur Laffer, patron saint of tax cuts, is back, with an op-ed in the Wall Street Journal that he hopes will put the kibosh on future plans for government stimulus. Laffer, who had his heyday back in the Reagan years, is best known as the popularizer of the notion that raising tax rates beyond a certain level can actually reduce tax revenues by, among other things, discouraging entrepreneurship. The graphic representation of this idea, though not original to Laffer, came to be known as the Laffer Curve.

While he’s always had detractors, Laffer also had a lot of fervent fans back in the day. But his latest excursion into the public debate has drawn harsh criticism not only from liberal economists like Berkeley’s Brad DeLong  but also from stimulus-hating, anti-Keynesian economists you might expect to agree with the Laffer line. The consensus? Laffer seems to have forgotten, or ignored, some pretty basic concepts in economics. In other words, Laffer is getting laughed off the economic stage.

In his WSJ piece, Laffer sets out a simple enough argument: In the current troubled world economy, he claims, the countries that have relied the most on fiscal stimulus — Estonia, Ireland, the Slovak Republic, and Finland — have done the worst. Why? Because, Laffer argues, the money for the stimulus has to come from somewhere, and therefore “every dollar of public-sector spending on stimulus simply wiped out a dollar of private investment and output, resulting in an overall decline in GDP.”

A rather elementary fact about fiscal stimulus, however, is that it doesn’t “wipe out” private spending in the present. Rather, it borrows money from the future. By relying on deficit spending, stimulus programs are designed to pump more money into the economy during downturns, when private spending and tax revenues are soft. The temporary deficits can be reduced, at least in theory, once the economy is back on its feet and tax revenues perk up.

But you don’t have to be a raging Keynesian to have trouble with Laffer’s argument. On his blog The Market Monetarist, Danske Bank Chief Analyst and self-described “right-wing economist” Lars Christensen suggests that Laffer has joined a number of other right-wing economists in the U.S. who “seem to have forgotten everything about economics — mostly as a result of an apparent hatred of President Obama.” Laffer, he argues, “is embarrassing himself” with his WSJ op-ed by pretending that Estonia, Ireland, the Slovak Republic, and Finland have been ruined by an excess of Keynesian zeal.

In fact, as Christiansen points out, Estonia, the Slovak Republic, and Finland are among “the most fiscally conservative countries in the EU,” while Ireland’s been spending its money on banking bailouts, not stimulus.

How did Laffer get things so backwards? Christensen suggests the following:

…maybe he never heard about cyclically adjusted government spending. It should be no surprise to anybody who just spent one hour reading an intermediate textbook on public finances that government spending tends to increase in cyclical downturns and tax revenues drop when the economy slumps.

On TheAtlantic.com, Matthew O’Brien takes this argument a step further, suggesting that Laffer may well have given us the “worst ever argument against government stimulus.” He writes:

It is trivially true that when GDP goes down, government spending as a share of GDP will go up. That’s how fractions work.

Laffer … wants to show that the most devastated countries were also the most profligate, but instead he’s simply showing that the most devastated countries were also the most devastated.

O’Brien adds several more years of data, and crunches the numbers in a more sensible way. By looking at the“percent change in public spending itself, rather than the change in public spending as a percent of GDP” he comes up with results that reveal the exact opposite of what Laffer is arguing. That is, O’Brien writes, “[t]he three countries that spent the least — Ireland, Greece, and Latvia — did the worst.” He adds, for good measure: “A silver bullet into the heart of Keynesianism, this is not.”

Laffer’s staunchest defender in all of this? The conservative weekly Human Events, which, like Laffer, had its glory days sometime during the Reagan Administration. In a blog post on the Human Events website, John Hayward writes that Laffer has dropped “an atomic bomb on Obamanomics.” More like a turkey.

55 comments
Taxpayers1234
Taxpayers1234

@flocktard A report by a reporter, not an economist. Nice try.

tpaine1
tpaine1

Kenysian economists will say ANYTHING not to be proven wrong, but "the proof is in the pudding." 

Obama-Pelosi-Reid's six year experiment in "crony socialism" have produced "the most Americans EVER in poverty and on food stamps."

The Kenysian economic model  of massive government directed spending is a dead horse still, barely, walking.

The ultimate proof will be when Romney's low tax and regulation economic plan works (again).

scottindallas
scottindallas

 We've been trying low taxes sinCE Reagan, and manufacturing and middle class jobs have only shrunk.  Obama hasn't changed anything, so; you're wanting more of the same.

Progressively Defensive
Progressively Defensive

There is a first part still to be published, I hope.

Progressively Defensive
Progressively Defensive

I think Laffer's point is that stimlus in government spending is profligate whereas stimilus in tax cuts are efficient. Carternomics v. Reaganomics is overwhleming evidence of that. Would you rather have Obama investing in Solyndra and public education (which is sadly, looking at actual data regarding outcomes, a horrible waste, worse and worse every decade because of HOW it's done monopolitically and disinterestedly) or would you rather have Warren Buffett and Bill Gates invest it in the "next big thing"? Both are stimulus. I know - please - the multiplier in theory ought to be higher for government spending, but it is not - I believe that with a passion and it is virtually impossible to prove either way. Why? Beacause government under Obama is a Democratic scam [like Detroit]. It does hurt private investment because it competes for capital and labor (where winning wasting both), fosters skepticism and risk aversion, and crowds out investment due to fear of, as is now proving correct, a huge tax increase on capital, real estate, wealth and high income, to pay for the horrible policies.

In constant dollars, Reagan created like 12 million jobs at $10,000/job. Maybe, best case scenario, Obama created 4 million jobs at $350,000/job. That's because Reagan spent on defense and quasi-spent on tax cuts for everyone especially capital and wealth. His mulitplier was 3-4x higher whatever simplistic formulas economists hope are accurate.

northernobserver
northernobserver

Reagan's achievement is a lot less brilliant when we realise that it was accomplished with massive deficits.  That is an option that is no longer available to Romney.   Obama' s economic stimulous is just economic stabalizers by comparison.  

scottindallas
scottindallas

 no tpaine, AL FRANKEN documented this in "LIES AND THE LYING LIARS..."  I'm sure you can google it.  Rather than listening to self serving pundits who will say anything they're paid to. 

tpaine1
tpaine1

Scott, the President "proposes" and the Congress "disposes."  At the end of the day, the President can sign or veto.  Want to look back a Reagan's veto record?  You'll find it quite extensive.

scottindallas
scottindallas

 tpaine, you're wrong again.  Congress' budgets were right in line with Reagan's budgets, (less than 3% variation..)

tpaine1
tpaine1

ONLY because Congress was controlled by Democrats six of Reagan's eight years.

Progressively Defensive
Progressively Defensive

I think Laffer's point is that stimlus in government spending is profligate whereas stimilus in tax cuts are efficient. Carternomics v. Reaganomics is overwhleming evidence of that. Would you rather have Obama investing in Solyndra and public education (which is sadly, looking at actual data regarding outcomes, a horrible waste, worse and worse every decade because of HOW it's done monopolitically and disinterestedly) or would you rather have Warren Buffett and Bill Gates invest it in the "next big thing"? Both are stimulus. I know - please - the multiplier in theory ought to be higher for government spending, but it is not - I believe that with a passion and it is virtually impossible to prove either way. Why? Beacause government under Obama is a Democratic scam [like Detroit]. It does hurt private investment because it competes for capital and labor (where winning wasting both), fosters skepticism and risk aversion, and crowds out investment due to fear of, as is now proving correct, a huge tax increase on capital, real estate, wealth and high income, to pay for the horrible policies.

In constant dollars, Reagan created like 12 million jobs at $10,000/job. Maybe, best case scenario, Obama created 4 million jobs at $350,000/job. That's because Reagan spent on defense and quasi-spent on tax cuts for everyone especially capital and wealth. His mulitplier was 3-4x higher whatever simplistic formulas economists hope are accurate.

northernobserver
northernobserver

If tax cuts are more efficient we would have had a Bush boom, we did not.

tpaine1
tpaine1

What do you call less than 5% unemployment and over 3% GDP growth/annum??  I call that a BOOM!!

Progressively Defensive
Progressively Defensive

In constant dollars, Reagan created like 12 million jobs at $10,000/job. Maybe, best case scenario, Obama created 4 million jobs at $350,000/job. That's because Reagan spent on defense and quasi-spent on tax cuts for everyone especially capital and wealth. His mulitplier was 3-4x higher whatever simplistic formulas economists hope are accurate.

Progressively Defensive
Progressively Defensive

If Laffer were wrong, Reaganomics would have been a disaster. Yet he had inflation thwarting monetary policy (constricting first then expanding where inflation decreases permited), military success, jobs and growth exponential growth. Obama's taking us back to 1978.

Poverty also went down under Reagan (6% over 8 years, but more evidentarily 33% down from 1983-1989.

Obama's polices are Detroit's policies over the last 60 years worked at the national scale. Are they not? Exactly? They are ... these policies are more devastation than an nuclear bombardment, however clearly more insidious.

northernobserver
northernobserver

Reagan abandoned Laffer, remember, he increased taxes beacause the theory didn't work and the deficit explosion was freightening.   Don't know why you are babbling about Detroit, the auto bail out is the best thing the federal government has done since the GI bill.  American car companies are better than ever.

tpaine1
tpaine1

Really.  Obama gave GM 100 billion hardearned US tax dollars (so the UAW could buy the lion's share of GM at no cost to them) and the ENTIRE company is now worth 34 billion??

Compare that with Romney taking a single store selling office supplies to one that now has 2,000+ stores and employs 90,000+ Americans - a company called "Staples." AND he did this over and over again. with companies like Domino's, Sealy, Brookstone, Weather Channel, Burger King, Warner Music Group, Dollarama, Home Depot Supply, and many others.

The obvious solution to eliminate The Great Recession? Fire Obama and hire Romney.

Progressively Defensive
Progressively Defensive

I think Laffer's point is that stimlus in government spending is profligate whereas stimilus in tax cuts are efficient. Carternomics v. Reaganomics is overwhleming evidence of that. Would you rather have Obama investing in Solyndra and public education (which is sadly, looking at actual data regarding outcomes, a horrible waste, worse and worse every decade because of HOW it's done monopolitically and disinterestedly) or would you rather have Warren Buffett and Bill Gates invest it in the "next big thing"? Both are stimulus. I know - please - the multiplier in theory ought to be higher for government spending, but it is not - I believe that with a passion and it is virtually impossible to prove either way. Why? Beacause government under Obama is a Democratic scam [like Detroit]. It does hurt private investment because it competes for capital and labor (where winning wasting both), fosters skepticism and risk aversion, and crowds out investment due to fear of, as is now proving correct, a huge tax increase on capital, real estate, wealth and high income, to pay for the horrible policies.

In constant dollars, Reagan created like 12 million jobs at $10,000/job. Maybe, best case scenario, Obama created 4 million jobs at $350,000/job. That's because Reagan spent on defense and quasi-spent on tax cuts for everyone especially capital and wealth. His mulitplier was 3-4x higher whatever simplistic formulas economists hope are accurate.

If Laffer were wrong, Reaganomics would have been a disaster. Yet he had inflation thwarting monetary policy (constricting first then expanding where inflation decreases permited), military success, jobs and growth exponential growth. Obama's taking us back to 1978.

headlight
headlight

What if the next big thing is in China?  

If you are looking at some amount of funding in the federal government, and the goal is to create jobs FOR AMERICANS, does it make more sense to identify ways for the government to spend the money inside the US, or to give a tax cut for Bill Gates so he can spend it wherever he chooses, and for whatever he thinks is best?  I thought that Steve Jobs was a genius, but all those wonderful gadgets are being built in factories in China.  

The fact is, infrastructure spending in the US has some of the highest multiplier effects -- construction jobs have do be done where the construction is being done, and construction materials are generally easier and cheaper to buy locally than import.  

By the way:  4 million jobs at $350,000 a job would be 1.4 trillion dollars.  In fact, the total cost of the stimulus was $787 billion.  Of that, $288 billion were in the form of tax cuts; another $224 billion was for extended unemployment, health care and job training; only about $275 billion was for job creation.  

Progressively Defensive
Progressively Defensive

Poverty also went down under Reagan (6% over 8 years, but more evidentarily 33% down from 1983-1989.

Obama's polices are Detroit's policies over the last 60 years worked at the national scale.  Are they not?  Exactly?  They are ... these policies are more devastation than an nuclear bombardment, however clearly more insidious.

Progressively Defensive
Progressively Defensive

I think Laffer's point is that stimlus in government spending is profligate whereas stimilus in tax cuts are efficient.  Carternomics v. Reaganomics is overwhleming evidence of that.  Would you rather have Obama investing in Solyndra and public education (which is sadly, looking at actual data regarding outcomes, a horrible waste, worse and worse every decade because of HOW it's done monopolitically and disinterestedly) or would you rather have Warren Buffett and Bill Gates invest it in the "next big thing"?  Both are stimulus.  I know - please - the multiplier in theory ought to be higher for government  spending, but it is not - I believe that with a passion and it is virtually impossible to prove either way.  Why?  Beacause government under Obama is a Democratic scam [like Detroit].  It does hurt private investment because it competes for capital and labor (where winning wasting both), fosters skepticism and risk aversion, and crowds out investment due to fear of, as is now proving correct, a huge tax increase on capital, real estate, wealth and high income, to pay for the horrible policies.

In constant dollars, Reagan created like 12 million jobs at $10,000/job.  Maybe, best case scenario, Obama created 4 million jobs at $350,000/job.  That's because Reagan spent on defense and quasi-spent on tax cuts for everyone especially capital and wealth.  His mulitplier was 3-4x higher whatever simplistic formulas economists hope are accurate.

If Laffer were wrong, Reaganomics would have been a disaster.  Yet he had inflation thwarting monetary policy (constricting first then expanding where inflation decreases permited), military success, jobs and growth exponential growth.  Obama's taking us back to 1978.

KentCrawford
KentCrawford

I have two quick points;

First, liberals/progressives will never admit that Keynesian theories do not work.  We will always have some loon like Paul Krugman claiming the inevitable failure was because the stimulus wasn't big enough, which is nonsensical.   But the historical record is perfectly clear; Keynesian theories fail 100 % of the time.

Second, one can quibble about the circumstances in any specific country, as all are unique, but that does not disprove the argument.  The overwhelming strength of the anti-Keynesian case is proven by the magnitude of the list itself.  That many negative outcomes -- even if one or two or three do not qualify -- is truly damning for Keynesian theories.

In closing, what I didn't see in the above article was a list of cases that prove Keynesian theories.  That is not a surprise since there isn't one... 

northernobserver
northernobserver

You realise you haven't made an argument, just a proclamation of faith.  And that is my basic disagreement with anti-keynesian economics - it doesn't use epiricle evidence to prove its claims and ends up just being a statement of faith.

KentCrawford
KentCrawford

 As an historian, I can state that the historical record is clear.  From Hoover to the present day, Keynesian stimuli do little more in the short term than to artificially boost GDP, and in the medium to long term drag an economy down.

History will indicate policies that do not work, and only suggests policies that might work.  But faith in Keynesian theories of economics does not even have that much going for them.

scottindallas
scottindallas

 As a trained rhetorician, I can say you've done no such thing, but appeal to the authority of yourself, and offered only bare assertion.   Further, your history is baseless, much less your ability to to form a logical syllogism

tpaine1
tpaine1

WAAAAY too much "common sense" for a Democrat to ever accept.  To them, government IS god.

headlight
headlight

Wow!  So since you're "an historian," we have to believe you because you know everything about history!   

No, don't bother to go beyond sweeping generalities -- you've undoubtedly looked at every instance of Keynesian stimulus in our nation's history and I'm sure you were able to determine that in every case they didn't work.  We're just lucky to have you to counteract people like Paul Krugman, or others who have been awarded the Nobel Prize in Economics, who haven't done the same careful study as yourself.  

tkivlan
tkivlan

Whether or not it is borrowed from the future, doesn't the money for stimulus spending now have to come from somewhere?

tedpeters
tedpeters

The stimulus worked just fine... as long as members of our public service unions were spending it on goods made in China, that economy flourished.  Since it ran out, unfortunately, the Chinese economy has cooled off.

noirswann
noirswann

Never mind Laffer, we have some real problems with the arguments herein.  "The temporary deficits can be reduced, at least in theory, once the economy is back on its feet and tax revenues perk up."  The keyword is 'theory' which looks good on paper but does not work in the real economy.  Historically, the debt is rarely payed off because politicians change and government believes itself a perpetual institution.  So, the reality is we the people unwittingly borrow to spend today at the expense of our children and grandchildren who will reap the debt and lack of investment and growth in their economy.  To again quote Henry Morgenthau, Treasury Secretary to FDR during the great depression  “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 now if I am wrong somebody else can have my job. I want to see this country prosper. 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 enormous debt to boot.”

headlight
headlight

You're confusing "debt" and "deficit."  The large deficit now is because there are a lot fewer people working and paying taxes, and many of them are consuming government services like receiving unemployment, medicaid and foodstamps. So we have less revenue coming in, and more going out.  Get the country back to work, and it will boost both revenues and reduce costs.  

Admittedly, we won't start paying off the debt until the deficit is eliminated -- as President Clinton did toward the end of his term.  Unfortunately, Bush decided that the surplus he inherited needed to be squandered on tax cuts, running up unsustainable deficits in wartime, and making us unprepared when at the end of his term the economy collapsed.  

noirswann
noirswann

Thanks, but no confusion on debt and deficit. Cumulative fiscal deficits, less debt not rolled over (retired and payed back) is the national debt which has rarely gone down in recent times and certainly not since 2007. You are right about the spread beteween revenue and expenditures, and that the solution is a growing economy. The debate is over how to do that. And, then you go to ideology which I disagree. Further the unfunded promises to the old and poor which cannot be sustained make the current deficit and cumulative debt look puny. The problem is spending not taxes.

tpaine1
tpaine1

Hence, the reason 11% OF THE FEDERAL BUDGET is now spent on the INTEREST ON THE DEBT.

northernobserver
northernobserver

But then it did work.  When they spent fully after 38.

noirswann
noirswann

Not really, only until the war commenced. Read your Amity Shales

noirswann
noirswann

Read the story of the broken window, war destroys the economy. If you think military service, death, destruction is economic stimulus then we have a problem. Soldiers returning from war, households held to rations now able to buy consumer goods again, lotsa sex and household creation, drove the recovery.

scottindallas
scottindallas

but war spending is gov't stimulus---HELLO.   

noirswann
noirswann

And, just wait until interest rates are 5% not 0.5%, then the budget is really busted.

noirswann
noirswann

Oh, and your version of history does not fit your Progressive narrative? For example, your Lenin remark appeals to use of guilt by association, but no facts are provided. Come on, if you have a counter author to Shales, then let's hear it, but, please no more nonsense.

tpaine1
tpaine1

Even FDR's Tresurer Secretary said as much.

northernobserver
northernobserver

Amity Shales is an ideologue who lies, usually through omission but occassionally through exaggeration, to make the history of the depression fit her conservative narrative.  She is a historian in the same sense that Lenin was a historian.   If you are taking your cues from her you are being bamboozled.

Alan
Alan

The issue isn't that you can borrow money to spend upfront.  The issue is when your total debt gets so high that the extra borrowing begins to effect investors, savers, and consumers.  When investors believe that the extra debt will get the city, state, country, or government in trouble to the point that the debt will effects operations and reduce growth, then investors look for other alternatives.  When taxpayers believe that cities, states, and the government have too much debt, they begin to change the way they operate by accelerating taxable income immediately to avoid taxes in the future.  They plan to reduce their income in the future to avoid paying higher taxes.  They figure out how to accelerate deductions in the future.  They decide to no longer hire additional people and increase their profits, because the extra taxes in their mind are no longer worth the extra effort.   The issue is even with low interest rates, governments have to make payments on principal and when those payments become a significant part of cash payouts, then other operations have to be reduced.  You are now seeing cities, states, and the federal government reduce operations, some cutting expenses to the bone and destroying their basic foundations.  The main issue is that debt payments and obligations are so high, that the payments are affecting operations.

scottindallas
scottindallas

you're describing a terrible dynamic whereby our politicos, and corporate execs seek short term fixes that beggar the future.  Why not sell all our roads, (would get campaign contributions, would fix the deficit) but then we'd go broke paying tolls.   Privatization of gov't services is a fool's errand, like a sugar high.  We must differentiate between free markets, and utilities markets.  I'm as libertarian as anyone regarding truly free markets, but utilities are no such thing, it's competition and alternatives that makes markets free.   

headlight
headlight

To some extent you are correct.  States and municipalities generally operate under a balanced budget requirement.  It isn't that they cut back because they have too much debt -- it's that they have a legal limit, and often those limits are being taxed by increases in costs -- for instance, higher costs for more people eligible for medicaid. 

On the other hand, the Federal government is not limited in its borrowing authority other than by its own legal limits.  Nobody actually believes that the US debt is currently at risk of default, other than because some in Congress foolishly played chicken with the debt limit last year.  Find me one investor -- one! -- who seriously believes that the federal government's borrowing risks any imminent collapse.  And the best way to reduce the deficit would be to get more Americans back to work, and therefore, paying taxes rather than consuming means-tested government services. 

The focus on the deficit makes essentially the same mistake as Laffer did in his transparently flawed analysis.  Laffer found a correlation between a reduction in GDP and an increase in the government's share of GDP.  You're pointing out that the deficit gets larger when GDP goes down if the government's spending doesn't drop proportionally.  

Nothing surprising there -- Government spending often is countercyclical (demand for food stamps, unemployment and medicaid go up when people who are out of work become eligible) or inelastic (we don't cut grandma's social security or medicare when the economy goes down, just as we don't raise them when it goes back up; and of course we're still involved in a war in Asia, and we don't cut spending on that just because we have to borrow to keep it going.)  

bcfred
bcfred

The problem is, these government expenditures are pitched as a means to stimulate the economy when the evidence (right here in the U.S, forget elsewhere) is clear that they do no such thing.  Labeling debt-financed deficit spending as stimulus was a huge mistake.  People understand the concept that government spending can help prop up an economy when private spending declines, but it would be better to label this practice with its proper term - substitition.  Of course the problem is, any government can only afford to borrow and spend for so long before creating a pile of debt to be serviced that is so big it can't help but have a long-term drain on the economy.  That's pretty much where the U.S. is now.  And on this point Laffer's right - this debt has to be repaid dollar for dollar (plus interest) with private money collected as taxes.  You can only borrow from your future for so long.

scottindallas
scottindallas

 it's not replaced dollar for dollar, in fact, I could get you to admit that it might cause inflation, therefore it's paid with cheaper dollars.  The problem with Keynes isn't that spending in deficits is problematic, rather, it's identifying when we're in flush times, and should run a surplus.  If Bush had run a surplus, our bubble would've been smaller, our debt smaller, the collapse smaller.   You're further discredited when a nation, like the US controls it's currency and can essentially print money, this debt can be paid off with nothing but ink and paper. 

Here's the real deal, we should go back to the Kennedy tax rates.  When nominal tax rates are higher, the incentive to divert gross profits into deductible avenues is higher.  Those deductible avenues are deductible because they are more productive than allowing the corporate execs to squander the profits.  Again, the higher the penalty on the net profits, the greater the incentive to divert gross profits. 

See, the Laffer and trickle down, Voodoo economics conflate net and gross profits, nominal and effective tax rates.  Trying to make nominal and effective tax rates more equal is bad for the growth of GDP.  On the low end, there is little incentive to reinvest profits, rather it encourages execs to out-source, off-shore, and beggar the firm, for the bounty goes to the execs in a myopic (that's short sighted for you bcfred, as you clearly didn't understand the article above)--a myopic liquidation of the firm.  

If effective and nominal tax rates are both high then that indeed would harm the economy.  But, if nominal tax rates are high, and standard deductions are available, which frankly the deductible avenues of standard business expenses have always been deductible, employee compensation and benefits, Ramp;D, capital expansion, innovation, advertising, training are all wholly deductible.  So, the higher the tax rate, the greater the incentive to put capital into the more productive deductible avenues.   This was how the Kennedy tax rates worked, where the top marginal rate was 70% on income exceeding $200k/yr,  and capital gains were 40%. 

When capital gains are high, it makes it difficult to liquidate capital, and off-shore production.  Rather than high tax rates causing a flight of capital, high tax rates would drive production back home.  This wouldn't be true for developing nations, but we have all the consumers in the world, and firms WILL sell to us. 

Laffer and his trickle down ilk that started under Reagan have presided over a flight of production off shore, executive profligacy and a shrinking of the middle class.  The only sectors that benefit from low taxes are capital lite production--professional services, financialization, media stars, lobbyist, and corruption.   These people hire few people, use little capital, don't add a dime to GDP and are a tax on the economy.  We hope they make the economy function more efficiently, but if they do what they do for less, the whole economy benefits.  

We shouldn't try to lower and flatten taxes.  We should have a high top marginal rate 50-66%, don't begrudge standard deductions, eliminate "special deductions" and simply the various taxes we face.  Few taxes have such beneficial effects as high top marginal rates, so let's start there.  When you oppose taxes, you actually support a myriad of furtive taxes, which increases cost, and are generally far more regressive.  We've had 30 years of supply side economics, and it should be no surprise that we face a lack of demand, a shrinking middle class, and an anti-consumer environment.  Finance consumes 40% of the economy, where it was but 15% when Reagan took office.  Look at GE and GM since then; these manufacturing giants have increasingly become financiers. 

headlight
headlight

This is very impressive.  It was clear that low taxes on the rich and on businesses led to low growth.  As you say, the people who are getting filthy rich from low taxes are white collar, professionals in the investor classes.  Romney is the poster child for what is wrong with continuing the Reagan-Bush-Shrub tax theory.  

rsbsail
rsbsail

This is the most ridiculous thing I have ever read.  Basically, have sky high taxes so corporations will reinvest in themselves versus distributing profits to shareholders.  Adam Smith's invisible hand should slap you into next month.  Do you really think that is the way to ensure efficient capital investment?  Dream on.  What will happen is wasteful spending on boondoggle projects.  And the shareholders get screwed. 

scottindallas
scottindallas

 The stockholders don't get it, the executives do.  You obviously missed the shareholders of Citigroup denying the pay package of their CEO.  They voted his raises down.  BUT, the shareholder's vote has no binding on the Board.  The Board gave him those pay increases.

You don't understand how corporations work.  The analogy would be if we ran a restaurant, and wanted to hire a manager.  We, however, wouldn't be allowed to determine his compensation, rather, a panel of his friends would decide. 

Read some Jack Bogle, our system is a case of inmates running the asylum, from the politicians to the corporate execs.  It's cap lite producers running the system, for their ends.  And, never forget, THEY ADD NOT A DIME TO GDP.

northernobserver
northernobserver

Sounds like you're afraid of a little straight forward economic incentive.  As for adam smith, I have news for you, he's with us. Go back and read A History of the Moral Sentiments.

scottindallas
scottindallas

you admitted my point, that higher nominal top marginal tax rates would stimulate the economy.  Certainly we need to move more that way.  And, that lowering and flattening the tax rate, trying to eliminate deductions (I agree on "special deductions") whatever that would mean.  Perhaps a tax on receipts, or on gross profits? See, you're conflating effective and nominal tax rates. The effective rate never rose much above 20%. So, the incentive is paid on the nominal rate, while the effective tax is much lower. Corporate profits are at all time highs. The pendulum has swung too far. They can afford some employee training, if they can't find enough trained employees among our over-educated underemployed masses (raising tax rates improves this) They can spend more on domestic production (raising taxes can improve this) They can afford to improve employee pay (the middle class has only shrunk for 30 year, of these policies. Raising taxes will incentivize that) Professionals, corp. execs, media stars, lobbying and corruption are out of bounds (raising taxes will discourage them, particularly them, as they don't need capital to produce what they do. Where as capital intensive production has all sorts of things you need, so, you've always got stuff to spend money on. You always should probably get that more expensive machine, but old enough is good enough (raising taxes will incentivize that)

And remember, we haven't really altered the effective tax rate much at all. Lower tax rates, and the financiers, professionals (who are the lobbyists) lobbyists, corruption will grow. Manufacturing will just seem costly, and a too expensive project to make money when much cheaper avenues are available. Better speculation, financial packages. If taxes were higher, the bank stimulus would have an incentive to get engaged, and manufacturing would look more attractive. Otherwise, our math experts will design financial schemes. Again look at GM and GE under these various tax schemes.

towgc
towgc

"scottindallas" is smarter than anyone mentioned in this article. it's not even close.

scottindallas
scottindallas

 I called Michael Medved, who asked, does anyone think Romney's economics will spell disaster for the US.  I denied the hyperbole of disaster but said higher tax rates would grow GDP, He said, "blah blah blah, Clinton..."  I said, that's peanuts, let's talk Kennedy.  He cut me off, and went on a long diatribe about how no one actually paid those rates.   I never got another word. 

The sophism is pathetic.  These thinktankers and other "economist" are scum.  We love to hate on lawyers, but at least we know who paid them to speak.