You continue to brush aside a swing of a few percentage points as no big deal, when in fact it IS a big deal. It translates into hundreds of billions of dollars. That is a sizable chunk of change, even for the federal government. Our current deficit is about $1.5 trillion, for comparison.
i'm not saying it's not a good chunk of change. what i am saying is that tax
rates have a very limited effect on tax
revenues; often at significant cost to
GDP; which is the
actual driver of those revenues. And so raising rates in order to combat the deficit is cutting off one's nose to spite ones' face. If, for example you were to increase top tax rates (say) to 50%, which bumped GDP up from 18.5 to 19.2% of GDP, but
COST you a full point of growth in GDP then the effect of your tax rate -
even as you collected a higher percentage of GDP - would be negative.
The unspoken assumption here, of course, is that cutting taxes is inherently the path to the fastest-growing GDP as opposed to alternate ways to grow GDP
not at all. cutting spending, for example, gives us a dollar in increased revenue against spending for every dollar we cut. it's a direct one-to-one ratio. certainly cutting taxes is a powerful
way to grow GDP. but I would put forth that at this point (given the limits to the size of the cuts we can make) we might see more immediate return through a blend of cuts and tax code
simplification. Americans spend $330
Billion each year just trying to figure out how to
comply with the damn thing. GE doesn't recieve refunds because it bought a clunker car - it recieves refunds because it takes quite a lot of money that they would otherwise be pouring into R&D, Production, Investment, or some other venue, and instead pours it into hiring an army of very skilled and highly placed tax attorneys and tax lobbyists.
the bi-partisan Bowles Simpson Debt Reduction Commission proposed a solution pretty close to this. Republicans grudgingly said that there were some parts they didn't like, but it was a good starting point and maybe a potential compromise. Democrats declared that it was flatly unacceptable.
Because the Democrats plan is to pretend that the debt and deficit isn't a problem, and then claim Republicans are Big Ole Meanies when they try to address it.
Let's rephrase that: It's the exact same chart you provided earlier, except that in your chart it's zoomed out to an absurd 0-100% range, thus obscuring the meaningful differences that actually ARE taking place in tax revenue over time
the changes are the same in both charts. the only difference is that the fluctuations become alot more meaningless once you compare them to fluctuations in the
tax rates. cutting spending = direct effect on deficit reduction. raising GDP = indirect effect on deficit reduction. raising tax rates = questionable at best effect on deficit reduction.
No one is talking about doubling our tax revenue by increasing taxes, so this comparison is meaningless.
no. but people
are talking about deficit reduction through increasing taxes, and so it's worth pointing out that they are choosing the method that produces the most damage for the least return.
Why does it matter if they match? What does that prove?
it would be evidence that tax revenues are a function of tax rates. instead the evidence indicates that tax rates are only of marginal importance.
The important thing is that tax revenues (in dollars) do indeed fluctuate dramatically over time.
you are debating semantics here; the numbers remain the same. the largest fluctuation in tax revenue happened during a time of relative tax rate stability. meanwhile, travel back a couple of decades, and huge swings in tax rates saw comparable stability in tax revenues.
conclusion; these two things are not directly tied and/or an independent force has such a stronger influence as to overwhelm the impact of the first.
look, for example, at the early 80's. Tax revenue as a percentage of GDP was going
UP even as tax
rates were dramatically dropping
down. claiming a relationship between the two would leave you arguing that they were directly
inverse.
follow on conclusion: growth
rates seems to have a higher impact on tax revenues - even as a percent of GDP - than
tax rates. which is why, for example, we see such a massive drop in tax revenues relative to GDP in the 2008 time frame
even as tax rates remained completely stable.
All this chart shows is that a tax rate below 82% since 1964 is correlated to faster growth than a tax rate above 82% before 1964. I'm unaware of anyone who has suggested raising tax rates to 82%
that would be a strawman; the fact that by increasing GDP through rate reduction you increase tax revenues over time remains.
If you are trying to draw some broader conclusion from this it isn't going to work because there's ALWAYS going to be some tax rate between 0-100% that maximizes revenue. This indicates that it's probably below 82% but it hardly leads to the conclusion "Tax cuts are always good."
government that provides only for the problems of the commons and collects no more than it needs for this in a manner that is least economically destructive and inefficient is always good. part of that is a discussion of tax rates, and in particular the incentives created by the tax structure. less than that, however, generates
less growth, as the social structure (rule of law, enforcement of contracts, police, military protection, environmental regulation) that allowed for growth degrades. so there is a baseline assumption even
more powerful than raw GDP or growth rates.
If that were the case, then we could maximize tax revenue by not collecting any taxes at all.
:shrug: i just as could easily say that if your claim were true we could maximize tax returns by collecting 100% of income. in both cases we know the truth; revenues would be zero.
Well I guess if your only two options for an economy are Ayn Rand or Joseph Stalin, and don't allow for anything in the middle that might be superior to both...
strawman again? no, there is a minimum of government that is truly needed.
But in the real world, there are plenty of times when the government allocates more efficiently than the private sector, and there are plenty of times when the private sector allocates more efficiently than the government.
yes, we call those area's "issues of the commons"; problems where individual incentives are detrimental to group well-being. the aforementioned area's are examples. simple wealth redistribution is not. nor is investment in "alternative energy" that inevitably is actually interest-group subsidization. when it comes to
investment and consumption, the market directs assets more efficiently than government.
Over a large enough time horizon you can "prove" just about anything you want with statistics. But there is almost no evidence that tax cuts are correlated with stronger economic growth over any reasonable time frame
you don't consider the 60 year period I provided to be "reasonable"?
It's true that in a vacuum, lower taxes would be superior to higher taxes. But policy is not made in a vacuum. There are three major levers of the government's balance sheet: Spending, taxes, and deficits. If you dial down the tax lever (at least from our present rate), it means you have to turn up the deficit or dial down the spending lever. So it's a question of which combination of spending/taxes/deficits are best for economic growth.
there are two basic questions; how much money you take in, and how much money goes out. the negative difference between the two is our deficit, which has compiled into our debt, and is a serious (read: existential) threat. So our goal is to lower the deficit, and push the difference between income and outgo into positive range so as to allow for debt reduction.
the most powerful tool in this arsenal is spending cuts. for every dollar you cut, the deficit is reduced a dollar. in fact, due to the higher growth of reduced government spending, it probably is reduced a bit more than that; but i have no idea how to accurately measure it right now, so we'll stick with a dollar.
the next most powerful tool in our arsenal is growth. when we grow GDP, we grow our raw revenue. for every dollar we increase GDP, we reduce the deficit by $0.18-$0.19. In addition, periods of marked growth tend to have higher percentages of GDP collected in revenues, so it becomes a virtuous cycle.
the weakest and most unpredictable took in our kit is hiking tax rates. dependent on the item taxed, the current rate, and time the shift occurs, tax hikes often produce no actual additional revenue, and often instead produce losses. several states passed special millionaires taxes to combat the losses of the Recession; only to see those millionaires take the fully logical step of moving their revenue, moving their businesses, and moving themselves, a worthy lesson in our laboratory of democracy.
and so we are left where we started. the best mix of taxes/cuts/growth to combat the deficit is
1. simplify the tax code while reducing rates (as the bipartisan Bowles-Simpson suggested). this can be done to keep revenue neutral while increasing Growth and freeing up that $330 Billion to productive uses.
2. deep cuts to federal spending, to include reform of the entitlement system.
3. ease the regulatory burden to increase growth. a classic example of this would be our suicidally stupid refusal to tap our own natural energy sources.
