Torture versus collateral damage; the bigger evil?

[carl]

It's not relevant what the guy says. It's relevant what happened.

What happened is relevant. And after the tax rates were lowered, tax revenues went up.

In 1982, the top individual rate was lowered from 70% to 50%. Individual tax receipts were just under 300 billion in that year. In the years that followed, individual tax receipts climbed until they were right around 400 billion. That year the top rate was again lowered from 50% to 28% and individual tax receipts continued to climb until in 1990 they were around 450 billion.

In 2003, the top rate was lowered from 39.8% to 35%. No effect on individual receipts that year and the next but climbing receipts every year until 2007.

And the same thing happened in the Kennedy admin, and according to Mr. Sowell in the Coolidge admin.

The only ways how reducing a normal tax rate could increase revenues are
* one-time effects with taxes such as capital gains taxes where the tax subjects have the ability to determine the period in which to pay taxes (they move tax payment into a low-rate period fearing a later rates hike).
* A revenue increase not ceteris paribus, but caused by economic growth from period to period, overcompensating a small rates reduction.

No. I think you are wrong. What you are assuming is that people don't react to stimuli. People do more when they are not penalized for it. Taxes are a penalty on economic activity. It stands to reason that if you penalize economic activity, you get less of it. If there is less economic activity there is less money available to tax, so over time revenues won't go up. The converse is true too. The less you penalize economic activity, the more there of it there will tend to be so over time revenues go up. That can't not be if people act as people and react to stimuli. If people were mindless drones, then you would be right.

A look at the item to be taxed shows that it never expands nearly as much as required to compensate for the reduced rates.

I disagree.

For example, incomes don't double when you cut income tax by half

We're not talking about incomes, we're talking about revenues.

The conflict goes on and on and on and the end result is that the U.S. is still discussing or unable to fix problems which have been closed cases in many European countries for between 20 and 110 years.

A bit of editorial advice here. You can take or leave it. You probably won't get far with American audiences by telling them how the Europeans have been getting it right for "between 20 and 110 years" and boy are those Yanks thickheaded. We remember too much European history over the past 20 to 110 years for that to be a good approach.

Again; to discuss costs and benefits or torture alone is already a sign of failure.

That I fully agree with.

[Fuchs]

We're not talking about incomes, we're talking about revenues.

income + tax rate = revenues.

Halve the tax rate and you'll ceteris paribus only have increased revenues with more than doubled incomes. Likewise with other changes of tax rates.

In 1982, the top individual rate was lowered from 70% to 50%. Individual tax receipts were just under 300 billion in that year. In the years that followed, individual tax receipts climbed until they were right around 400 billion. That year the top rate was again lowered from 50% to 28% and individual tax receipts continued to climb until in 1990 they were around 450 billion.

In 2003, the top rate was lowered from 39.8% to 35%. No effect on individual receipts that year and the next but climbing receipts every year until 2007.

Income taxes are very much pro-cyclic, and it wouldn't surprise to see revenues soar after a recession, especially nominal revenues. That's what I meant to cover with

"* A revenue increase not ceteris paribus, but caused by economic growth from period to period, overcompensating a small rates reduction."


Look, discussing counterfactuals is only fun for so long.
Feel free to read some more on the subject (such as studies), and feel even more free to take into account that there's an economic cycle, tax base and deduction changes play a role as well and taxes don't exist in isolation, but are interacting with other regulation and economic activities. Don't forget inflation, either.

You should also get your figures right. The 70% top marginal rate was lowered in a 1981 bill ( Economic Recovery Tax Act of 1981).

Meanwhile, feel free to show the boom in tax revenue in %GDP, that is without lots of GDP change and inflation influences - for I see an income tax revenue slump in the early 80's here.

You probably won't get far with American audiences by telling them how the Europeans have been getting it right for "between 20 and 110 years" and boy are those Yanks thickheaded.

Come back with that when all people in the U.S. have a health insurance and when there's no museum showing human and dinosaur puppets in the same diorama any more.
We left those issues in the 19th century, where they belong.
(Adding more examples wouldn't make it prettier.)

Besides,

There are not only horrible policies, but also discussions about horrible policies between big lie believers and the unconvinced. The conflict goes on and on and on and the end result is that the U.S. is still discussing or unable to fix problems which have been closed cases in many European countries for between 20 and 110 years.
I suppose these discussions and policies could not be sustained if there were more interactions with non-anglophone countries.

was meant as a factual statement.
I don't bend or omit facts to please. I'm no entertainer.

People who don't like to be told facts aren't on my list of people who make me shut up about unpopular facts. That list is occupied by only a single female at a time, and no males.

[carl]

First things first.

Like I said, you will get farther with American audiences if you don't use the snooty European approach like the following.

Come back with that when all people in the U.S. have a health insurance and when there's no museum showing human and dinosaur puppets in the same diorama any more.
We left those issues in the 19th century, where they belong.
(Adding more examples wouldn't make it prettier.)

That scores points mainly with other Europeans. Those bumptious bumpkin Americans might point out some salient events in European history in return.

income + tax rate = revenues.

Halve the tax rate and you'll ceteris paribus only have increased revenues with more than doubled incomes. Likewise with other changes of tax rates.

Ceteris paribus...ok repair to the internet...all other things being equal...well why didn't you say so? That is just the point, all other things won't be equal. Human nature decrees that all other things won't be equal.

No, income + tax rate does not equal revenues. 5 + 5% doesn't equal anything. It doesn't make any sense.

Look, discussing counterfactuals is only fun for so long.
Feel free to read some more on the subject (such as studies), and feel even more free to take into account that there's an economic cycle, tax base and deduction changes play a role as well and taxes don't exist in isolation, but are interacting with other regulation and economic activities. Don't forget inflation, either.

I get all that. Remember too that in the 70s we had stagflation. Then Reagan came along and Voila! We didn't.

You should also get your figures right. The 70% top marginal rate was lowered in a 1981 bill ( Economic Recovery Tax Act of 1981).

Yes, being off by a year is a fatal flaw isn't it?

Meanwhile, feel free to show the boom in tax revenue in %GDP, that is without lots of GDP change and inflation influences - for I see an income tax revenue slump in the early 80's here.

If the tax rate cut causes an increase in the GDP, you can have an increase in revenue while at the same time reducing the % of revenue to GDP. You spend revenue, not %. I figure that low tax revenue as a % of GDP is a good thing. More money in the pocket of them that made it.

Besides,

"There are not only horrible policies, but also discussions about horrible policies between big lie believers and the unconvinced. The conflict goes on and on and on and the end result is that the U.S. is still discussing or unable to fix problems which have been closed cases in many European countries for between 20 and 110 years.
I suppose these discussions and policies could not be sustained if there were more interactions with non-anglophone countries"

was meant as a factual statement.
I don't bend or omit facts to please. I'm no entertainer.

Saying it don't make it so.

[carl]

Surferbeetle:

I disregarded his US numbers because they attributed everything to his definition of what "neo-liberal" and Keynesian policies were. He ignored things like for a long time the world except us was broke because of WWII; or the growth of the welfare state.

Another thing ignored was how Communist party functionaries stole everything when the Soviet Union fell.

You can probably afford to pay more in taxes and don't mind doing so. The problem is they will never stop asking for more so eventually you won't want to anymore.

I can't remember all the things I've read over the years so links are a bit hard to provide.

[Fuchs]

First things first.

Like I said, you will get farther with American audiences if you don't use the snooty European approach like the following.

You don't know what you don't know. My blog's reader stats shows that there are enough thick-skinned Americans who have not too much of a problem with my style.

Ceteris paribus...ok repair to the internet...all other things being equal...well why didn't you say so? That is just the point, all other things won't be equal. Human nature decrees that all other things won't be equal.

You don't seem to have understood the meaning of ceteris paribus. It means you change one thing, and but one thing. Everything may change as a result, there's no problem with that.
Ceteris paribus is a necessary guideline for discussing the effect of one action. It's requires for clarity of thought and arguments in such a case.

No, income + tax rate does not equal revenues. 5 + 5% doesn't equal anything. It doesn't make any sense.

And the only one who places a "+" between both here is you.
Tax base * tax rate - deductions + (black box for other complicated exceptions) = revenue
or simplified,
Tax base * tax rate = revenue
Halved tax rate requires more than doubled tax base (income) to generate increased revenues.

I get all that. Remember too that in the 70s we had stagflation. Then Reagan came along and Voila! We didn't.

This was funny. Read a bit about what Volcker did at the time, please.

If the tax rate cut causes an increase in the GDP, you can have an increase in revenue while at the same time reducing the % of revenue to GDP.

You spend revenue, not %.

Actually, you spend %GDP as well, and this is important. Growth in the economy yields growth in wages and public employees will get a (in the long term) corresponding raise, employees of contractors will get a raise, contractor shareholders will expect more profit. This means public expenditures will grow approximately proportional to GDP.
So you better keep your government revenue stable in %GDP terms in the ceteris paribus ('tax rate change and no other change') case.


Summary:
I don't accept nominal dollars revenue as evidence for your assertion because there's too much noise in it.
You don't accept %GDP as evidence.
Anything in between is really messy stuff requiring a lot of (reading) effort.


Anyway, I don't care now any more. I understand there are more than a hundred million people out there who actually fell for the ridiculous notion that cutting taxes increases revenues.
There's no fun in discussing this. I actually spent hundreds of hours on learning fiscal theory stuff at the university, it was one of my specialisations. Your position qualifies as joke in-between, I simply cannot take you and the Laffer curve believers serious enough for a greater discussion effort.
Your opinion is entrenched enough to withstand evidence anyway.


Even Mankiw disagrees, and he's the North American right wing's posterchild economist.
http://gregmankiw.blogspot.de/2007/0...nd-cranks.html

other voices:
http://economistsview.typepad.com/ec...e-revenue.html

http://voices.washingtonpost.com/ezr..._curve_be.html

I figure that low tax revenue as a % of GDP is a good thing. More money in the pocket of them that made it.

This depends on the marginal rate of utility of public and private spending and is an altogether different issue.
State of the art is that there's no answer because scientists and philosophers still have no convincing way of handling diverse preferences.
The largely agreed-upon substitute for now is to simply live with whatever a democratic political system yields.

[carl]

You don't know what you don't know. My blog's reader stats shows that there are enough thick-skinned Americans who have not too much of a problem with my style.

I stand corrected. Your blog log is irrefutable proof that arch lectures about European superiority play well with American audiences. Who'd a thunk it?

You don't seem to have understood the meaning of ceteris paribus. It means you change one thing, and but one thing. Everything may change as a result, there's no problem with that.
Ceteris paribus is a necessary guideline for discussing the effect of one action. It's requires for clarity of thought and arguments in such a case.

It might be easier if you use English. You have great facility in that. I have none in Latin.

And the only one who places a "+" between both here is you.
Tax base * tax rate - deductions + (black box for other complicated exceptions) = revenue
or simplified,
Tax base * tax rate = revenue
Halved tax rate requires more than doubled tax base (income) to generate increased revenues.

Well no, you wrote in post 30 "income + tax rate = revenues." It is the first line you wrote. Honest. No wonder it didn't make any sense. It was a typo. I should have figured that.

This was funny. Read a bit about what Volcker did at the time, please.

I remember what Volcker did at the time, and I read a bunch of articles just today. He was Carter's second choice and started to try and beat inflation in Sept of 79 and nothing much worked. I remember that Reagan ran political interference for him and reappointed him. And I read that inflation started to go down in Oct of 81, which was when the first of those tax cuts hit.

So I figure that Reagan handled the 'stag' part and Reagan and Volcker probably did the 'flation' part.

Actually, you spend %GDP as well, and this is important. Growth in the economy yields growth in wages and public employees will get a (in the long term) corresponding raise, employees of contractors will get a raise, contractor shareholders will expect more profit. This means public expenditures will grow approximately proportional to GDP.
So you better keep your government revenue stable in %GDP terms in the ceteris paribus ('tax rate change and no other change') case.

What you spend may be viewed as %GDP but you actually spend dollars.

If your prime object is to please gov employees "you better keep your government revenue stable in %GDP terms". But I figure that the object of gov isn't to please gov employees, it is or should be to stay out of the way of the people and take from them as little as possible. So if you act on that, and reduce the burden public employees place upon the taxpayer, then reduction of revenue as %GDP is a good thing.

Anyway, I don't care now any more. I understand there are more than a hundred million people out there who actually fell for the ridiculous notion that cutting taxes increases revenues.

Perhaps more than a hundred million people disagree with you, not because they are gullible, but because you might, possibly, just maybe, be wrong.

There's no fun in discussing this. I actually spent hundreds of hours on learning fiscal theory stuff at the university, it was one of my specialisations. Your position qualifies as joke in-between, I simply cannot take you and the Laffer curve believers serious enough for a greater discussion effort.

Gee. Sorry about that. But be consoled that education is never wasted.

Your opinion is entrenched enough to withstand evidence anyway.

Ohhkkkay.

This depends on the marginal rate of utility of public and private spending and is an altogether different issue.

Yes it does. I figure the private individual is wiser at spending his money than a gov bureaucrat is at spending somebody else's. So it is best to let the private individual keep most of it.

[motorfirebox]

Yes it does. I figure the private individual is wiser at spending his money than a gov bureaucrat is at spending somebody else's. So it is best to let the private individual keep most of it.

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

[Surferbeetle]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

Bridge to nowhere



Trabant, http://en.wikipedia.org/wiki/Trabant



Central bank, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Central_bank

The primary function of a central bank is to manage the nation's money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference.

Monetary policy, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Monetary_policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.[1][2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values.

Supply and demand, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Supply_and_demand

The four basic laws of supply and demand are:[1]
If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

[Entropy]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

None of that exists in a vacuum though. It is, after all, government policy to maintain very low interest rates to boost borrowing and there are many policies specifically designed to boost the housing sector.

[Dayuhan]

Private investment is currently allowing housing prices to bubble again even as median wage nosedives.

Are housing prices bubbling again? Maybe in Phoenix, but surely not in Detroit or Chicago. In any event, if private capital wants to buy up foreclosed single-family homes and convert them to rentals, why shouldn't they? Bit of a bandwagon, yes, but not much there in the way of collective liability. Rental stock is needed, the homes typically need a fair bit of work, and getting the work done puts people to work. Hard to see it as a terrible thing.

Speaking of a "nosedive" in median wages is a bit exaggerated. Inflation-adjusted median wages have held n a fairly narrow band between $50-55k since the early 90s, and the push toward the higher end of that bad from 2005-2008 was arguably driven by unsustainable bubble conditions, just like the similar push from 1998-2000. Demographics play a role here as well: income peaks at around age 50, a point the peak of the baby boom passed in 2007. I expect median incomes will decline noticeably as the boom moves past that peak and the leading edge of the boom starts retiring.

[carl]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

The first thing that popped into my head after reading this was an image of us private individuals as the sturdy draft horse pulling the plow under the wise direction of an experienced plowman, the career professional government bureaucrat. The next thing that popped into my head was the thought of the sturdy draft horse character in Animal Farm who was guided by the pigs. Old Boxer didn't do so hot.

When stripped to its essentials, the recent big economic crash was caused by a bunch of people who couldn't pay their mortgages. These were people who under normal circumstance would not have received mortgages because they were bad risks. Lenders established the criteria that marked them as bad risks because lenders don't like to lose money on loans and they had learned that people fitting those criteria were much less likely to pay back the loan. So why did the lenders lend money to people they knew were much less likely to pay it back? They lent it because is was government policy to strong arm them into making the loans. The gov did that in the pursuit of the political goal of expanding home ownership, and the wise gov figured the way to do that was to make sure more people were able to get home loans, and the way to do that was to force lenders to lower lending standards.

So that is it. Regardless of all the shenanigans that went on with lack of oversight, impunity, sharp practice etc., there would have been no crisis if all those uncreditworthy borrowers had repaid their loans as reliably as the credit worthy borrowers had been doing for years and years. But they didn't because home ownership doesn't confer financial responsibility upon a person, a person who is financially responsible is able to own a home. Those gov types couldn't figure that out.

George Orwell was a very bright guy.

[Entropy]

You should also get your figures right. The 70% top marginal rate was lowered in a 1981 bill ( Economic Recovery Tax Act of 1981).

Meanwhile, feel free to show the boom in tax revenue in %GDP, that is without lots of GDP change and inflation influences - for I see an income tax revenue slump in the early 80's here.

The dip in the early 80's was due to a recession. The dip in the early 90's was due to a recession, the dip in the early 2000's...you get the picture.

I don't know how familiar you are with the complex morass called the US tax code Fuchs, much less its sordid history, but what the Reagan reforms did was lower rates, consolidate brackets and eliminate deductions. The result was that revenue did not change at all and effective tax rates (which is what really matters) barely budged. You can look at the effective tax rate tables here and see for yourself.

[Dayuhan]

What happened is relevant. And after the tax rates were lowered, tax revenues went up.

In 1982, the top individual rate was lowered from 70% to 50%. Individual tax receipts were just under 300 billion in that year. In the years that followed, individual tax receipts climbed until they were right around 400 billion. That year the top rate was again lowered from 50% to 28% and individual tax receipts continued to climb until in 1990 they were around 450 billion.

In 2003, the top rate was lowered from 39.8% to 35%. No effect on individual receipts that year and the next but climbing receipts every year until 2007.

The problem with these formulations is that tax policy is only one among many variables. Just for example, in the 1970s the baby boom generation was in college, consuming much and producing little. In the 1980s they got jobs and started paying taxes. In the 1990s they started earning seriously and investing seriously. The movement of that demographic bulge into a fully productive role was not a function of tax policy, but it certainly had a large impact on government revenues.

In 2003 the country was moving from recession into recovery, a recovery that accelerated (for dubious reasons, but that's another issue) through 2008. The extent to which tax policy alone was responsible for either the recovery or the increase in revenues is highly debatable. As one factor among many, that period was characterized by extremely low interest rates, so it's hard to determine whether an increase in business activity was due to lower taxes or cheap money.

Assigning a causative role to a single variable in a complex system is always a questionable practice.

[carl]

The problem with these formulations is that tax policy is only one among many variables. Just for example, in the 1970s the baby boom generation was in college, consuming much and producing little.

No question there were a lot of variables. But, and just a minor point, the baby boom is figured from the end of WWII to about 20 years later, give or take. That would mean a lot of baby boomers were in the start of their productive years in the 70s.

[carl]

Here is a link to some tables that show US Fed Gov revenue in dollars over the years.

http://www.truthfulpolitics.com/http...tion-adjusted/

[Dayuhan]

the baby boom is figured from the end of WWII to about 20 years later, give or take. That would mean a lot of baby boomers were in the start of their productive years in the 70s.

There was a significant acceleration in 1952, and the peak was 1957.

In 1996 the 76 million Americans that make up the baby boom generation were between 32 and 50. In 1986 they were between 22 and 40. In 1976 they were between 12 and 30. How much income tax do you figure they paid, collectively, in those 3 years? Big difference, I'd guess.

Put it another way... in 1980 the 1955-1960 cohort that forms the core of the baby boom was 20-25 years old. From then on, their collective income and collective tax payments would have increased just a bit, don't you think? Then there's all those tax deductions their parents stopped taking when the kids graduated from college. Not saying demographics were the only factor, but I'd guess they have at least as much impact on the increase in federal tax revenue from 1980-2000 as tax policy, maybe more.

Still trying to figure out how this got from torture to tax policy...