Supply Side Economics: The Big Con

[alaskaguy]

A sampling of statements from economists which universally conclude that federal tax revenues would have been higher, if the GWB tax cuts had never taken place.

Link: Townhall.com - The Logicizer

[clone52]

Two things...

1) The real issue with the annual budget deficits (as I believe I stated before) is not tax revenues...I believe they are well over $3 Trillion each year...but rather the issue is spending...the government spends too much. To tell me that $3 Trillion is not enough makes me sick!

2) Obviously, there is a "point of diminishing returns" with respect to the additional tax revenue created by reducing tax rates (in simplistic terms...if we went to a 0 tax rate then tax revenues would obviously be 0)...the Laffer Curve addresses this issue.

Having said that, we are taxed too much! Anyone that disagrees is just not paying attention or has socialist tendencies.

If you want to see what low taxes and limited regulations will do from an economic standpoint...look at what is transpiring in Dubai!

If you want to see what limited regulations will do, look at the products coming in from China.

[Kyle]

Your model seems oversimplified. Profit potential impacts the risk analysis. I don't think you accounted for that.

The question isn't simply where people invest their money. You need to also ask if people are willing to invest money.

I simply stated there would be more small business in the US w/ lower tax rates. I didn't assert that money would shift from one sector to another.

My example was oversimplified, and was meant to be so. You would therefore be correct in that the after-tax profit potential would impact risk analysis. However, I would contend that a 10% or so tax differential would have a very minimal impact on that risk analysis.

[clone52]

It seems that the general consensus among experts is that tax cuts will not increase revenue. What it does do is something like this.

If you can decrease the budget by 1 million, you can probably cut taxes by 1.25 million and come out even in the end. However, if you cut taxes by 1million, you can't increase your budget due to all the magical revenue the tax cut is going to create. You won't be 1 million in the whole, you may just be 0.8 million in the whole, but you are still in the hole.

[alaskaguy]

My example was oversimplified, and was meant to be so. You would therefore be correct in that the after-tax profit potential would impact risk analysis. However, I would contend that a 10% or so tax differential would have a very minimal impact on that risk analysis.

The general question is whether tax cuts generate enough economic growth to be neutral from a tax standpoint? They don't, except in extreme cases (very high initial tax rates).

To prove this one can work backwards. One can estimate the increase in the tax base that would be needed to produce tax neutrality.

Link:
Townhall.com - The Logicizer

The above link indicates that a 400 basis point reduction in the tax rate would have to increase the tax base by 11.4%, 17.4%, and 21.1% assuming an intial tax rate of 39%, 27%, and 23%, respectively to be neutral. If you think that tax cuts are that stimulative, then by all means sign on to the the GWB economic team.

[Stormin]

The general question is whether tax cuts generate enough economic growth to be neutral from a tax standpoint? They don't, except in extreme cases (very high initial tax rates).

To prove this one can work backwards. One can estimate the increase in the tax base that would be needed to produce tax neutrality.

Link:
Townhall.com - The Logicizer

The above link indicates that a 400 basis point reduction in the tax rate would have to increase the tax base by 11.4%, 17.4%, and 21.1% assuming an intial tax rate of 39%, 27%, and 23%, respectively to be neutral. If you think that tax cuts are that stimulative, then by all means sign on to the the GWB economic team.

Makes it understandable that the deficit exploded under Reagan and Bush.