Why are taxes so high?

[stinkcat_14]

The government report you posted earlier indicated they agree with a tax cut changing behavior. Their issues were 1) the tax cut was not combined with reasonable spending cuts and 2) The changed behavior would not overcome increased spending. Remember if the behavior did not change the tax collection would drop exactly equal to rate of tax cut. Your own data shows the tax cut did not result in a freeze in revenue if you will review the data in post #70 tax collections by the IRS increase 18 out of 20 years

I don’t think I was clear enough in what I was trying to say, what I was trying to say is that while the change in the tax law may have some effect on economic behavior, the effect is relatively small. For example, consider the effect of the tax rate on behavior in the labor market. Obviously if the tax rate is very high, there will be little incentive to work harder. For example, in the early 1960’s the top marginal tax rate was 91%. If I am in that tax bracket, I will probably not do much to work extra because most of the money will go to the government. Those who argue that we are on the downward sloping part of the Laffer curve, need to argue that the change in the tax laws caused such a large change in behavior that the increase in income earned offset the loss in revenue due to the lower tax rates. In the labor market, the biggest change in behavior due to changes in tax rates has been on the labor supply of married women. Since households are taxed on their joint income, the second entrant into the labor market is tax at the households marginal tax rate. So if tax rates are too high, some of these women will choose to stay home rather than work, because the after tax gain is too little. We clearly see this effect happening in the 1980’s where the top tax rate was cut from 70% to 28% and the labor supply of married women increased from 49.8% in 1970 to 58.4% in 1990.

On the other hand, in 2000 the labor force participation rate for married women was 61.1% and in 2005 it was 60.7%. So in this case, it actually went down.

The article I cited assumes behavioral changes due to the tax rate change, but they admit that we really have no clue as to the magnitude of the effects.

In the chart you cited, tax revenues did go up over time, however we have to keep in mind that tax revenues went up in the 90’s when the Clinton administration raised taxes. If we are on the downward sloping part of the Laffer curve, that never would have happened. Also, tax collections go up for many reasons, so those who argue that we can cut tax rates and raise revenue have the burden of showing that the lower tax rates affected economic behavior in a significantly large way. In my opinion, nobody has done that here.

 

[Texas_Roofer]

I don’t think I was clear enough in what I was trying to say, what I was trying to say is that while the change in the tax law may have some effect on economic behavior, the effect is relatively small. For example, consider the effect of the tax rate on behavior in the labor market. Obviously if the tax rate is very high, there will be little incentive to work harder. For example, in the early 1960’s the top marginal tax rate was 91%. If I am in that tax bracket, I will probably not do much to work extra because most of the money will go to the government.

I think we are with you on this issue, this is not where the current issue lies

Those who argue that we are on the downward sloping part of the Laffer curve, need to argue that the change in the tax laws caused such a large change in behavior that the increase in income earned offset the loss in revenue due to the lower tax rates.

This is where the error lies. If a 10% cut in taxes results in a 5% loss of revenue we are on the wrong side of the Laffer curve. It is simple the economy grew by 12.5% (12.5 x 40%tax =5% revenue), that is it. Similarly if a 10% tax increase fails to achieve a 10% growth in GDP the tax increase should be reversed. The concept is simple marginal returns verses marginal cost.

In the labor market, the biggest change in behavior due to changes in tax rates has been on the labor supply of married women.  Since households are taxed on their joint income, the second entrant into the labor market is tax at the households marginal tax rate.  So if tax rates are too high, some of these women will choose to stay home rather than work, because the after tax gain is too little.  We clearly see this effect happening in the 1980's where the top tax rate was cut from 70% to 28% and the labor supply of married women increased from 49.8% in 1970 to 58.4% in 1990.

On the other hand, in 2000 the labor force participation rate for married women was 61.1% and in 2005 it was 60.7%. So in this case, it actually went down.

The article I cited assumes behavioral changes due to the tax rate change, but they admit that we really have no clue as to the magnitude of the effects.

The article is correct there are many, many factors making the underlying economic data difficult to find Examples divorce rate, and change in number of women living single

In the chart you cited, tax revenues did go up over time, however we have to keep in mind that tax revenues went up in the 90’s when the Clinton administration raised taxes. If we are on the downward sloping part of the Laffer curve, that never would have happened. Also, tax collections go up for many reasons, so those who argue that we can cut tax rates and raise revenue have the burden of showing that the lower tax rates affected economic behavior in a significantly large way. In my opinion, nobody has done that here.

Yet they have shown the data one financial expert after the others says ONLY PART of the debt growth is from tax cuts! Because the tax cuts raise unit revenue meaning we are on the wrong side of the Laffer curve. If we were on the correct side of the Laffer curve tax increases would cause revenue and GDP growth while tax cuts would result in losses of revenue and GDP. This is because on that side of the Laffer curve tax increases add the needed infrastructure to facilitate trade. So more tax equals more trade, while tax decreases mean less infrastructure so less platforms for trade so less trade so a drop in GDP. In summary the government report concluded that a 10% Federal income tax rollback( roughly a 5% true tax cut) would generate a 0% to 4% loss so the public should choose whether to pay 5% OR accept a 0-4% cut in services? The answer is simple the public should keep the money 5% is more than 0-4%

 

[trogiah]

The point though is if the government raises taxes high enough to pay the debt, the economy will severely negatively affected.

I clicked on some of the links. My economics background is very limited but some of it was understandable.

My point remains:

How far will we go to avoid severe economic impact? Will we leave our children (or ourselves in our old age) a financial meltdown 10 times worse that ours would be now so that we don’t have to deal with difficult times.

The Constitution states that We The People are trying to secure the blessings of liberty to ourselves and our posterity.

Spending their money today seems blatantly unconstitutional as well as being contrary to Jesus’s teachings.

What will happen when other people or other nations no longer wish to lend us money. What will we do then?

I don’t pretend to know what the optimum balance of cutting spending or raising (or lowering) of taxes would be but endless deficit spending is nuts. It can’t continue.

Until someone finds out what spending to cut, as long as we are still borrowing…

taxes are not high enough.

Jim

 

[stinkcat_14]

Yet they have shown the data one financial expert after the others says ONLY PART of the debt growth is from tax cuts!

What are you talking about? Are you talking about the federal deficit, national debt? I wasn’t addressing these issues, but if you think they need to be addressed, you need to put them in context.

Because the tax cuts raise unit revenue meaning we are on the wrong side of the Laffer curve. If we were on the correct side of the Laffer curve tax increases would cause revenue and GDP growth while tax cuts would result in losses of revenue and GDP.

Once again, I a not sure what you mean by unit revenue, nor is it clear whether you understand the Laffer curve. The Laffer curve shows the relationship between tax revenues and tax rates. It does not address the issue of government spending, although how the government spends the money may affect the shape of the Laffer curve.

This is because on that side of the Laffer curve tax increases add the needed infrastructure to facilitate trade. So more tax equals more trade, while tax decreases mean less infrastructure so less platforms for trade so less trade so a drop in GDP.

Like I said, the Laffer curve ignores how the money is spent.

In summary the government report concluded that a 10% Federal income tax rollback( roughly a 5% true tax cut) would generate a 0% to 4% loss so the public should choose whether to pay 5% OR accept a 0-4% cut in services? The answer is simple the public should keep the money 5% is more than 0-4%

The report said that the tax cuts wouldn’t pay for themselves. Also, the tradeoff between taxes and services would depend on the value of the services, whether or not they were worth more than the taxes collected to pay for them. Although, such criteria is rarely used in practice to justify government spending.

 

[Texas_Roofer]

…The report said that the tax cuts wouldn’t pay for themselves.

and what payment is due? The tax cuts have no bill to pay. The tax cuts raise GDP we know this because the new tax rate produced more tax dollars than it would have existed if behavior did not change

Also, the tradeoff between taxes and services would depend on the value of the services, whether or not they were worth more than the taxes collected to pay for them. Although, such criteria is rarely used in practice to justify government spending.

And the data is clear the taxes cost more than the services were worth. If that were not the case the revenue would fall further than the rate change because the high valued service was lost. Since the drop in revenue is lower than the cut in taxes the economy benefited from the trade. It is really that simple.

maybe you are stuck on this: How should you measure a tax policy?

 

[Texas_Roofer]

I clicked on some of the links. My economics background is very limited but some of it was understandable.

My point remains:

How far will we go to avoid severe economic impact? Will we leave our children (or ourselves in our old age) a financial meltdown 10 times worse that ours would be now so that we don’t have to deal with difficult times.

The Constitution states that We The People are trying to secure the blessings of liberty to ourselves and our posterity.

Spending their money today seems blatantly unconstitutional as well as being contrary to Jesus’s teachings.

What will happen when other people or other nations no longer wish to lend us money. What will we do then?

I don’t pretend to know what the optimum balance of cutting spending or raising (or lowering) of taxes would be but endless deficit spending is nuts. It can’t continue.

Until someone finds out what spending to cut, as long as we are still borrowing…

taxes are not high enough.

Jim

Tax collection is high, very high, too high. The issue is not concerning collection. The issue is government spending. That is the other fellow’s problem he wants to tax to cover the spending not tax to pay for a proper government. It is like a teenage girl saying Dad you need to make more because I want…

 

[stinkcat_14]

and what payment is due? The tax cuts have no bill to pay. The tax cuts raise GDP we know this because the new tax rate produced more tax dollars than it would have existed if behavior did not change

A number of questions here:

1. Are you arguing that the only reason that tax revenues increased was because of changes in behavior due to the tax cuts? Would the total tax revenue collected been higher or lower if tax rates were unchanged?
2. How much of the growth in GDP was due to behavior changes accruing from changes in the tax laws?
3. If tax cuts are the only factor that causes economic growth then why didn’t the economy tank when Clinton raised taxes?

And the data is clear the taxes cost more than the services were worth. If that were not the case the revenue would fall further than the rate change because the high valued service was lost. Since the drop in revenue is lower than the cut in taxes the economy benefited from the trade. It is really that simple.

Not necessarily, because tax revenue still declined when taxes were cut. In addition, not all government spending has the same impact on economic growth. For example, some of the spending on the Iraq war is done outside the US, so the effect on economic growth is going to be different than government spending that impacts the productive capacity of the economy.

maybe you are stuck on this: How should you measure a tax policy?

Actually, I have not said much about the merits of the tax policy itself. I have only responded to the notion that the tax cuts paid for themselves by having such a large impact on economic behavior. The idea that some are presenting her is that we are on the downward sloping part of the Laffer curve. There is no evidence that this is the case.

 

[trogiah]

Tax collection is high, very high, too high. The issue is not concerning collection. The issue is government spending. That is the other fellow’s problem he wants to tax to cover the spending not tax to pay for a proper government. It is like a teenage girl saying Dad you need to make more because I want…

I know I probably sound like a broken record, but to me the issue if the combination of collection and government spending. If the government is spending more than it is taking in, there is a problem greater than a teenage girl not getting what she wants or anybody else not getting want they want. Future generations are being saddled with an enormous burden before they are even born. It is patently wrong for a number of different reasons.

I am ok with cutting spending. We should realize that, as inefficient as the government may be, we do get some benefits from the tax dollars we pay and cutting spending to end the borrowing will cut into those benefits. I am ok with that. But complaints about government inefficiency, waste, overspending do not justify the inherently unjust act of spending the earnings of future generations.

Jim

 

[Al_Masetti]

Whilst exploring at www.heritage.org for socialized healthcare in Europe, I found this gem about the taxation and general economic condition of Europe versus that of the United States:

heritage.org/Research/Budget/bg1979.cfm

Looks like the United States is doing pretty darn good!!

 

[Al_Masetti]

Right to the point:

This just came in …

Larry Kudlow’s blog with a three-parter on the Laffer Curve.

Very on-topic.

kudlowsmoneypolitics.blogspot.com/

It’s the post for 19 March 08, in case some time goes by.

 

[stinkcat_14]

Right to the point:

This just came in …

Larry Kudlow’s blog with a three-parter on the Laffer Curve.

Very on-topic.

kudlowsmoneypolitics.blogspot.com/

It’s the post for 19 March 08, in case some time goes by.

I would agree that all three videos do a good job of explaining the Laffer curve. And of course, they point out what I have pointed out, and that is in most cases, the incentive effects of tax rate cuts are too small to enable us to cut tax rates and increase tax revenue.

 

[Texas_Roofer]

A number of questions here:

1. Are you arguing that the **only **reason that tax revenues increased was because of changes in behavior due to the tax cuts?

not at all, the word only should be omitted to seriously considering any answer to such a question (productivity is always changing)

would the total tax revenue collected been higher or lower if tax rates were unchanged?

Revenue or derivative? the derivate would be lower and thus the problem - diminishing returns

1. How much of the growth in GDP was due to behavior changes accruing from changes in the tax laws?

we could only back calculate an estimate for example what was the real change in tax rate? (unknown) what was the real productivity growth unaffected by the tax change?(unknown) and the real productivity growth affected by the tax change?(unknown). Notice the change of taxes and the change of revenue produce derivate numbers which can be positive, zero, or negative. Again the proper place is the highest positive derivative number, not delta r = 0.

1. If tax cuts are the only factor that causes economic growth then why didn’t the economy tank when Clinton raised taxes?

this is a joke question? productivity = growth If an economy was growing at 10% and you taxed it down to 5% did you do a good thing?

Not necessarily, because tax revenue still declined when taxes were cut.

at a derivative below 1

In addition, not all government spending has the same impact on economic growth. For example, some of the spending on the Iraq war is done outside the US, so the effect on economic growth is going to be different than government spending that impacts the productive capacity of the economy.

agreed

Actually, I have not said much about the merits of the tax policy itself. I have only responded to the notion that the tax cuts paid for themselves by having such a large impact on economic behavior. The idea that some are presenting here is that we are on the downward sloping part of the Laffer curve. There is no evidence that this is the case.

Actually there is: In the opening sections of the curve small changes in taxes show dramatic increases in revenue is that what we are seeing? In the area of the “crown” little change is seen regardless of any small move, so did we see little change? On the down ward slope a small change makes a minor small positive increase in revenue is that what we saw? Well the earlier provided data shows the average precent growth in tax collection from 2000- present data = 4.6%

I would agree that all three videos do a good job of explaining the Laffer curve. And of course, they point out what I have pointed out, and that is in most cases, the incentive effects of tax rate cuts are too small to enable us to cut tax rates and increase tax revenue.

the Laffer curve and the videos show that when taxes are too high as 90% a move to 85% results in small positive changes which should be pursued until the changes show dramatic revenue changes through small changes in taxation.

Hope that helps

 

[Al_Masetti]

Interested folks should do some research on Ireland, which has cut its taxes and seen economic activity increase dramatically.

Apparently, the United States’ tax structure now has the second highest corporate taxes on the planet. Seriously. With the result that corporate activity is emerging in low-tax countries and disappearing in the United States, taking employment with it.

There is an importance to being competitive.

And the United States Congress, which makes tax law, has decided to keep taxes high.

Could be out of envy … those EVIL corporations … or it could be an attempt to kill the “golden goose” … let’s squeeze as much money as we can … or it could be a residue of some kind of socialist economist left over from college … high taxes are good.

Anyway, folks vote with their feet. You can’t force people to build new plants and to buy new equipment and to hire additional employees. The people who do the building and the buying and the hiring will go where the atmosphere is the most friendly. You go where you are wanted and move away from where you’re not wanted.

You also can’t force folks to buy the most expensive stuff. Which is how the foreign cars got started in the U.S. and which now dominate both design and sales. They’re cheaper.

Even within the United States, each state is an experiment in process. And there is continuous migration of people and money away from the high tax states and toward the low tax states.

[Cold weather doesn’t help: it’s a tax on energy … both personal energy and fossil fuel energy. You move to where you need less to use less of it.]

[Long commutes don’t help, either. They are also a tax on energy … both personal and financial. Commutes in the NY metro area can be 1-2 hours each way. Normal for here, but folks do get tired of it after a while. Another tax on energy.]

 

[Al_Masetti]

Here is one very pragmatic way to reduce taxes.

Eliminate ALL withholding.

Everyone get their full gross pay. Including the 7% that the “employer pays” for that half of Social Security. No deductions or withholding of any kind.

No income tax forms either. No refund checks on the overpayments people make during the year.

And once a month each government agency sends a bill to each person for the “services” they provide. Social Security, Income tax for the Federal Govt, Income tax for the state governments. etc etc etc. Also you’d get bills for the disability and unemployment. Just like you get electric bills and gas bills and credit card bills.

And you buy your own medical insurance, just like you buy your own car insurance.

Boy, you want to see a “taxpayer revolt”!

One of the major economists said he was the person who suggested use of the paycheck withholding during WW2. Said it was the biggest mistake he ever made.

Do a Google search for “tax withholding milton friedman”

Lots of interesting hits. Including this one.

cato.org/pubs/journal/cj14n3-1.html

and also here:

mises.org/story/1797

By the way, Mises [and also Hazlett ]are two excellent names to research.

 

[BamaRider]

Do a Google search for “tax withholding milton friedman”

I’d like to get my hands on that joker. http://bestsmileys.com/shooting1/12.gif

 

[BamaRider]

Even within the United States, each state is an experiment in process. And there is continuous migration of people and money away from the high tax states and toward the low tax states.

[Cold weather doesn’t help: it’s a tax on energy … both personal energy and fossil fuel energy. You move to where you need less to use less of it.]

Ain’t gotta tell me. We got folks coming in here from all over the Rust Belt. I once talked to a retired NYPD guy, that had a paid for house on Long Island. House had been in the family for years. I asked him why he would move from a house that was paid for, to buy another in Florida. “Mortgage wasnt’ the problem, the property tax was 15,000 dollars a year. I now live in a brand new brick home, huge lot, and motgage and tax are* still *cheaper then the property tax I was paying on Long Island. Coming here is a no brainer.”

Until NY and NJ et al come to grips with their crippling tax system, the bleeding will only continue.

 

[Al_Masetti]

Ain’t gotta tell me. We got folks coming in here from all over the Rust Belt. I once talked to a retired NYPD guy, that had a paid for house on Long Island. House had been in the family for years. I asked him why he would move from a house that was paid for, to buy another in Florida. “Mortgage wasnt’ the problem, the property tax was 15,000 dollars a year. I now live in a brand new brick home, huge lot, and motgage and tax are* still *cheaper then the property tax I was paying on Long Island. Coming here is a no brainer.”

Until NY and NJ et al come to grips with their crippling tax system, the bleeding will only continue.

[me talking] … was reading something recently … [can this be right???] … that New Jersey is losing 10,000 jobs per month. People just draining out.

 

[Al_Masetti]

dunno if this is gonna work … but there is another thread …where we discuss water supply … and I gave some examples … no joking … of real stuff going on … and it is not only on topic for water but also on topic for “why are taxes so high”…

forums.catholic-questions.org/showthread.php?t=222672

yeah … it works.

In NY & NJ, not only are taxes high, and not only is the tax money poorly spent, but the tax money is used in counter-productive ways … such as building and then decommissioning the Shoreham nuclear power plant … $5 billion of rate payers and tax payers money to build [there was a huge tax-paid buyout] and ??? how much ??? $1 billion to demolish … and not one single kilowatt of electricity was generated,

$6 billion literally thrown away.

And you can do this over and over again. One example after another.

[Today is Good Friday, and I’m whipping myself by bringing up all these horror stories … it really hurts. Real penance.]

 

[Texas_Roofer]

…tax money is used in counter-productive ways … such as building and then decommissioning the Shoreham nuclear power plant … $5 billion of rate payers and tax payers money to build [there was a huge tax-paid buyout] and ??? how much ??? $1 billion to demolish … and not one single kilowatt of electricity was generated,

$6 billion literally thrown away.

And you can do this over and over again. One example after another…

.Just another example that we over tax. Had the tax rates been lower such would not happen because the tax money would be less abundant. That is fundamental diminishing returns, same for your other examples.

 

[Al_Masetti]

.Just another example that we over tax. Had the tax rates been lower such would not happen because the tax money would be less abundant. That is fundamental diminishing returns, same for your other examples.

There is a radio commercial for some “non-political” group that traces how New Jersey had no income tax, low real estate taxes and no sales tax. Then they traced how we were promised lower real estate taxes if we allowed a higher sales tax. And that didn’t work. So they promised lower real estate taxes if we allowed a state income tax. And that didn’t work. So now we have the highest real estate taxes, a very high sales tax, a very high state income tax … AND the state is now going to sell the toll highways to get more money (and the buyer will raise the tolls to pay for having bought the roadways).

They have a Web site; if I can remember what the name is, I’ll post it.

Here’s one of them; I found two.

americansforprosperity.org/index.php?state=nj

Here’s another one; there may be more.

politickernj.com/local-governments-reduced-begging-10492