Thread: Laffer!

The Laffer curve, despite being used to suggest we should lower tax, actually suggests that countries should increase them. Should we, or we should reject supply side economics totally?

Originally Posted by Reiver

The Laffer curve, despite being used to suggest we should lower tax, actually suggests that countries should increase them. Should we, or we should reject supply side economics totally?

Are we supposed to take you word for that?

Please show some details.

Unless the tax rate goes to 100% or higher the "Laffer curve" is both fallacious and anti-capitalist in it assumptions.

Taxes are based on profits.

In the capitalist system as long as there is pretax profit present in each incremental unit and the tax is not 100% or higher then the incremental unit will be produced and sold.

"Laffer" suggests that at some tax level below 100% the capitalist will cease to produce and sell the incremental units because there isn't "enough" profit after taxes.

An example.

You are in the 28% tax bracket and earn $174,400. Laffer suggests you will refuse to earn the next dollar because it "only" produce 67 cents in additional income as opposed to 72 cents.

If this were true Prince Fielder would stop playing after the 20th game. Tom brady would stop playing mid way through the first quarter of the first game of preseason.

Laffer makes sense like "Spontaneous Generation" and "Earth is the center of the universe" make sense.

Originally Posted by Not Amused

Are we supposed to take you word for that?

Please show some details.

Heijman and van Ophem (2005, Willingness to pay tax: The Laffer curve revisited for 12 OECD countries, Journal of Socio-Economics, Vol 34 Issue 5, pp 714-723):

According to Laffer, economic activities are a decreasing function of the taxation rate. As a consequence, total tax revenue increases with the taxation rate at its lower levels and decreases against it at its higher levels. The result is the Laffer curve. According to him, the reason for this decrease lies in decreasing economic activities. Although this may be true for activities in the official (white) sector, in the unofficial (black) sector they can increase under the influence of an increasing taxation rate. Part of the Laffer effect may be nothing more than an activity switch away from the white towards the (hidden) black sector. This paper takes both effects into account: decreasing activities in the white sector combined with increasing activities in the black sector. It examines the computation of the maximum tax revenue generating taxation rate for a number of OECD countries. It concludes that, with the exception of Sweden, the marginal taxation rate in these countries is below its optimum

A Laffer approach that demands higher taxes no less!

Originally Posted by Reiver

Heijman and van Ophem (2005, Willingness to pay tax: The Laffer curve revisited for 12 OECD countries, Journal of Socio-Economics, Vol 34 Issue 5, pp 714-723):

According to Laffer, economic activities are a decreasing function of the taxation rate. As a consequence, total tax revenue increases with the taxation rate at its lower levels and decreases against it at its higher levels. The result is the Laffer curve. According to him, the reason for this decrease lies in decreasing economic activities. Although this may be true for activities in the official (white) sector, in the unofficial (black) sector they can increase under the influence of an increasing taxation rate. Part of the Laffer effect may be nothing more than an activity switch away from the white towards the (hidden) black sector. This paper takes both effects into account: decreasing activities in the white sector combined with increasing activities in the black sector. It examines the computation of the maximum tax revenue generating taxation rate for a number of OECD countries. It concludes that, with the exception of Sweden, the marginal taxation rate in these countries is below its optimum A Laffer approach that demands higher taxes no less!

?!? I won't pay to read the entire report (especially after this excerpt).

Increasing the rate ot tax forces taxable (white) activity into untaxable (black) activity. Because the economy hasn't slowed, just moved underground, you can increase taxes even further. On who? Those that can't move their activity underground.

Charming.

Originally Posted by Not Amused

?!? I won't pay to read the entire report (especially after this excerpt).

Increasing the rate ot tax forces taxable (white) activity into untaxable (black) activity. Because the economy hasn't slowed, just moved underground, you can increase taxes even further. On who? Those that can't move their activity underground.

The important point is that the Laffer logic actually leads to an increase in taxes. You haven't offered any reasoned rebuke

Originally Posted by Reiver

The important point is that the Laffer logic actually leads to an increase in taxes. You haven't offered any reasoned rebuke

You are confusing Laffer's logic with Heijman and van Ophem assumptions, and "analysis" based on those assumptions.

No reasoned rebuke? ROTFL

Originally Posted by Not Amused

You are confusing Laffer's logic with Heijman and van Ophem assumptions, and "analysis" based on those assumptions.

Nope. I'm referring to the consequences of the empirical analysis into the Laffer curve logic. You may not like the conclusions, but that would only be a tedious humph of no importance

Originally Posted by Reiver

Nope. I'm referring to the consequences of the empirical analysis into the Laffer curve logic. You may not like the conclusions, but that would only be a tedious humph of no importance

The clip from the report showed that concequence only if a huge black market was created.

Is that is your goal from higher taxes?

Originally Posted by Reiver

The Laffer curve, despite being used to suggest we should lower tax, actually suggests that countries should increase them. Should we, or we should reject supply side economics totally?

Yeah...ahhh....no it doesn't. Nice try though.