Would a Higher Top Tax Rate Raise Revenues?

[Rob's House]

All you have to do is look at the period from 2000 to 2008 (I'll ignore the recession) to debunk hoser's law. Revenues as a % of gdp ranged from a max of 20.6% to a min of 16.1%--that 4.5% swing means lost revenues on average amounted to $600 billion, and most of the loss was due to the Bush cuts in personal taxes. On-budget revenues (which excludes SS) swung from an $80 billion surplus in 2000 to an average $500 billion deficits from 2002-2006, as the Bush tax cuts took effect.

But, if it fits your ideology, you can ignore the facts....

Or if you don't like the facts you can manipulate them to help you achieve your predetermined conclusion, as you did. Plus most would view Hauser's law as more of a guiding principle to better understand the nature of the relationship between tax rates & revenues. By your own number the ceiling is ~ 20% which is far shy of the apx. 25% baseline budget your boy in the WH would like to implement long term.

 

i must have been hallucinating when i heard and read republicans, especially the on air personalities make this argument. i'm pretty sure some one has made it here: that tax revenues would actually decrease if taxes were raised on the rich because overall income would decrease and the wealthy would take their toys and go elsewhere, where they're appropriately loved. so you're admitting it's a ridiculous argument?

It's too nuanced for you. All of this has to do with proportions and timeframes. A tax hike can lead to all the things you mentioned. It can also lead increased revenue. It depends what rate you're starting with, how much you're changing it, & whether you're looking at long term or short term results.

 

 

I do have a B.S. in Economics...

 

Just saying.

You should ask for your money back.

[TPS]

A few responses, since we've gone over this ad nauseum...

 

Let's compare 2001 the year before the tax cuts began and 2006 a few years after they had a chance to impact.

Unemployment was 4.7% for 2001 and 4.6% in 2006 (this answers crayonz); the DOW was higher in 2006 than 2001 (to compare apples and apples).

The on-budget deficit was -$30 billion in 2001 and -$434 billion in 2006--a $400 billion difference for the mathematically challenged.

 

You guys are forced to constantly come up with ways to deny the facts because you are stuck on the ideology that supply side worked, when all it did was create huge deficits under republican presidents. Seems to me you guys need to do some esplaining...

Edited March 19, 2012 by TPS

[Jauronimo]

Oh I know. My degree was Economics concentrating in Finance and it's basically getting me nowhere so far. But, I'm continuing the grind. It just sucks because I like econ/finance so much but so hard for me to get a job dealing with it. I blame my lack of "real" work experience. I played poker in college as a job.

Check out the different professional designations (CFA, CFP, CIMA, CIPM etc. depending on what field you want to get into) and read as much as possible. There's no shortage of books to familiarize yourself with the basics and plenty of online resources to give you the Cliff's notes on whats going on in the market and provide a few talking points for interview fodder (WSJ, seekingalpha, motley fool). You'll be surprised as to how far doing just slightly more than the bare minumum will get you in entry level finance.

 

A lot of econ/business majors found their "love" of finance by default when they dropped out of the sciences. Knowing anything will go a long way to separating you from the guy who wants to be a fund manager because Mechanical Engineering was too much work.

[ieatcrayonz]

A few responses, since we've gone over this ad nauseum...

 

Let's compare 2001 the year before the tax cuts began and 2006 a few years after they had a chance to impact.

Unemployment was 4.7% for 2001 and 4.6% in 2006 (this answers crayonz); the DOW was higher in 2006 than 2001 (to compare apples and apples).

The on-budget deficit was -$30 billion in 2001 and -$434 billion in 2006--a $400 billion difference for the mathematically challenged.

 

You guys are forced to constantly come up with ways to deny the facts because you are stuck on the ideology that supply side worked, when all it did was create huge deficits under republican presidents. Seems to me you guys need to do some esplaining...

Do you think the tax cuts caused the telecomm bubble to burst? It makes sense to me; less govt revenue=less ability for govt employees to make phone calls = telecomm implosion. Same goes for housing a little later on. More taxes = more Sally Mac = everybody can afford a house = housing boom.

 

Am I on it?

[Rob's House]

A few responses, since we've gone over this ad nauseum...

 

Let's compare 2001 the year before the tax cuts began and 2006 a few years after they had a chance to impact.

Unemployment was 4.7% for 2001 and 4.6% in 2006 (this answers crayonz); the DOW was higher in 2006 than 2001 (to compare apples and apples).

The on-budget deficit was -$30 billion in 2001 and -$434 billion in 2006--a $400 billion difference for the mathematically challenged.

 

You guys are forced to constantly come up with ways to deny the facts because you are stuck on the ideology that supply side worked, when all it did was create huge deficits under republican presidents. Seems to me you guys need to do some esplaining...

Jesus, dude. Now you're taking a page out of the Lybob playbook. You seem to be arguing against the oversimplification of an economic principle by arguing the oversimplified converse argument. You're starting with the conclusion & grasping at straws to support it.

[/dev/null]

All you have to do is look at the period from 2000 to 2008 (I'll ignore the recession) to debunk hoser's law.

 

Hoser's law?

Are we talking about American tax rates or Canadian?

[DC Tom]

Hoser's law?

 

All budgets can be balanced by lower taxes on backbacon, toques, and hockey.

[Alaska Darin]

Jesus, dude. Now you're taking a page out of the Lybob playbook. You seem to be arguing against the oversimplification of an economic principle by arguing the oversimplified converse argument. You're starting with the conclusion & grasping at straws to support it.

Oh, TPS wrote the oversimplification playbook. Lybob's an absolute amateur by comparison.

[Rob's House]

Oh, TPS wrote the oversimplification playbook. Lybob's an absolute amateur by comparison.

Ah, I see. I mistook the egg for the chicken.

[fjl2nd]

Ok, even if the economy improves, why would the tax take move off the 16.5% number and get to 18.5%?

 

Because as incomes rise and people are put back to work, they will pay more in different taxes. With so many being unemployed, there were much less people paying. You can't pay income tax if you have no income. I'm sure it will return to that magic number of 18.5% but we'll see. This is a much different kind of economic time with technology continuing to improve and less jobs being available.

 

Economic growth is the key to raising more revenue. I think we can all agree on that.

[TPS]

Do you think the tax cuts caused the telecomm bubble to burst? It makes sense to me; less govt revenue=less ability for govt employees to make phone calls = telecomm implosion. Same goes for housing a little later on. More taxes = more Sally Mac = everybody can afford a house = housing boom.

 

Am I on it?

Stay away from the green dyed crayons...

[fjl2nd]

Check out the different professional designations (CFA, CFP, CIMA, CIPM etc. depending on what field you want to get into) and read as much as possible. There's no shortage of books to familiarize yourself with the basics and plenty of online resources to give you the Cliff's notes on whats going on in the market and provide a few talking points for interview fodder (WSJ, seekingalpha, motley fool). You'll be surprised as to how far doing just slightly more than the bare minumum will get you in entry level finance.

 

A lot of econ/business majors found their "love" of finance by default when they dropped out of the sciences. Knowing anything will go a long way to separating you from the guy who wants to be a fund manager because Mechanical Engineering was too much work.

 

Thanks for the tips man. I really do enjoy finance and had a great time learning all about it while in school. I am still reading a lot after graduating and looking into different areas of where I want to get into.

 

This day in age, everything is about doing things yourself. Can't rely on anyone else or any company. That's the way I look at it.

 

A few responses, since we've gone over this ad nauseum...

 

Let's compare 2001 the year before the tax cuts began and 2006 a few years after they had a chance to impact.

Unemployment was 4.7% for 2001 and 4.6% in 2006 (this answers crayonz); the DOW was higher in 2006 than 2001 (to compare apples and apples).

The on-budget deficit was -$30 billion in 2001 and -$434 billion in 2006--a $400 billion difference for the mathematically challenged.

 

You guys are forced to constantly come up with ways to deny the facts because you are stuck on the ideology that supply side worked, when all it did was create huge deficits under republican presidents. Seems to me you guys need to do some esplaining...

 

I think the Bush tax cuts in 2001 were fine and I'm the stupid liberal Keynesian. Haha.

 

It was more the two wars and the CONTINUATION of tax cuts that I had a problem with. The economy was pretty good under Bush for 5 of the 8 years. The problem was that the cuts/spending had a long lasting effect. Rates should have returned to Clinton levels when the economy was better again. Never happened.

[TPS]

Jesus, dude. Now you're taking a page out of the Lybob playbook. You seem to be arguing against the oversimplification of an economic principle by arguing the oversimplified converse argument. You're starting with the conclusion & grasping at straws to support it.

All you guys can do is come up an attack when the facts don't support YOUR beliefs. You believe in the Laffer curve and hauser's law--the data contradict. The studies from the original OP contradict. Please provide some facts to back up your beliefs then.

 

Btw, as for more facts, please find a post where I've come out in support of Obama. You want to link me with supporting Obama as a way to discredit. Please provide some facts instead of attacks.

 

Oh, TPS wrote the oversimplification playbook. Lybob's an absolute amateur by comparison.

When was the last time you posted something substantive as opposed to an ad hominem attack?

At least magox tries to back up his claims with data.

[Rob's House]

Because as incomes rise and people are put back to work, they will pay more in different taxes. With so many being unemployed, there were much less people paying. You can't pay income tax if you have no income. I'm sure it will return to that magic number of 18.5% but we'll see. This is a much different kind of economic time with technology continuing to improve and less jobs being available.

 

Economic growth is the key to raising more revenue. I think we can all agree on that.

I didn't realize you were just out of college, I'd have been a little less abrasive. Watch out for Tom though, he'd flay a 15 year old for getting on the wrong side of retarded, figuratively speaking of course.

 

Don't be too quick to latch onto any ideology. Look around, see what different arguments are out there, look to the counter arguments. When you sincerely look for an honest counterargument and can't find one that's when you've found a rabbit hole worth exploring. Follow the facts wherever they take you, even if it isn't where you want to go. You'll find that just about everyone's full of **** in one way or another. And while you'll eventually be robbed of the comfort of certainty when you reach the cold harsh truth that there is no absolute authority or easy answer, you'll be be better off for that realization. The consolation prize is you get the pleasure of pointing out why everyone who never took that journey is an idiot.

[fjl2nd]

I didn't realize you were just out of college, I'd have been a little less abrasive. Watch out for Tom though, he'd flay a 15 year old for getting on the wrong side of retarded, figuratively speaking of course.

 

Don't be too quick to latch onto any ideology. Look around, see what different arguments are out there, look to the counter arguments. When you sincerely look for an honest counterargument and can't find one that's when you've found a rabbit hole worth exploring. Follow the facts wherever they take you, even if it isn't where you want to go. You'll find that just about everyone's full of **** in one way or another. And while you'll eventually be robbed of the comfort of certainty when you reach the cold harsh truth that there is no absolute authority or easy answer, you'll be be better off for that realization. The consolation prize is you get the pleasure of pointing out why everyone who never took that journey is an idiot.

 

That's half of the fun for me. One the reasons I loved Economics so much. So many different views, theories, and perspectives. At my school, I had professors from all different schools of thought. The head of my Senior Seminar was actually a Marxist but was really cool and didn't just tell us that he was right. Very open-minded.

[DC Tom]

I didn't realize you were just out of college, I'd have been a little less abrasive. Watch out for Tom though, he'd flay a 15 year old for getting on the wrong side of retarded, figuratively speaking of course.

 

Figuratively?

[Rob's House]

All you guys can do is come up an attack when the facts don't support YOUR beliefs. You believe in the Laffer curve and hauser's law--the data contradict. The studies from the original OP contradict. Please provide some facts to back up your beliefs then.

 

Btw, as for more facts, please find a post where I've come out in support of Obama. You want to link me with supporting Obama as a way to discredit. Please provide some facts instead of attacks.

I don't have time to go dig up data for this discussion. The point is that you plucking deficit figures from 2001-2006 isn't conclusive. Your implication is that tax rates were the cause but that conclusion requires that all other variables be held constant which isn't the case.

 

Figuratively?

Gotta break em in gently

[GG]

Because as incomes rise and people are put back to work, they will pay more in different taxes. With so many being unemployed, there were much less people paying. You can't pay income tax if you have no income. I'm sure it will return to that magic number of 18.5% but we'll see. This is a much different kind of economic time with technology continuing to improve and less jobs being available.

 

Economic growth is the key to raising more revenue. I think we can all agree on that.

 

Do the math, what are 2 million new jobs going to add to the Treasury?

 

I know the esteemed professor wants to see data, and its abundant. If Bush tax cuts on the rich were to blame, then we wouldn't have see the return of tax receipts to more historic levels in 2004-2006. What's striking is the massive drop in income tax receipts in 2009, which is what you get when you set up a policy that relies only on one wealthy for the majority of your income tax generation. We've had bigger economic shocks & higher unemployment levels previously. Yet, in no time have tax revenues fell off like that. But as long as the Pelosis & Reids pine for the days when only the rich man pays the bills for the profligate spending, brace yourself for a very long lost decade.

 

It's great to politic on the class warfare bandwagon, especially when you're not the one who's paying the bill.

 

That's half of the fun for me. One the reasons I loved Economics so much. So many different views, theories, and perspectives. At my school, I had professors from all different schools of thought. The head of my Senior Seminar was actually a Marxist but was really cool and didn't just tell us that he was right. Very open-minded.

 

I'm simply shocked at this

[Magox]

Would a Higher Top Tax Rate Raise Revenues?

 

Really solid write-up. Something with substance for a change. Debunking the myth perpetuated by the GOP than raising taxes on the wealthy won't actually raise revenues for the government. Raising revenues WILL have to happen to actually balance the budget.

 

A little taste:

"Would a higher top tax rate raise revenues?"

 

With the data provided, the answer is inconclusive. You would need to add in a few more variables for there to be any sort of rational conclusion. The fact that you found this conclusion to be reasonable just displays either one of a couple things which would either be sheer ignorance or partisan hackery on your part.

 

 

If you have a nation of 150 Million taxpayers, and you have three test cases of different top tax rates of:

 

Example #1 Top tax rate of 1%

 

Example #2 Top tax rate of 90%

 

Example #3 Top tax rate of 30%

 

you would find that the question you posed would give you a very confusing answer.

 

All other variabes remaining the same

 

Example #1 would have a buoyant economy, but there really wouldn't be that much in taxes collected simply because the rate is too low. Which in turn would mean we would have a government that would be virtually nonexistent with no military, safety nets, gov. programs etc.

 

Example #2 would produce more taxes than example #1, but the tax rate would have such a stifling effect on the economy, that you would have permanent slow growth, high unemployment and virtually no innovation coming from the private sector. Not to mention tha the taxes collected wouldn't be all that high as well, due to the factors I just listed.

 

Example #3 would produce more tax revenues then both example #1 and #2. It would promote a more pro-growth economy than example #2, would lead to lower unemployment, higher growth and innovation, along with more government services.

 

So the question is what is the happy medium? This is the dilemma of he Laffer curve, where does it actually begin to bend.

 

What people have to understand is what may be the more pro-growth and higher tax generating revenue top rate isn't a fixed, static rate. People say "look at the Clinton years, look at all the job creation during the ensuing period of after the tax hike, we should just go back to that tax rate". Again, this is either a dishonest partisan argument or one born out of ignorance. I always mention variables, because, well variables are important to consider. Clinton had the luxary of a once in a lifetime tech bubble boom. Another variable that people don't like to mention is that Clinton lowered capital gains from 28% to 20%. Considering that the economy was mainly thriving due to the internet bubble explosion, and that the Nasdaq went through the roof, a hefty portion of those tax revenues were not only fueled by capital gains taxes but by an economy that was powered by a bubbled stock market.

 

During Clintons years, the economy could absorb a higher top tax rate. But in today's climate, I would say returning back to that rate wouldn't produce the results that progressives would hope for. The economy isn't in a fantasy land sort of bubble, it's not in a normal condition status either, hell, it's not even mediocre, the economy is lousy by just about every metric. Real unemployment is well above 8.3%, we have so many hopeless people who have given up looking for work that they aren't even counted in the unemployment rate. Labor participation rate is the lowest its been in almost 2 generations.

 

Having said that, my belief is that in a normal economy, which we are very far away from achieving specially with our presidents economic policies, that the Bush tax cuts fall on the wrong side of the Laffer curve. Sure, it promotes growth, but it also promotes higher deficits. The question is when do you go back to a higher rate? I would say now is out of the question.

 

Republicans, however, are quite adamant that not only must the wealthy not pay any more in taxes – but, in fact, must have their taxes further reduced. Every Republican presidential candidate favors lower taxes on the wealthy. Mitt Romney, for example, has proposed cutting the top income tax rate to 28 percent from 35 percent.

 

You know how you can tell that this was written by a partisan? It mentions that Romneys proposed plan cuts income rate on the wealthy from 35 to 28 percent. This leaves the impression that ROmney is soley looking to cut rates for the wealthy. There is no mention of his plan to cut rates for everyone else by 20%. There is no mention of his plan to slash capital gains taxes for anyone making under $200,000. Meaning that if you add in income and capital gains taxes together, that his plan is INDEED a progressive tax rate that is more favorable for the non wealthy. That's a fact!

 

If you are going to be taken seriously here, then I would suggest that if you present facts, that you add proper context and texture.

 

But this does lead me to a point, everyone keeps mentioning, that the Bush tax cuts added a trillion or Trillions to the national debt which is the reason why we should end the Bush tax cuts for the wealthy. Well, to say that this comment is ignorant, doesn't do the word ignorant justice. Did you know that the Bush tax cuts was a tax break for everyone? DId you know that the Bush tax cuts for the wealthy only make up 20% of the debt incurred? Meaning for every $5 added to the debt as a result of the Bush tax cuts, only $1 of that comes from the wealthy.

 

My point is if you are serious about reducing the deficit now or sometime in the near future, then everyone has to pay their "fair share" .

Edited March 19, 2012 by Magox

[Chef Jim]

Oh I know. My degree was Economics concentrating in Finance and it's basically getting me nowhere so far. But, I'm continuing the grind. It just sucks because I like econ/finance so much but so hard for me to get a job dealing with it. I blame my lack of "real" work experience. I played poker in college as a job.

 

By the time I graduated college I had 6 years of real work experience and I only went to college for less than two years. Get off your lazy as and get a job. And I don't mean a job using your degree. Just go flip burgers or something.