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BrassDragon

US tax revenue

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Though Republicans dramatically sliced taxes without money in the budget, they now can point to historic levels of tax receipts because of the healthy economy that was, they say, spurred by the tax cut.

How could one find out if this is actually true? (Or perhaps someone here actually knows it it's true or not?)

If it is true (i.e. that we have 'historic levels of tax recepits' coupled with tax cuts), that would be a very powerful debate tool and a powerful testament to the idea that taxes decrease prosperity :thumbsup:

Source: http://www.washingtontimes.com/national/20...05644-6484r.htm

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There was a thread on this earlier. Specifically around debt financing of govt.

It is true. The phenomena is known as the Laffer curve. We are in a range where marginal decreases in tax rates, cause marginal increases in total tax revenue. In fact, many of the Republican talking heads point to this effect as a reason we want to cut tax rates, ie. so that we can get more revenue, i.e. increase the size of govt.

Worse yet, the Bush tax cuts created a more progressive tax code, i.e. one that disprportionately takes more from the wealth than it did before.

Bigger govt and more redistribution. I'm having a tough time figure out what was good about the tax cuts...

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Bigger govt and more redistribution. I'm having a tough time figure out what was good about the tax cuts...

Well, they saved me several thousand dollars a year. I consider that a good thing. And given how large a percentage of that money made its way to ARI and the Anthem Foundation, you probably should consider that a good thing as well.

It's also worth noting that just because a change in the tax code results in a greater percentage of total tax revenue collected from the higher income quintiles doesn't mean more redistribution of money in an absolute sense. Imagine a simple economy with two taxpayers, one who makes $50,000 a year and another who makes $100,000 a year. A tax code that taxes the former 20% of his income and the latter 40% would raise a total of $50,000. Of that, 80% ($40,000 out of $50,000) would be from the richer taxpayer. Now change the tax code to one that taxes the poorer guy 10% and the rich guy 25%. That raises a total of $30,000. Of that, 83% ($25,000 out of $30,000) would come from the richer taxpayer. The tax code has become more progressive. Yet at the same time the richer taxpayer is only out $25,000 instead of $40,000, so less redistribution of wealth is occurring.

Isn't math fun?

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Worse yet, the Bush tax cuts created a more progressive tax code, i.e. one that disprportionately takes more from the wealth than it did before.

Could you expand on this? How does Bush's tax cuts take more from the wealthy? And if that's true then why are the democrats so against it. I always thought they supported taxing the hell out of the rich. I'm not familiar with the details of his tax cuts...my guess it was something like a tax cut for the middle class at the expense of the wealthy or something?

Bigger govt and more redistribution. I'm having a tough time figure out what was good about the tax cuts...

What a perfect little paradox that is. :thumbsup:

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Yes, but you forgot the last step. Eventually economic prosperity will grow and that 30K tax revenue will grow to $60K, (Laffer curve) 83% of which ($49.8K) will come from the rich guy.

I'll grant that tax cut stimulates economic growth, but progressive tax cuts are just as bad is progressive tax increases, in their progressivity. And as I called out in the linked thread, an increase in revenue only feeds statist tendencies in our govt. The true test would be what do Republican's advocate when we crest the Laffer curve and tax cuts = revenue decreases.

Based on the fact that the Laffer function exists, Democrats who advocate tax increases to fund statist tendencies are idiots. Republican statist who advocate it are crazy like foxes. They can placate democratic masses by pointing out its progressive nature, and placate would be Objectivists since it is a cut after all.

I'm thinking 2 out of 3 statist/altruist effects does not make for a strong defender of individual rights...

I wrestled a lot with this. My first instinct was to say, well a tax cut is good even if it is progressive and generates more tax revenue. Problem is the good effect (singular) are the easiest to undo, and the bad effects (plural) are very difficult to undo. (can you imagine if the poor decried this tax cut as a tax cut for the rich, when it was a progressive tax, how they'll howl when someone advocates righting that wrong with a regressive tax cut, such as a shift to a flat tax?) When the yo-yo of progressive tax increases with progressive tax cuts shift tax income predominantly to a rich minority, they will NEVER be able to shift that burden back to its proper place.

Edited by KendallJ

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Could you expand on this? How does Bush's tax cuts take more from the wealthy? And if that's true then why are the democrats so against it. I always thought they supported taxing the hell out of the rich. I'm not familiar with the details of his tax cuts...my guess it was something like a tax cut for the middle class at the expense of the wealthy or something?

Well, shoot, I was going to blog this (I already did it once, with respect to the fact that corporate taxes were not cut at all), but since it came up, and I opened my mouth....

I finished khaights senario, and hopefully it should make sense now. The math is a little hard to think about, but the net effect is it shifts tax burden MORE to the rich.

Let's say you initiate a progressive tax scheme with 2 brackets: 10% and 20% of income.

One person in each bracket earning 10K and 20K respectively. Tax burden is $1K, and $4K (an 20/80 split)

Then someone comes along and want to decrease taxes. A neutral tax cut would be an equal proportion, say down to 8%, and 16% of income (a 20% cut for each). A progressive tax cut give more to the lower bracket, lets say the brackets are reduced to 7% and 16%. For the same people, the tax burdens are $700, and $3,200 (or an 18/82 split). The Democrats decry this as a tax break to the rich because the rich guy gets $800 back, but he earns more in the first place, and was taxed at a proportionately higher rate as well. The poor guy gets $300 back, but this is out of proportion to what he was paying in the first place. The net effect is the rich guy shoulders more of the burden.

Bush actually used this fundamental point to defend against the arguments that it was a "tax cut for the rich" (the "compassionate", altruist bugger). He basically said, no this is a compassionate tax cut as it actually helps out the poor and middle class even more than the rich. As for data that this was the actual effect, see this link.

Edited by KendallJ

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Yes, but you forgot the last step. Eventually economic prosperity will grow and that 30K tax revenue will grow to $60K, (Laffer curve) 83% of which ($49.8K) will come from the rich guy.

I don't think that disproves my point. Ceteris paribus, the change in the tax code makes it more progressive while simultaneously reducing the total amount of wealth from the richer taxpayer that is redistributed into government hands. A more progressive tax code does not necessarily increase wealth distribution as such. A more progressive tax code *coupled with a general increase in the wealth of taxpayers* will result in more money in government hands than a less progressive tax code would have. But that's really just another way of saying that if more of the tax burden falls on the rich, and you have more rich people, they'll pay more tax. Well, duh.

I'll grant that tax cut stimulates economic growth, but progressive tax cuts are just as bad is progressive tax increases, in their progressivity. And as I called out in the linked thread, an increase in revenue only feeds statist tendencies in our govt. The true test would be what do Republican's advocate when we crest the Laffer curve and tax cuts = revenue decreases.
I agree with this as a policy point. I'd prefer to see the tax code get flatter, not more progressive, and I'd prefer to see the total amount of wealth in government hands decrease, not increase. But I also find value in being able to keep more of my own hard-earned money, right here, right now -- and the Bush tax cuts did do that for me. I would much prefer a progressive tax cut to a progressive tax increase for that reason alone.

The fundamental argument for tax cuts is moral, not economic. I earned my money through my own thought and effort. Government has no moral right to take it from me by force, and the lower the tax rate the less of my earned wealth they are taking. The Laffer curve argument, as you note, carries with it an implicit assumption that the proper goal of tax policy is to maximize government revenue -- and could thus be deployed as an argument in support of a tax *increase* depending on where we are on the curve. In reality, the proper goal of tax policy is to minimize the amount of wealth the government forcibly takes from the hands of private citizens -- all the way to $0 if possible.

Based on the fact that the Laffer function exists, Democrats who advocate tax increases to fund statist tendencies are idiots.

In spite of their rhetoric, Democratic tax policy is not intended to soak the rich. I've found that it makes much more sense if you assume that the goal of the Democrats is to prevent the upper middle class from *becoming* rich. (Bear in mind that there are actually more extremely wealthy supporters of the Democratic party than of the Republican.) If you are already rich (say with $10 million in assets or so), you can invest in tax-free municipal bonds and live a very comfortable lifestyle without having to pay income taxes at all. You don't care about the income tax rate because most of your income isn't subject to it. On the other hand, if you have a high salary but haven't accumulated enough assets to be able to live off the investment income stream alone, the tax code hits you extremely hard. People and couples with adjusted gross income in the $150,000 to $300,000 range get hit extremely hard by the phase-out of deductions and by the alternative minimum tax.

If you really wanted a tax policy that would soak the *rich*, you would create a tax on the value of assets, say 5% annually on total assets owned in excess of $100 million. But no Democrat would go anywhere near a tax proposal like that because soaking the rich isn't their real goal. (Leave that for the real hard-left whack jobs in the Green party.)

The poor guy gets $300 back, but this is out of proportion to what he was paying in the first place. The net effect is the rich guy shoulders more of the burden.

There's sort of an ambiguity in this discussion centering around the term 'more'. A progressive tax cut causes the richer taxpayer to pay a higher proportion of the total tax burden, but it will be a smaller absolute amount as a result of the rate cut. So there is a sense in which the rich pay more (they pay a higher percentage of the total tax burden) and a sense in which they, along with everyone else, pay less (everybody's total tax bill is smaller). You have to be careful to keep track of which aspect is under discussion or things will get very confusing very quickly.

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