[George_1950]

It is simply not true that the tax cuts have caused government revenues to be higher (and deficits lower) than they would have been otherwise. There is no serious disagreement about this between liberal and conservative economists. Here's a whole bunch of conservative economists' views on the subject: No, The Bush Tax Cuts Have NOT Generated Higher Revenues

There is no doubt that Government revenues have been, and are presently, lower than they would have been without the Bush tax cuts of 2001-2003. In the absence of spending restraint, simple arithmetic leads to the inescapable conclusion that the Federal Government's current budget deficit, and the accumulated debt produced by previous years' deficits, are both significantly larger than they would have been without the tax cuts.

Check this: "There is a distinct pattern throughout American history: When tax rates are reduced, the economy’s growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and “rich” taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden – a consequence that should lead class-warfare politicians to support lower tax rates."

There's plenty for for those who want to see: The Historical Lessons of Lower Tax Rates

[ordinaryguy]

There's plenty for for those who want to see: The Historical Lessons of Lower Tax Rates

It is certainly possible that if tax rates were high enough, and enforcement were lax enough, a reduction in tax rates, coupled with more vigorous enforcement and more severe penalties, could result in higher government revenues. It may have actually happened at some time and place in the past.

But it does not follow that lower tax rates will always and under all conditions have that effect. Specifically, in the period from 2001 to the present, there is no credible evidence whatsoever that it has in fact happened in this instance.

[ordinaryguy]

excon agrees: Because we're NOT on the gold standard, your 1940 dollar is worth 3 cents.

Sorry, but no, that's not why. Inflation is quite possible under a gold standard, if more gold is mined than the amount of money that's needed in the economy [viz. California in the 1850's]. If, on the other hand, too little gold is mined, the result is deflation and depression. The latter is actually more likely than the former because all the "cheap gold" has already been extracted. Having a gold standard really just amounts to setting the price of gold by government fiat, at a price that inevitably becomes lower than the marginal cost of new extraction, thus drying up the supply. Remember $35/ounce? It was abandoned for very good reasons that are just as valid now as they were then.

Excessive inflation is indeed a scourge, but going back on the gold standard is a cure that's far worse than the disease.

[George_1950]

ordinaryguy writes: " Specifically, in the period from 2001 to the present, there is no credible evidence whatsoever that it has in fact happened in this instance."
But further search shows this: "Tax rate reductions increase tax revenues. This truth has been proved at both state and federal levels, including by President Bush's 2003 tax cuts on income, capital gains and dividends. Those reductions have raised federal tax receipts by $785 billion, the largest four-year revenue increase in U.S. history. In fiscal 2007, which ended last month, the government took in 6.7% more tax revenues than in 2006."

Read the entire piece: The Wall Street Journal Online - Outside the Box

[tomder55]

The Laffer theory certainly does not say that if you reduce taxes revenue automatically increase. Zero taxes would have course mean zero revenues. What the goal is then is to reach the optimal reduction in taxes that generates the greatest return through the stimulus.

That is the best I can do to explain the theory. It has been very successful in it's application .

[ordinaryguy]

ordinaryguy writes: " Specifically, in the period from 2001 to the present, there is no credible evidence whatsoever that it has in fact happened in this instance."
But further search shows this: "Tax rate reductions increase tax revenues. This truth has been proved at both state and federal levels, including by President Bush's 2003 tax cuts on income, capital gains and dividends. Those reductions have raised federal tax receipts by $785 billion, the largest four-year revenue increase in U.S. history. In fiscal 2007, which ended last month, the government took in 6.7% more tax revenues than in 2006."

Read the entire piece: The Wall Street Journal Online - Outside the Box

Yes, there are still a few true-believer supply-siders like Pete du Pont who make such assertions, but there's a reason why the tag line is "Outside the Box", and that's because his view is outside the mainstream of credible economic analysis. The fallacy in his argument is that he imputes all increases in government revenues to the tax cuts. In fact, Government revenues are far more driven by the business cycle than by marginal tax rates.

According to the Congressional Budget Office--Historical Budget Data, between 2000 and 2003 revenues decreased from $2,025.5 billion to $1,782.5 billion, due to the "tech bubble recession". By 2006 they had rebounded to $2,407.3 billion as the economy recovered, led by the "real estate bubble". On a percent-of-GDP basis, 2006 revenues at 18.4% are still below the 20.9% value of 2000. There is no credible evidence that revenues are now higher than they would have been without the tax cuts.

[ordinaryguy]

The Laffer theory certainly does not say that if you reduce taxes revenue automatically increase. zero taxes would of course mean zero revenues. What the goal is then is to reach the optimal reduction in taxes that generates the greatest return through the stimulus.

That is the best I can do to explain the theory.

And a very good explanation it is. Can you provide any empirical evidence of what the "optimal reduction in taxes" might be?

It has been very successful in it's application .

Not in this instance, unfortunately.

[George_1950]

ordinaryguy want to talk about "There is no credible evidence" and cite the Congressional Budget Office? Time to wake up, man.

[ordinaryguy]

ordinaryguy want to talk about "There is no credible evidence" and cite the Congressional Budget Office? Time to wake up, man.

The CBO tables are based on data supplied by Executive Branch agencies including the Office of Management and Budget, the Department of Commerce, the Bureau of the Census, and others. Are you suggesting that the data is inaccurate?

[George_1950]

Otherwise known as 'the dismal science'; like reading entrails. The CBO is and has been an ad hoc agency of the Washington establishment as a result of the 'Bob Doles' lacking the courage of their convictions and turning the big government types out. Just my opinion.