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Where do congressional Republicans think the Laffer curve bends?

Andrew Samwick wants to know:

The next question is simply, "What do the experts on your staff tell you that the top marginal tax rate should be in order to maximize tax revenues, leaving everything else about the tax code the same?" Journalists should relentlessly ask it of the Republican leadership in Congress who continue to make fallacious claims, and the Democratic leadership in Congress ought to ask it politely in a letter to CBO Director Doug Elmendorf.

By Ezra Klein  |  August 2, 2010; 12:30 PM ET
 
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Comments

for years, i've been asking right-wingers if tax cuts automatically raise revenues, why shouldn't we cut tax rates to .000001%? at that point, revenues should explode!

generally, of course, they don't answer, but i did once have someone say "i never thought of that," which pretty much tells you all you need to know about right-wing tropes.

Posted by: howard16 | August 2, 2010 1:24 PM | Report abuse

Such a question assume you want to maximize tax revenues.

Posted by: NoVAHockey | August 2, 2010 1:39 PM | Report abuse

I think it should be around the AMT level of 26-28% applied to all income. What is very annoying is that almost every major financial decision I make is impacted by it's tax treatment. I had a lot of dividend producing investments, but then I hear special treatment of dividends is going to be taken away so that corporate profits can be subject to full double taxation (once when recognized by the company and once when given to the owners).

Posted by: staticvars | August 2, 2010 1:40 PM | Report abuse

for years I have been asking liberals if tax increases raise revenues why shouldn't we raise tax rates to 99.99999%. At that point revenues should explode!

generally, of course, they don't answer, but i did once have someone say "i never thought of that," which pretty much tells you all you need to know about left-wing tropes such as howard16.

Posted by: cummije5 | August 2, 2010 1:42 PM | Report abuse

Steve Pearlstein's rule of thumb is 50%, counting all taxes (Federal, state, local). This seems pretty accurate to me, and explains the Kennedy and Reagan tax cut success. Note that with the income tax rates in certain states, this means an effective top Federal rate of around 35 - 39%, which is what things were under Clinton if I recall correctly.

"A quick back-of-the-envelope calculation suggests that balancing the budget solely on the backs of those making more than $250,000 a year would almost surely require pushing marginal income tax rates well above 50 percent. That's a level at which taxes begin to discourage people from working and investing. Almost certainly, it is a level that would prompt them to invest significant time and money to find new ways to evade taxes."

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/16/AR2009041604462.html

Posted by: jnc4p | August 2, 2010 1:53 PM | Report abuse

I don't think "liberals" want to maximize tax revenue. Liberals rightly see that tax revenue is related to what services the government offers.

You want a war in Iraq? Alright, taxes should go up. You want Medicare part D? Okay, more taxes. There's nothing inherently wrong with wanting more or less services, but it seems to me only one party recognizes that the books need to balance at some point.

Posted by: mschol17 | August 2, 2010 1:55 PM | Report abuse

Tax Rates should be at 99.9999%

Mimimum wages should be $1000 an hour

There should be 300% sur charge on all carbon emitting fuel options.

Utopia can be achieved if we blindly follow Ezra's advice.

Posted by: FastEddieO007 | August 2, 2010 2:08 PM | Report abuse

I think the question that ought to be considered is what can you say about a bunch of people who spend their lives trying to figure the maximum amount they can bleed their fellows without killing them.

Posted by: msoja | August 2, 2010 2:12 PM | Report abuse

"I don't think 'liberals' want to maximize tax revenue. Liberals rightly see that tax revenue is related to what services the government offers."

And the fact that such a thing never occurs to folks like kummije5 tells you all you need to know about such lightweights. Since they can't mount a coherent argument against the political opposition, they mount it against their own imagination.

Posted by: ibc0 | August 2, 2010 2:23 PM | Report abuse

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.


—President John F. Kennedy,
Economic Report of the President,

January 1963

Posted by: FastEddieO007 | August 2, 2010 2:24 PM | Report abuse

Liberal: "Hmm, how best can we ensure that government expenditures are met with revenues. Perhaps we should add a new top bracket as we had during Eisenhower."

Faux Conservative: "YOU'RE TRYING TO TAKE ALL MAH MONEY!@! WHY DO YOU HATE FREEEEDOOMMM??"

It was ever thus, and ever shall be while persecution and egomania go hand-in-hand.

Posted by: ibc0 | August 2, 2010 2:26 PM | Report abuse

The liberals view successful American enterprises in the same way that "The Matrix" views human organisms....they are mere organic batteries that exist to feed the beast!

Posted by: FastEddieO007 | August 2, 2010 2:30 PM | Report abuse

FastEddieO007, you do realize that when JFK said that the top tax rate was between 87% and 91%? I don't think he would be saying the same thing looking at our tragically burdensome rate of 35%.

The Laffer curve purports an inverted U that defines the relationship between tax rates and revenue. Where is the top of this U? How low is too low? Or, could it possibly be, that we're way left of this peak and moving right would indeed increase revenues?

Hey, remember when we had a gangbuster economy in the 90s? When we balanced the budget? How did that happen given the fact that we were SO BURDENED by a 41% top tax rate?

Posted by: gobaers | August 2, 2010 2:51 PM | Report abuse

"I don't think 'liberals' want to maximize tax revenue. Liberals rightly see that tax revenue is related to what services the government offers."

Therein lies the problem. Liberals always want to increase the services that the government offers, and then they want to raise taxes to pay for them. Conservatives want to keep taxes low, and reduce services to those that can fit within the national budget. The Republican congress during the Bush administration was not good at doing this, which is why they got booted out.

Posted by: cummije5 | August 2, 2010 3:04 PM | Report abuse

Journalists relentlessly ask a tough, content-laden question of Republicans -- that is funny!

Posted by: gagkk | August 2, 2010 3:05 PM | Report abuse

cummiej5, nice try, but of course, for the equivalence to work, you'd need to find liberals who think the government should own the entire economy. liberals, as has already been noted, want revenues and expenditures to be related, and to be in general fund balance over an entire business cycle.

right-wingers believe that tax cuts pay for themselves and are always and in all times good, and therefore subject to the conditions i outlined.

but kudos for trying....

Posted by: howard16 | August 2, 2010 3:14 PM | Report abuse

"The Republican congress during the Bush administration was not good at doing this, which is why they got booted out."

HAHA.

Pretty good stuff, there. Actually, GW got booted out because he got the US embroiled in *two* Vietnam-style quagmires, while simultaneously presiding over the second worst economic disaster in American history.

Your analysis that Bush's unpopularity came from being insufficiently devoted to tax cuts is pretty cute, but doesn't reflect well on your skills as a political observer.

Posted by: ibc0 | August 2, 2010 3:32 PM | Report abuse

I don't think that conservatives want to reduce government services. Just look at the "Gov't keep your hands off my Medicare" signs at the Tea Party events.

Social safety net policies have proven popular over and over again. The Conservative gov't in England specifically ran on a "won't touch the NHS" platform.

I think conservatives historically want the government to run leaner and more efficiently. However, I think the current Republican party cares more about low taxes than good government. They had plenty of opportunities in the HCB, FinReg, etc to make substantive conservative tweaks that would have made a difference, and they didn't. Instead, they yelled that Democrats wanted to cut off your Medicare.

Posted by: mschol17 | August 2, 2010 3:42 PM | Report abuse

"Steve Pearlstein's rule of thumb is 50%, counting all taxes (Federal, state, local). This seems pretty accurate to me, and explains the Kennedy and Reagan tax cut success."

What Reagan tax cut success?

Posted by: thehersch | August 2, 2010 5:04 PM | Report abuse

ha, I think that question will make their heads explode!!!

The truth is that they aren't cutting taxes on the rich to maximize revenue, begin even Auther Laffer concedes that we're probably below that point on the curve. Don't be fooled, the Republicans are pushing to preserve the taxcuts on the rich purely for political reasons, because quite simply, that is who they serve. They don't give a damn about the debt, at least not when they're in power.

Posted by: SnowleopardNZ | August 2, 2010 7:30 PM | Report abuse

""Steve Pearlstein's rule of thumb is 50%, counting all taxes (Federal, state, local). This seems pretty accurate to me, and explains the Kennedy and Reagan tax cut success."

What Reagan tax cut success?"

Economic growth in the 1980's as compared to the 1970's.

Posted by: jnc4p | August 2, 2010 9:42 PM | Report abuse

jnc4p: "'What Reagan tax cut success?'

"Economic growth in the 1980's as compared to the 1970's."

Ah yes. And then what do we say in the aftermath of the H.W. Bush and Clinton tax hikes when we compare economic growth in the 1990s as compared to the 1980's? And then what about growth after W's massive tax cuts compared to the 1990s?

Look, the point of Ezra's question was not to maximize revenues; it was to ask conservatives where they think the Laffer Curve flattens out. If we're on the left side of that point, then tax cuts will not pay for themselves and need to be balanced by spending reductions--which Republicans are curiously reluctant to delineate.

One would think that when H.W. Bush and Clinton raised taxes, especially on the wealthy, and the economy did not crash while coming out of a delicate recession but instead showed sustained growth benefiting all income levels, supply siders might reconsider their theory. And when W cut taxes and we got anemic growth for 8 years, they'd really reconsider and perhaps entertain the notion that the economy just doesn't respond to a few percentage points difference in marginal income tax rates, at least at present levels.

But why should ideology allow evidence to get in the way of a perfectly good theory?

Posted by: dasimon | August 2, 2010 11:36 PM | Report abuse

--"Ah yes. And then what do we say in the aftermath of the H.W. Bush and Clinton tax hikes when we compare economic growth in the 1990s as compared to the 1980's?"--

"We say" that economics is more complicated than your simplistic take can encompass.

And that those who spend their lives planning how to maximize what they can steal from others deserve neither respect nor even politeness.

Posted by: msoja | August 3, 2010 10:16 AM | Report abuse

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