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Anyway, you're right. We're supposed to be talking about raw numbers -- not per GDP. I'm getting myself a bit mixed up. Laffer Curve proponents essentially argue that revenues (in raw dollars) will be higher at the lower tax rate, due to stronger GDP growth, than they would've been at the previous, higher rate.
The CBO did a study of a hypothetical 10% tax cut, financed with deficits, with players broken down into three categories -- No Foresight, Lifetime Foresight and Unlimited Foresight. Bonddad has summarized it, here.
Long story short: We'll see some change in behavior, largely among top earners (as expected), but the change is not large enough to make up for the lost revenue. The government still ends up losing about 75%, even when the results are very favorable to the Supply-Siders' views.
According to models that account for both supply-side and demand-side effects, those effects might offset somewhat less than 15 percent of the revenue loss over the first five years.
So the CBO model is predicting that the change in behavior will offset a bit less than 15% of the loss. That's probably a fair estimate, depend, of course, on how high the rates were to begin with.
We can all judge for ourselves whether we believe that is worth the cost, or what tax rates we would all support. (I think I'm probably a little more in favor of lower taxes than most people on here, since I don't think income tax rates should ever exceed the 40-45% range.) But I think the data suggests, in all or most cases (the CBO study is, obviously, just one example), that the government would've been better off with the higher rates -- again, depending on how high they were to begin with. Be nice to America. Or we'll bring democracy to your country.
While supporting the CBO article, I would make two comments. First, I believe that the article uses today's tax structure for its analysis, looking at the Federal Income Tax only--which is appropriate BTW. That means they are starting with a highest marginal tax rate of 35%, where my intuition (no data, just intuition) tells me marginal rates are already pretty low, and I wouldn't expect to get much revenue increase out of it. I would agree with an earlier comment of yours, which if I'm understanding your meaning, said that it seemed logical that there was a significant revenue benefit from the JFK tax cuts--because the marginal tax rates were so much higher, and the benefits so much greater.
You comment:
(I think I'm probably a little more in favor of lower taxes than most people on here, since I don't think income tax rates should ever exceed the 40-45% range.)
But I'm in agreement with the analysis which I interpret as saying at the lower marginal tax rates of today (2000 and forward), you will not increase tax revenues by lowering marginal tax rates. Another of Bush's programs that I would disagree with is eliminating the estate tax--raising the ceilings makes some sense, reflecting the impacts of inflation, and maybe then some--but there are really no benefits to elimination.
I would agree with an earlier comment of yours, which if I'm understanding your meaning, said that it seemed logical that there was a significant revenue benefit from the JFK tax cuts--because the marginal tax rates were so much higher, and the benefits so much greater.
I'm not positive about this, but I believe marginal rates, prior to the JFK cuts, were 90%, which is (in my opinion) just absurd. It's the case that Republicans always point to, but 39% marginal rates -- I believe 39% was roughly the Clinton-era rate -- are, of course, not comparable to 90% rates. Be nice to America. Or we'll bring democracy to your country.
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