Tax the rich!
I was a graduate student in a STEM program when Reagan was elected and the Laffer curve was used to justify tax cuts. The problem that immediately stood out to me at the time was that neither the ordinate nor the abscissa in the Laffer graph had scales, so it was impossible to assess where, exactly, the inflection point occurred. Based on the symmetrical drawing, we’re meant to infer that a 50% tax rate is the point after which government revenue would fall, but Laffer wasn’t even willing to support that inference by showing the scale on the X axis!
From the Wikipedia page on the Laffer curve:
” . . . however, the curve might not have only a single peak, nor must it peak symmetrically at whatever value maximizes tax revenue. . .”
The Laffer Curve
Kevin Drum has a post up linking to an article claiming that (a) economists across the political spectrum agree that the marginal top income tax rate should be increased and (b) that the optimal rate should be between 58% and 84%.
I’m not sure how much this matters, since the rich don’t get most of their wealth from salaries. I assume that the (bogus) Laffer curve incorporates all forms of taxation, but who knows?
Cocktail napkin logic, at what point in the party would I be tipsy enough to go along?
Laffer certainly got a lot of mileage out of that napkin. A lot of folks were seduced by it.
Was there ever a formula given for the Laffer curve?
No, of course not. If there had been, the ordinate and abscissa would have been indexed. The Laffer curve wasn’t math, it was propaganda.
of course it was propaganda. on the other hand i have my doubts about “studies that show” “optimum” tax rates at any level.
taxes are to pay for what we need. and general taxes MUST be “progressive” or they can’t work at all, never mind optimum.
note that this is general taxes. it does not matter that cigaret taxes, for example are “regressive.” and it really does not matter that some “economists” think that Social Security is a “regressive tax …regressive tax….awk awk”. or it woudn’t matter, if they did not give a huge number of people the idea that “taxing the rich” to pay for their own ordinary needs is “fair.”
What was the effective tax rate back in (((The Good Old Days))) of the Eisenhower Administration, 77%. I don’t remember, I was just tyke. Graduated too, if that’s the right word, applied more heavily to the upper-income earners than those at the sawmills or packing plants
Read a quote once attributed but, ahh … something to the effect of “nobody needs that much money.”
“During the eight years of the Eisenhower presidency, from 1953 to 1961, the top marginal rate was 91 percent. (It was 92 percent the year he came into office.”
https://www.politifact.com/factchecks/2015/nov/15/bernie-sanders/income-tax-rates-were-90-percent-under-eisenhower-/#:~:text=During%20the%20eight%20years%20of,year%20he%20came%20into%20office.)
top marginal rate means more than top rate. and “effective rate” is meaningless unless described more carefully. but top marginal is still meaningless unless the income levels are also identified, as well as the percent of population, and the percent of their income is also noted.
Martin Gardner spoofed the Laffer curve in one of his last “Mathematical Games” columns for Scientific American, in the Dec. 1981 issue. His column was reprinted in his book The Night Is Large
Still very funny.
Bob:
I did the edit.
Bill (run75441)
So was federal tax revenue significantly higher in the 1950’s than it is today? Have you ever read Piketty, Saez, Zucman, “ Distributional National Accounts, Methods and Estimates for the United States”?
No, have you?
Yes, I have.
little john
good for you. i have not. but just a word on prevailing manners: “have you read..?” is often considered the sign of a bore. i am not calling you a bore: just letting you know how some people may react. instead of saying “have you read” try to encapsulate the point you are trying to make in a short paragraph,
fwiw, I, personally, am not generally impressed by argument by reference to authority. i think it is on the list of “logical fallacies.”
if i remember, what made the laffer optimum was that was the point where cheating on your taxes made more sense than just paying them and forgetting them. it had nothing to do with optimum for the country, the economy or the people.
Long time ago, but don’t remember the Laffer Curve arguments being about optimization, but rather just pointing to a high marginal rate as being sun-optimal. An optimal point was implicit, but Reagan wasn’t really looking for that. Just lower is better. And I don’t remember the argument as a tipping point to cheating – although plausible – but rather a disincentive to work. Like Taylor Swift cuts her “Eras” Touring back because it just won’t be worth taking in the next $10M if she’ll be left with a measly $2.5M or similar.
You were doing good, until you brought Taylor Swift into it
Apples and … potatoes
Eric
Taylor Swift and Ronald Reagan may be apples and potatoes, but they made the same argument for taking a day off. I doubt Swift was trying to make a political or pseudo economic argument, but Reagan certainly was. My argument re Reagan wa who gives a damn if he doesn’t make another movie, and I was pretty sure there are other entrepreneurs who can fill in for those who refuse to make another million when the “before tax” deal was ten million. Pretty sure I heard others making the tax-cheating argument, but then I have my own way with words. In any case I think the world would be a better place if more people worked less. The problem with the economy is not that rich people might take a day off if taxes are too high, but that poor people can’t get a job that pays enough so they can take a day off.
what was insufferable about Laffer was the brutal arrogance of saying in effect “the rich won’t work if you don’t pay them enough” while saying at the same time that the poor “won’t work if you pay them enough: they will just get drunk and not come into work on monday.”
and the stupidity with which the media and the voters accepted those arguments. advertising jingle levels of intelligence.
I’ve seen a lot of social mobility during my life. Too much to think “poor people can’t” do this or that. But I agree that many paths that were available in 1975 really aren’t there any longer, or accommodate many fewer people. I went to high school with several boys whose immediate plan was for their dad (or uncle, etc.) to get them “in” at a union factory. And it worked mostly. That’s harder to find now.
Eric
your comment is positioned so that it might be intended as an answer to mine. i can’t see it, so more likely it is an expression of your own opinions without reference to mine. that’s fine.
but i would say this to you”
i can do some things that other people cannot, but most of them can do things that i cannot. this is why we need each other. it is probably true that there are some people who will never be able to do anything as “valuable” in a competitive market as other people. but inequality is not the problem. the problem is that the poor are treated badly and the rich are cruel and greedy.