Does Lowering Tax Rates Increase Tax Receipts Collected?

[buckshot24]

This lady says its 33%

http://en.wikipedia.org/wiki/Christina_Romer

As it turns out she didn't say 33%

It was Tim Groseclose made calculation from implications of what the paper was saying.

Sorry about that.

 

[buckshot24]

So despite making a thread titled 'does lowering tax rates increase tax receipts collected' you are saying that you make no statement as to whether or not lowering tax rates increases tax receipts collected?

I asked a question in the thread title, I didn't say that I was going to prove the affirmative.

If that's the case, then your OP is bordering on a non sequitur. If you ask a question in the title and then give an answer to it in your original post that doesn't address the question you asked, why did you ask it to begin with?

I simply showed some data that I calculated. I don't think anything I wrote in the OP was controversial as I (for the most part) was just expressing facts.

I have already given you a number of ideas to explain the data as well as two separate authoritative analyses of the effects of those tax cuts. What more could you possibly want?

I must have missed your ideas.

 

[fskimospy]

As it turns out she didn't say 33%

It was Tim Groseclose made calculation from implications of what the paper was saying.

Sorry about that.

That is an extremely poorly written analysis, filled with large logical failures. You should always look at someone skeptically if they are coming to hugely different conclusions than the author of the work they are basing their conclusions on. This would be another good reason not to put too much credit in ultra right wing blogs.

First and foremost his problem is that he conflates taxes with subsections of the population with taxes on the country as a whole. Even if the optimum rate was 33% that doesn't mean that the optimum rate on the rich would be 33% as different segments of the population work and consume in different ways. Basic empirical failures.

Regardless, that was a generalized extrapolation that came from something she wrote about a slightly different topic. Romer did later work on revenue specifically that concluded the maximizing rate was much, much higher. (again, 84% to be exact)

 

[buckshot24]

I am not an economist you would have to ask them. It would have to take into account a ton of factors and would be very complicated.

This is something that took me about an hour to do. Of course there won't be every possible cause and effect to the economy in a spreadsheet with 10-15 sets of data. I'm open to including any new sets of data that people can come up with that makes the sheet more robust.

 

[fskimospy]

This is something that took me about an hour to do. Of course there won't be every possible cause and effect to the economy in a spreadsheet with 10-15 sets of data. I'm open to including any new sets of data that people can come up with that makes the sheet more robust.

And what are you going to do with that data? What sort of analyses are you going to run? What tests for significance will you use? How are you controlling for all the confounding variables that might be out there? How will you isolate the effects of variables on the outcomes? Are you going to run some regressions to do that? Calculate Pearson's correlation coefficients, what? Do you know what these measures of statistical significance mean?

Just looking at a spreadsheet doesn't do anything. If you really want to analyze what these numbers mean in relation to each other you've got a huge job ahead of you, both in data preparation and in the statistical analyses you're going to run.

 

[buckshot24]

Predictable, lol.

I'm not going to get into defending this guy because I'm not really concerned with his conclusions.

That is an extremely poorly written analysis, filled with large logical failures. You should always look at someone skeptically if they are coming to hugely different conclusions than the author of the work they are basing their conclusions on. This would be another good reason not to put too much credit in ultra right wing blogs.

First and foremost his problem is that he conflates taxes with subsections of the population with taxes on the country as a whole. Even if the optimum rate was 33% that doesn't mean that the optimum rate on the rich would be 33% as different segments of the population work and consume in different ways. Basic empirical failures.

Regardless, that was a generalized extrapolation that came from something she wrote about a slightly different topic. Romer did later work on revenue specifically that concluded the maximizing rate was much, much higher. (again, 84% to be exact)

 

[fskimospy]

Predictable, lol.

I'm not going to get into defending this guy because I'm not really concerned with his conclusions.

Lol.

You have a really huge problem admitting that you're wrong, don't you.

 

[buckshot24]

And what are you going to do with that data? What sort of analyses are you going to run? What tests for significance will you use? How are you controlling for all the confounding variables that might be out there? How will you isolate the effects of variables on the outcomes? Are you going to run some regressions to do that? Calculate Pearson's correlation coefficients, what? Do you know what these measures of statistical significance mean?

Just looking at a spreadsheet doesn't do anything. If you really want to analyze what these numbers mean in relation to each other you've got a huge job ahead of you, both in data preparation and in the statistical analyses you're going to run.

I'm certainly open for suggestions.

 

[buckshot24]

Lol.

You have a really huge problem admitting that you're wrong, don't you.

Not really. I corrected myself in this thread already.

 

[DucatiMonster696]

Good on you to think about this fairly evenly. I know we all have our preconceived ideals regarding various things.

One thing that cannot be ignored is the growth in GDP year over year. Higher GDP is the norm, even if not every single year, and that can skew tax results, making tax cuts or tax hikes both appear to be more effective than they are.

Honestly I sort of wish people would stop jacking with the tax system at some point and start focusing on spending less. That means stopping the expansion of social programs (sorry Dems), and curtailing the 100x overkill military spending (sorry Repubs).

I think put capital gains back, put glass steagal back, eliminate oil speculation/trading by anyone not actually taking physical delivery, put tax rates somewhere in the middle of clinton/reagan rates, put more means testing into social programs, and you're most of the way to fixed.

GDP does a better job at measuring inflation (how much actual money is being removed or added and then pushed around in the economy) then it does actually measuring economic growth in areas that are related to the actual improvements in the standard of living for the average American.

In fact this is demonstrated and seen in WW2 GDP numbers in which GDP rose dramatically but the standard of living during WW2 remained stagnate if not decreased in many areas due to war time rationing and shortages. In other words GDP is not the end all, be all of economic stats to properly gauge what the economy has or will be doing based on because it's scope is limited in terms of the actual economic information it provides.

 

[fskimospy]

GDP does a better job at measuring inflation (how much actual money is being removed or added and then pushed around in the economy) then it does actually measuring economic growth in areas that are related to the actual improvements in the standard of living for the average American.

In fact this is demonstrated and seen in WW2 GDP numbers in which GDP rose dramatically but the standard of living during WW2 remained stagnate if not decreased in many areas due to war time rationing and shortages. In other words GDP is not the end all, be all of economic stats to properly gauge what the economy has or will be doing based on because it's scope is limited in terms of the actual economic information it provides.

Couldn't it also be that GDP was being used to create things that dint raise living standards, such as planes and tanks?

 

[DucatiMonster696]

Couldn't it also be that GDP was being used to create things that dint raise living standards, such as planes and tanks?

Which is why I said GDP is not a great stat to measure the actual economic growth of a nation in terms which benefit the average person.

A nation could have high levels of GDP but have it's economic activity not produce tangible economic output in the form of goods and services that benefit the average citizen. And the opposite is true where you can have stagnate GDP but have most of your economic activity occur in areas that matter for the average person.

In addition GDP is a better measure and economic indicator on how much money is being pumped into and flowing in the economy so that it provides a better gauge on inflation or deflation when you measure it out over many years but again it does not give you much information in what areas of the economy that money has made its way to and what industries were booming at the time and for what reasons.

 

[ohnoes]

I'm certainly open for suggestions.

here's a hint. You don't use a spreadsheet.

 

[buckshot24]

Uhmm, sure. This is all really easily available data. For one, you realize that after Reagan passed his tax cuts in 81 that they then passed two significant tax increases, right? Additionally, during that time you saw a massive drop in baseline interest rates from ~15% to ~7%, which led to a major economic expansion. This would also naturally increase tax receipts. See how things get really complicated really fast? This is why you can't make a Google Doc of revenues and then try to say that reducing tax rates increases revenues.

Like I said I must have missed this before. Yes I know there were some Tax rate increases but the net differences in rate was that of a cut over the time period. Also I do account for inflation in those years. I'm not sure how to add the other factors that you're talking about but I think making a perfect representation just isn't realistic to expect for a spreadsheet I put together in an hour.

For more information about the effects of various tax cuts, the treasury conducted an extensive analysis of their revenue effects that you can read here: http://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/ota81.pdf

That paper doesn't really get into any details. It makes some introductory remarks then just lists some graphs. How are the figures estimated?

 

[ohnoes]

Who woulda thunk it that a complex economic system couldn't be modeled in an hour.

 

[3chordcharlie]

Who woulda thunk it that a complex economic system couldn't be modeled in an hour.

It's amazing, or maybe it isn't, how often your initial thoughts on how a model will turn out, and even your initial figures, turn out to be wrong.

A lot of times it turns out you originally keyed in on some secondary effect, and the dominant effect (in the relevant range) is opposite.

The best part is even if you built a perfect model today, millions of very intelligent human beings would start figuring out how to game that model tomorrow, and it would instantly cease to be perfect, or even all that useful.

 

[blankslate]

there are of course a lot of factors that could contribute to the analysis in this thread that weren't taken into account one off of the top of my head is the population increase.

Another is the productivity increases that took place. Without those being figured in and the Clinton years being added in... as another poster noted wasn't mentioned for some reason. Without these being taken into account the picture is incomplete.



As far as consumer spending goes. There's only so much spending the wealthy will do before either putting the extra money into investments (and in some cases precipitating speculative bubbles) or into conspicuous consumption items like the 3rd mansion or privately owned jet for example.

After the first mansion and vacation home and the things you buy for those houses that drive the consumer economy the money it's a distinct possibility that the extra money from lower top marginal tax rates doesn't flow into material goods and services as much as it did for wealthy peoples' initial income.

That is their first $250k of income would be spent on necessities and material luxuries more so than their income over $1 million.

After the one million I suggest that the careless, or truly wealthy would keep spending while most would invest and how they invest could have detrimental effects if the extra money from continued historically low taxes on the top rates and capital income went into speculative ventures.


In contrast when a lower income person gets a tax break they're more likely to spend that money, buy a new car sooner, get a new T.V. or pay down their excess debt. Invest in an offspring's college education.

Remember that the proposed expiration of the Bush cuts on incomes over $250k a year would not affect a wealthy persons first $250k on non capital gains income very much, if at all.

In effect extending the tax reductions for people making less that $250k a year also helps out people who make $500k a year for their initial $250k a year as the extra tax rate primarily, if not almost completely affects the income over $250k

TLDR: This data is interesting but other factors have to be accounted for such as the previously mentioned population growth and productivity increases.

 

[emperus]

Very good analysis eskimospy. lol Thread Fail.

 

[blankslate]

Couldn't it also be that GDP was being used to create things that dint raise living standards, such as planes and tanks?

Very good analysis eskimospy. lol Thread Fail.

I have to agree with the above. Eskimospy brings up a salient point.

Or as stated by prominent American Citizen.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone.

It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.

The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.


It is two electric power plants, each serving a town of 60,000 population.


It is two fine, fully equipped hospitals. It is some 50 miles of concrete highway.


We pay for a single fighter plane with a half million bushels of wheat.


We pay for a single destroyer with new homes that could have housed more than 8,000 people.


This, I repeat, is the best way of life to be found on the road the world has been taking.


This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

Something to think about imo.

 

[buckshot24]

Very good analysis eskimospy. lol Thread Fail.

The purpose of this thread wasn't what eskimo said it was. He attacked a strawman since I never concluded anything that he was "analyzing".

No matter what was said the facts are that decreased tax rates doesn't lower tax revenue in all cases.

Personally, I am not interested in increasing tax revenue that the government takes in. That is besides the point however.

 

[buckshot24]

there are of course a lot of factors that could contribute to the analysis in this thread that weren't taken into account one off of the top of my head is the population increase.

I did put a fudge factor for a yearly 1.29% population increase. Didn't really change the outcome too much.

Another is the productivity increases that took place. Without those being figured in and the Clinton years being added in... as another poster noted wasn't mentioned for some reason. Without these being taken into account the picture is incomplete.

The spreadsheet includes the Clinton years so you can look at them. I didn't mention them in the OP because I was talking about tax cut periods. Although there were tax decreases in the Clinton years as well.

 

[Jhhnn]

The purpose of this thread wasn't what eskimo said it was. He attacked a strawman since I never concluded anything that he was "analyzing".

No matter what was said the facts are that decreased tax rates doesn't lower tax revenue in all cases.

Personally, I am not interested in increasing tax revenue that the government takes in. That is besides the point however.

What's happening here is that you're engaged in motivated reasoning, Buckshot. You want to find a way to claim that lowering rates increases revenue, which is basically the whole right wing schtick about taxes in general. It was the GWB contention, too, that the economy would grow much faster as a result of tax cuts at the top, overcoming the effect of lower rates.

As we've seen, it didn't work out that way.

Cutting LTCG rates encourages cashing in & rebalancing portfolios, 'tis true, but that's strictly a temporary effect. There's only so much in that reservoir. It also encourages short term strategies requiring only 366 days to come to fruition, pumping & dumping being very attractive.

It's trading in tomorrow for today, something we've seen entirely too much of in the runup to the speculative peak & collapse of the ownership society.

 

[shira]

No matter what was said the facts are that decreased tax rates doesn't lower tax revenue in all cases.

This is pretty hilarious. The new right-wing mantra:

"No matter how unlikely, it might be possible that lowering rates won't lead to decreased tax revenues. Therefore, we must always lower tax rates."

 

[fskimospy]

This is pretty hilarious. The new right-wing mantra:

"No matter how unlikely, it might be possible that lowering rates won't lead to decreased tax revenues. Therefore, we must never raise tax rates."

Exactly, what a completely worthless thing to try and argue. It's funny that he accuses me of making a straw man and then sets out to valiantly battle against an idea that no one holds.

 

[buckshot24]

This is pretty hilarious. The new right-wing mantra:

"No matter how unlikely, it might be possible that lowering rates won't lead to decreased tax revenues. Therefore, we must always lower tax rates."

What is it with you libs?

Number one, I don't give a shit about raising revenues to the government. I wouldn't mind if tax revenues were half or, even less, what they are now, the government simply does too much. I want lower taxes, not to raise revenue but to make government smaller. However, sometimes cutting taxes is followed by increasing revenue which is what everybody is talking about at the moment. I'm not making an argument for any tax policy in this thread however.

Number two, what I said is simply factually accurate. If you have a way to explain it then please do so, I WANT YOU TO.

Thirdly, I made no references to lowering taxes because it would raise revenue, in fact I made no reference to cutting taxes at all. So you're simply being dishonest with your mantra bullshit.