JohnEngelman
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What matters is what I proved: raising the top tax rate increases income tax revenue.
how fair taxing of billionaires reaps rewards for communities... Mass. seeing over $800M more than expected with 3 months still to go
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policywank
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No that isn't what the data proves. What the data indicates is that governments generally do not raise taxes beyond the inflection point at which the higher rate would undermine economic activity so as to be a net negative. It doesn't mean that inflection point doesn't exist. It doesn't mean that if government just raised taxes endlessly that it would never get to a point of being counter-productive to government revenues.
It is a basic economic concept called the Laffer Curve, which puts forward the premise that higher tax rates will result in higher government revenue until they get to an inflection point where the higher rate is more than offset by the disincentive of higher tax rates to economic activity. It is actually pretty obvious when you think about it. At a 10% tax rate the government could increase taxes to 12%, which would be a 20% increase in the actual tax rate. That isn't going to reduce GDP by 20% so the result will be a net increase in tax revenue. Conversely if taxes are 90% it is pretty obvious that a lot of individuals and companies will conclude that it isn't worth the effort, risk or investment to generate economic activity if the government is going to confiscate 90% of it anyway.
Of course there are two further issues with the data.
Firstly, there is no control group against which to compare the result. If the tax rates are x% this year and we raise them to x+% next year and see that tax revenues are higher next year it is fatuous to assume that the only thing that changed was the tax rates. There are many factors at play and constantly changing that also have an impact.
Secondly it is also fatuous to assume that higher government revenues is an inherent good unto itself. There is always some good cause towards which the government could put the money. That doesn't mean that that benefit is inherently better than leaving that money in the private sector. There are areas of society and the economy where governments are effective and areas where they aren't. Everyone is better off when that distinction is made.
One obvious impact of government spending is that it tends to have the impact of increasing demand in the economy. That can be a good thing, but in our current environment it has the impact of putting upward pressure on inflation, which hurts everyone. When governments tax more and spend it can have an impact on the wages or employment levels of the companies they tax. Meanwhile to the extent that tax levels do have an impact on investment, wage or employment levels it doesn't occur in real time. It happens in dribs and drabs over time. Companies heavily invested in high tax jurisdictions occasionally pick up in leave in a big dramatic gesture, but more often they just move their incremental investment elsewhere and let their investment in the high tax jurisdictions slowly wither. By the time tax and spend socialist realize that the relevant reference point isn't "what was" but "what could have been" it is too late.
Government has an important role to play. We just need to be more mature and thoughtful than to look at stereotypes of wealthy people and societal needs and assume that confiscating and redistributing wealth can be done easily and without consequences to the complex fabric of our societies and economies.
It is a basic economic concept called the Laffer Curve, which puts forward the premise that higher tax rates will result in higher government revenue until they get to an inflection point where the higher rate is more than offset by the disincentive of higher tax rates to economic activity. It is actually pretty obvious when you think about it. At a 10% tax rate the government could increase taxes to 12%, which would be a 20% increase in the actual tax rate. That isn't going to reduce GDP by 20% so the result will be a net increase in tax revenue. Conversely if taxes are 90% it is pretty obvious that a lot of individuals and companies will conclude that it isn't worth the effort, risk or investment to generate economic activity if the government is going to confiscate 90% of it anyway.
Of course there are two further issues with the data.
Firstly, there is no control group against which to compare the result. If the tax rates are x% this year and we raise them to x+% next year and see that tax revenues are higher next year it is fatuous to assume that the only thing that changed was the tax rates. There are many factors at play and constantly changing that also have an impact.
Secondly it is also fatuous to assume that higher government revenues is an inherent good unto itself. There is always some good cause towards which the government could put the money. That doesn't mean that that benefit is inherently better than leaving that money in the private sector. There are areas of society and the economy where governments are effective and areas where they aren't. Everyone is better off when that distinction is made.
One obvious impact of government spending is that it tends to have the impact of increasing demand in the economy. That can be a good thing, but in our current environment it has the impact of putting upward pressure on inflation, which hurts everyone. When governments tax more and spend it can have an impact on the wages or employment levels of the companies they tax. Meanwhile to the extent that tax levels do have an impact on investment, wage or employment levels it doesn't occur in real time. It happens in dribs and drabs over time. Companies heavily invested in high tax jurisdictions occasionally pick up in leave in a big dramatic gesture, but more often they just move their incremental investment elsewhere and let their investment in the high tax jurisdictions slowly wither. By the time tax and spend socialist realize that the relevant reference point isn't "what was" but "what could have been" it is too late.
Government has an important role to play. We just need to be more mature and thoughtful than to look at stereotypes of wealthy people and societal needs and assume that confiscating and redistributing wealth can be done easily and without consequences to the complex fabric of our societies and economies.
