Supply Side Economics Debunked Again

[Cheerful Charlie]

See the pretty charts.

https://www.washingtonpost.com/post.../a-graphical-assault-on-supply-side-tax-cuts/

Jared Bernstein
Economic advisor to Joe Biden.

Later this afternoon, I’ll be testifying before the Joint Economic Committee, where the star Republican witness is my old friend Art Laffer. Art is widely known as one of the main brains behind “supply-side” tax cuts: the idea that if you cut taxes on labor and capital, the extra economic activity you’d engender would make up some share of the lost revenue. The fabled “Laffer curve” plots this theoretical trade-off.
I and many others have spent years debunking this unfortunate yet highly influential theory, but let’s begin by noting that reasonable people make the reasonable argument that, under certain conditions, a tax cut that raises the after-tax wage or lowers the after-tax cost of capital could boost the supply of these critical variables, increase growth, and spin off some revenues. That said, such reasonable people stop far short of claiming tax cuts will come anywhere close to offsetting the revenue losses they cause.
In real life, there are just too many slips between that cup and the lip. My testimony, to which I’ll provide a link later, explains how and why the conditions alluded to above rarely exist. Here, I’d like to barrage you with scatterplots showing the pervasive lack of evidence for any of the links in the supply side chain.

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What does the evidence, not political wishmongering show. We'll see if any of the Repubs can learn anything from all of this.

 

[ksen]

They'll learn that they were right all along that these ivory tower types hate America and just want to watch the world burn.

 

[Cheerful Charlie]

Again, I find it interesting when Florida's Governor wanted some of that Laffer Curve, Supply Side crap, the Florida GOP House and Senate told him "NO!" in no uncertain terms. Sometimes the Repubs can learn. Perhaps the Brownback experiment has gotten some Republican's attention.

 

[Trausti]

Joe Biden's former economics adviser. That inspires confidence.

In any case, what is this pathological desire to give the government more money? Would anyone really argue that the federal government is efficient and upholds a high fiduciary duty on the money it extracts? Anyone? Bueller? Is it really such a travesty that people get to keep their own money because its their own money? It's like the government is spiteful of the people. If high taxation equated to economic prosperity, then what is the Illinois budget crisis about? How can Texas and Washington do so well without it? Kansas and Brownback are easy targets, but his implementation of course failed; you can't make a drastic cut like that without first reforming government to meet those cuts. Which is kind of a problem with high taxation. Government will expand to eat the increased revenue. When the revenue decreases, the government will want more taxes to satiate its bloated size. And award the special interests who fund campaigns for politicians who then raise taxes for the benefits of the special interests. Feed me Seymore, feed me! If the government simply having more money to spend is said to help the economy, surely the mountains of debt the federal government takes on annually ought to show dividends? Money is money. Oh, well. The politics of envy.

[YOUTUBE]https://www.youtube.com/watch?v=FqLjyA0hL1s[/YOUTUBE]

[YOUTUBE]https://www.youtube.com/watch?v=aEdXrfIMdiU[/YOUTUBE]

 

[dismal]

Again, I find it interesting when Florida's Governor wanted some of that Laffer Curve, Supply Side crap, the Florida GOP House and Senate told him "NO!" in no uncertain terms. Sometimes the Repubs can learn. Perhaps the Brownback experiment has gotten some Republican's attention.

The existence of the Laffer curve is easily inferrable from three rather obvious points: 0% taxes produce zero revenue, 100% taxes produce zero revenue, and some rate in between produces some revenue. The relationship between tax rate and tax collected is a sort of inverted parabola. I don't think this is seriously argued, but what can be argued is the exact shape of the curve and whether we currently lie on the upslope or the downslope.

The rate at which the downslope starts is subject to many factors, not the least of which is the ease and cost of avoidance of the tax.

 

[Loren Pechtel]

Supply-side economics "works". When you encourage growth you get growth.

Likewise, the Laffer curve is basically true.

Where both fall down is the interpretation.

With supply side economics the feedback ratio (tax revenue gained from growth:tax revenue lost from lower taxes) is well under 1. The conservatives pretend it's greater than 1.

With the Laffer curve note the absence of any scale points beyond 0% and 100%. The conservatives simply assume that we are on the right side of the curve despite presenting no evidence of this.

 

[Cheerful Charlie]

Again, I find it interesting when Florida's Governor wanted some of that Laffer Curve, Supply Side crap, the Florida GOP House and Senate told him "NO!" in no uncertain terms. Sometimes the Repubs can learn. Perhaps the Brownback experiment has gotten some Republican's attention.

The existence of the Laffer curve is easily inferrable from three rather obvious points: 0% taxes produce zero revenue, 100% taxes produce zero revenue, and some rate in between produces some revenue. The relationship between tax rate and tax collected is a sort of inverted parabola. I don't think this is seriously argued, but what can be argued is the exact shape of the curve and whether we currently lie on the upslope or the downslope.

The rate at which the downslope starts is subject to many factors, not the least of which is the ease and cost of avoidance of the tax.

There is also the issue of who gets the tax cuts. The very wealthy or the middle classes? Giving big tax cuts to the wealthy and big businesses in Kansas has been a resounding failure. And connected to supply side economics like a Siamese twin is the notion that cutting regulations is the way to wealth. Phil Gramm's little bill addendum preventing the government from regulating derivatives was in retrospect, a resounding failure.


As an aside, does anybody besides me look at photos of that bald headed coot Rick Scott and is reminded immediately of Dilbert's company CEO?

 

[Nice Squirrel]

In any case, what is this pathological desire to give the government more money?

I'm not sure how this follows. Governments need money to function and government activity is an integral part of the economy and can be used to expand the private economy as well.

Would anyone really argue that the federal government is efficient and upholds a high fiduciary duty on the money it extracts? Anyone? Bueller?

Is it allowed to do so? Or is it like a car that is not properly maintained, more expensive and of lower performance.

Is it really such a travesty that people get to keep their own money because its their own money? It's like the government is spiteful of the people.

But are they keeping their own money? and what happens to the money that government activity in the economy gives them? If we disband the armed forces and stop maintaining the roads, how will that effect the economy?

If high taxation equated to economic prosperity, then what is the Illinois budget crisis about?

Nobody claims high taxation is equated with economic prosperity.

How can Texas and Washington do so well without it?

Texas gets a lot of Federal aid, but they still are taxed heavily. The taxes fall more onto the poor and middle class.

 

[Jason Harvestdancer]

What does the evidence, not political wishmongering show. We'll see if any of the Repubs can learn anything from all of this.

Of course it doesn't work. Every time you deviate from the free market you get a system that ultimately fails, as you have just shown.

 

[Don2 (Don1 Revised)]

Every time you deviate from the free market you get a system that ultimately fails...

 

[laughing dog]

What does the evidence, not political wishmongering show. We'll see if any of the Repubs can learn anything from all of this.

Of course it doesn't work. Every time you deviate from the free market you get a system that ultimately fails, as you have just shown.

Is this an empirically based claim?

 

[Cheerful Charlie]

Is "Free Market" anything more now than a ultraconservative buzzword bereft of any real meaning? A dog whistle meaning anything other than basic laissez faire economics? Downsizing government small enough to drag it off to a bathtub and drown it? Unbridled Libertarianism with a big dose of wishful thinking? Economic woo woo?

 

[Jason Harvestdancer]

Is "Free Market" anything more now than a ultraconservative buzzword bereft of any real meaning? A dog whistle meaning anything other than basic laissez faire economics? Downsizing government small enough to drag it off to a bathtub and drown it? Unbridled Libertarianism with a big dose of wishful thinking? Economic woo woo?

Conservatives are not fans of the free market. Not enough protectionism, not enough business subsidies, not enough plush government contracts, not enough protection from liability, not enough protection from unions, etc.

 

[lpetrich]

In any case, what is this pathological desire to give the government more money?

Trausti, anarchy has been tried. It hasn't exactly produced Utopia.

Also, if you have such a horrible grudge against financing governments, you can go on a tax strike and make a martyr out of yourself.

("lower taxes, higher revenue" links snipped for brevity)
Thus bragging about how lowering taxes will feed the beast. Yes, feed the beast.
Thus, if it is important to starve the beast instead of feeding it, then one must raise taxes.

 

[ksen]

Joe Biden's former economics adviser. That inspires confidence.

In any case, what is this pathological desire to give the government more money? Would anyone really argue that the federal government is efficient and upholds a high fiduciary duty on the money it extracts? Anyone? Bueller? Is it really such a travesty that people get to keep their own money because its their own money? It's like the government is spiteful of the people. If high taxation equated to economic prosperity, then what is the Illinois budget crisis about? How can Texas and Washington do so well without it? Kansas and Brownback are easy targets, but his implementation of course failed; you can't make a drastic cut like that without first reforming government to meet those cuts. Which is kind of a problem with high taxation. Government will expand to eat the increased revenue. When the revenue decreases, the government will want more taxes to satiate its bloated size. And award the special interests who fund campaigns for politicians who then raise taxes for the benefits of the special interests. Feed me Seymore, feed me! If the government simply having more money to spend is said to help the economy, surely the mountains of debt the federal government takes on annually ought to show dividends? Money is money. Oh, well. The politics of envy.

[YOUTUBE]https://www.youtube.com/watch?v=FqLjyA0hL1s[/YOUTUBE]

[YOUTUBE]https://www.youtube.com/watch?v=aEdXrfIMdiU[/YOUTUBE]

EFFECT OF REAGAN, KENNEDY, AND BUSH TAX CUTS ON REVENUES

The argument that the near-doubling of revenues during Reagan's two terms proves the value of tax cuts is an old argument. It's also extremely flawed. At 99.6 percent, revenues did nearly double during the 80s. However, they had likewise doubled during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION! They went up 502.4% during the 40's, 134.5% during the 50's, 108.5% during the 60's, and 168.2% during the 70's. At 96.2 percent, they nearly doubled in the 90s as well. Hence, claiming that the Reagan tax cuts caused the doubling of revenues is like a rooster claiming credit for the dawn.

 

[Cheerful Charlie]

Part of the problem with claims of the Reagan "miracle" are twofold.
1. Big deficits. As Tip On'eil said, alloow me to kite billions in bad checks and I can give you an illusion of prosperity too."
It was Keynsian Pump Priming gone mad. And eventually collapsed of its own weight.
2. High inflation that took hold under Nixon/Ford was inherited by Carter. Volker of the fed crushed out high inflation with very high interest rates that approached stiff heighths, the prime rate went to 21%. It worked but by depressing the economy. Who's going to buy a house with interest rates like that? By the time inflation was tamed somewhat under Reagan and interest rates returned to a sane level, there was a lot of PENT UP DEMAND. The buying that stopped when high interest rates prevailed now was executed. When that demand was sated, we sank into the recession that doomed Bush.

 

[jonatha]

The relationship between tax rate and tax collected is a sort of inverted parabola. I don't think this is seriously argued.

It most certainly is...

 

[DBT]

It seems to me that no matter how high the tax rate was, whether income tax or goods and services or both, or how much overall revenue was collected....many governments would still mismanage their spending and run a deficit.

 

[SimpleDon]

Again, I find it interesting when Florida's Governor wanted some of that Laffer Curve, Supply Side crap, the Florida GOP House and Senate told him "NO!" in no uncertain terms. Sometimes the Repubs can learn. Perhaps the Brownback experiment has gotten some Republican's attention.

The existence of the Laffer curve is easily inferrable from three rather obvious points: 0% taxes produce zero revenue, 100% taxes produce zero revenue, and some rate in between produces some revenue. The relationship between tax rate and tax collected is a sort of inverted parabola. I don't think this is seriously argued, but what can be argued is the exact shape of the curve and whether we currently lie on the upslope or the downslope.

The rate at which the downslope starts is subject to many factors, not the least of which is the ease and cost of avoidance of the tax.

The very first supply side tax cuts didn't produce the promised results. The laffer curve and common sense tell us that further supply side tax cuts won't produce the promised results either.

The reason that neoliberal economics fails is that all investments aren't equal in their impact on the economy. The investments that build the economy* are by businesses that build new production facilities.

These investments aren't made because there is money available to build* but because there is demand for the additional products that will be produced. Neoliberal economic policies actually reduce aggregate demand and the productive investments created by the demand because it reduces wages and increases profits*. Demand in the economy is wages*.

The investments made by the wealthy don't build the economy*. They are savings*, not investments. They are made* in the stock market and in government bonds, ironically, in the bonds* issued to finance the government debt created by the tax cuts that provided them the money to buy the bonds.

And the neoliberal economic policies reduce another area of productive investments, government infrastructure investment.

The ease and the cost of avoiding the tax apply largely to the rich. It doesn't call for lowering taxes, this implies that there is a level of taxation above 0% at which the rich will pay them willingly. It calls for eliminating the complexity that the rich and their lawyers rely on to reduce their taxes, to go to a simple, progressive, earnings tax.

* Insert "largely" or "generally" before.

 

[dismal]

The relationship between tax rate and tax collected is a sort of inverted parabola. I don't think this is seriously argued.

It most certainly is...

Yeah, none of that really disagrees with my point. It's just pedantry, and bad pedantry at that, about the exact shape of the curve. I didn't mean it is literally a parabola.