Kansas - The Great Experiment Ends

[Jimmy Higgins]

Why would it be?

The basic principal: Taxes will reduce the incentive to make money. That's basically uncontested, the only question is how much suppression comes from what tax rate. Now, there are no sharp lines in the driving force, thus the curve should be smooth.

At 0% it's obvious that the tax collected is zero.

At low levels the suppression effect is small, thus the line rises. If there were no suppression effect this would be a straight line but the suppression effect will pull the line down from that--you get the first part of the parabola.

Eventually you reach a point where the suppression effect brings the size of the pie down as much as the tax rate increases the take, you have the top of the parabola.

Beyond this point the suppression effect dominates, we have basically the reverse of what we saw on the way up. Other than tax avoidance/evasion schemes we hit zero again at 100%--why work if you won't keep any of the result?

You will only get a perfect parabola if the peak is at 50% but it will look similar if the peak is anywhere except right near one of the ends (and that case isn't likely.)

That was beautiful... like a poem. Of course, it has no basis in reality, but believe whatever you like. Economies don't exist in a bubble.

 

[coloradoatheist]

The basic principal: Taxes will reduce the incentive to make money. That's basically uncontested, the only question is how much suppression comes from what tax rate. Now, there are no sharp lines in the driving force, thus the curve should be smooth.

At 0% it's obvious that the tax collected is zero.

At low levels the suppression effect is small, thus the line rises. If there were no suppression effect this would be a straight line but the suppression effect will pull the line down from that--you get the first part of the parabola.

Eventually you reach a point where the suppression effect brings the size of the pie down as much as the tax rate increases the take, you have the top of the parabola.

Beyond this point the suppression effect dominates, we have basically the reverse of what we saw on the way up. Other than tax avoidance/evasion schemes we hit zero again at 100%--why work if you won't keep any of the result?

You will only get a perfect parabola if the peak is at 50% but it will look similar if the peak is anywhere except right near one of the ends (and that case isn't likely.)

That was beautiful... like a poem. Of course, it has no basis in reality, but believe whatever you like. Economies don't exist in a bubble.

That's because people do know it exist in some manner and they only play with things in the middle. Thugh dumb, Congress isn't going to pass a 99% effective tax rate to show that people will avoid taxes.

 

[Jimmy Higgins]

That was beautiful... like a poem. Of course, it has no basis in reality, but believe whatever you like. Economies don't exist in a bubble.

That's because people do know it exist in some manner and they only play with things in the middle. Thugh dumb, Congress isn't going to pass a 99% effective tax rate to show that people will avoid taxes.

As I've noted before, revenue is only one part of the equation when it comes to how much people would be willing to pay in taxes. If we paid DC an effective rate of 10% and received nothing for it, how many would evade the federal tax?

 

[coloradoatheist]

That's because people do know it exist in some manner and they only play with things in the middle. Thugh dumb, Congress isn't going to pass a 99% effective tax rate to show that people will avoid taxes.

As I've noted before, revenue is only one part of the equation when it comes to how much people would be willing to pay in taxes. If we paid DC an effective rate of 10% and received nothing for it, how many would evade the federal tax?

Yes, though assuming you would get to that point though. So on the right side it may not come down all the way to 0.

 

[Jimmy Higgins]

I would presume a nomograph would be required to determine the efficiency of tax rates. Of course, seeing the economics doesn't really allow for the required testing and observance at such a large scale, it'd be extremely difficult to create a nomograph.

This idea you can draw a chart using two variables to determine tax income in ridiculous!

 

[coloradoatheist]

I would presume a nomograph would be required to determine the efficiency of tax rates. Of course, seeing the economics doesn't really allow for the required testing and observance at such a large scale, it'd be extremely difficult to create a nomograph.

This idea you can draw a chart using two variables to determine tax income in ridiculous!

While it's simple, it applies. The question is how to be respond to incentives/disincentives like tax policy changes.

 

[Crazy Eddie]

I would presume a nomograph would be required to determine the efficiency of tax rates. Of course, seeing the economics doesn't really allow for the required testing and observance at such a large scale, it'd be extremely difficult to create a nomograph.

This idea you can draw a chart using two variables to determine tax income in ridiculous!

While it's simple, it applies. The question is how to be respond to incentives/disincentives like tax policy changes.

There's no way to plot a direct causal relationship because there are too many other confounding factors. The same policy that causes a massive drop in investment in Country A might have the exact opposite effect in Country B because of differences in culture, tradition, media presentation, the size and nature of investment activity, details of how the tax policy affects pre-existing investments, even the interaction of the new tax policy with pre-existing laws.

It's a conceit of economists that the behavior of a mass of people can be modeled in simple mathematical relationships like this, but people are not that simple, and neither are economies or markets. You can generalize based on the presence of known conditions and extrapolate a list of possible outcomes with varying degrees of confidence, but that, again, is not something you'll ever be able to plot on a simple curve.

The question of "How do people respond to incentives/disincentives like tax policy changes" is really a question best answered with an ESSAY, not a graph.

 

[coloradoatheist]

While it's simple, it applies. The question is how to be respond to incentives/disincentives like tax policy changes.

There's no way to plot a direct causal relationship because there are too many other confounding factors. The same policy that causes a massive drop in investment in Country A might have the exact opposite effect in Country B because of differences in culture, tradition, media presentation, the size and nature of investment activity, details of how the tax policy affects pre-existing investments, even the interaction of the new tax policy with pre-existing laws.

It's a conceit of economists that the behavior of a mass of people can be modeled in simple mathematical relationships like this, but people are not that simple, and neither are economies or markets. You can generalize based on the presence of known conditions and extrapolate a list of possible outcomes with varying degrees of confidence, but that, again, is not something you'll ever be able to plot on a simple curve.

The question of "How do people respond to incentives/disincentives like tax policy changes" is really a question best answered with an ESSAY, not a graph.

Based on that economists could never draw a demand graph in general since demand curves for any product or service differs everywhere.

 

[jonatha]

The general position of the defenders of the Laffer curve in this thread appears to be that they can't predict what its value will be, and they can't measure what the current value is, but they believe in it anyway.

Seems to me there's a word for that.....

 

[Crazy Eddie]

There's no way to plot a direct causal relationship because there are too many other confounding factors. The same policy that causes a massive drop in investment in Country A might have the exact opposite effect in Country B because of differences in culture, tradition, media presentation, the size and nature of investment activity, details of how the tax policy affects pre-existing investments, even the interaction of the new tax policy with pre-existing laws.

It's a conceit of economists that the behavior of a mass of people can be modeled in simple mathematical relationships like this, but people are not that simple, and neither are economies or markets. You can generalize based on the presence of known conditions and extrapolate a list of possible outcomes with varying degrees of confidence, but that, again, is not something you'll ever be able to plot on a simple curve.

The question of "How do people respond to incentives/disincentives like tax policy changes" is really a question best answered with an ESSAY, not a graph.

Based on that economists could never draw a demand graph in general since demand curves for any product or service differs everywhere.

This is America, you can draw any damn thing you want. Whether that graph will be accurate to anything in reality, that's a much bigger question.

 

[coloradoatheist]

Based on that economists could never draw a demand graph in general since demand curves for any product or service differs everywhere.

This is America, you can draw any damn thing you want. Whether that graph will be accurate to anything in reality, that's a much bigger question.

Maybe we can put economics in the same science group as predicting the weather.

 

[Jimmy Higgins]

I would presume a nomograph would be required to determine the efficiency of tax rates. Of course, seeing the economics doesn't really allow for the required testing and observance at such a large scale, it'd be extremely difficult to create a nomograph.

This idea you can draw a chart using two variables to determine tax income in ridiculous!

While it's simple, it applies.

It applies so well that you haven't been able to predict anything with it. The Laffer Curve is an absurdly simplistic presumption regarding an extremely complicated system with various inputs, outputs, and governing mechanisms.

 

[coloradoatheist]

While it's simple, it applies.

It applies so well that you haven't been able to predict anything with it. The Laffer Curve is an absurdly simplistic presumption regarding an extremely complicated system with various inputs, outputs, and governing mechanisms.

Except it has at several times and with certain taxes. The issue for the state here was a 1% drop in taxes on a rate that was 5% or 4%. The 1% here wasn't going to increase the tax base in this case.

 

[Jimmy Higgins]

It applies so well that you haven't been able to predict anything with it. The Laffer Curve is an absurdly simplistic presumption regarding an extremely complicated system with various inputs, outputs, and governing mechanisms.

Except it has at several times and with certain taxes.

That's a load. What has it been able to predict?

 

[Loren Pechtel]

The basic principal: Taxes will reduce the incentive to make money. That's basically uncontested, the only question is how much suppression comes from what tax rate. Now, there are no sharp lines in the driving force, thus the curve should be smooth.

To quote Bernie Madoff, "I've never heard an investor say 'I'm not going to invest because of the tax rate'." There is no reason to expect a parabola. It could just as easily be a flat line or a series of steps. There is no reason to expect a smooth parabolic line and the real world examples support this.

The tax take most certainly does come into play. It lowers the upside of an investment and thus changes the risk/reward balance. Thus it may cause someone to decide something is too risky.

 

[Loren Pechtel]

That's because people do know it exist in some manner and they only play with things in the middle. Thugh dumb, Congress isn't going to pass a 99% effective tax rate to show that people will avoid taxes.

As I've noted before, revenue is only one part of the equation when it comes to how much people would be willing to pay in taxes. If we paid DC an effective rate of 10% and received nothing for it, how many would evade the federal tax?

You're looking at whether people will tolerate tax rate, not at what the collections would be from the tax rate. Thus, strawman.

 

[Loren Pechtel]

The general position of the defenders of the Laffer curve in this thread appears to be that they can't predict what its value will be, and they can't measure what the current value is, but they believe in it anyway.

Seems to me there's a word for that.....

You misunderstand.

What we are saying is that the Laffer curve is true--but meaningless.

Where it fails is that the Republicans presume (on faith, not evidence) that we are to the right of the hump. That's a failure of interpretation, not of the curve itself.

 

[Jimmy Higgins]

As I've noted before, revenue is only one part of the equation when it comes to how much people would be willing to pay in taxes. If we paid DC an effective rate of 10% and received nothing for it, how many would evade the federal tax?

You're looking at whether people will tolerate tax rate, not at what the collections would be from the tax rate.

I'm not exactly certain what the difference is there. Thus, whatever dude.

 

[Crazy Eddie]

This is America, you can draw any damn thing you want. Whether that graph will be accurate to anything in reality, that's a much bigger question.

Maybe we can put economics in the same science group as predicting the weather.

No shit. I cancelled a weekend trip to the beach on Saturday because the Thursday and Friday predicted thunderstorms all weekend.

Come Saturday afternoon: sunny skies and 90 degrees.

50 billion dollars with of radar, satellites and a supercomputer crunching numbers can't predict the weather 30% of the time... how do you expect to predict the spending habits of a huge mass of human beings using two numbers and a line graph?

 

[Crazy Eddie]

To quote Bernie Madoff, "I've never heard an investor say 'I'm not going to invest because of the tax rate'." There is no reason to expect a parabola. It could just as easily be a flat line or a series of steps. There is no reason to expect a smooth parabolic line and the real world examples support this.

The tax take most certainly does come into play. It lowers the upside of an investment and thus changes the risk/reward balance. Thus it may cause someone to decide something is too risky.

Who, specifically, would it cause to decide that? What, specifically, would it make too risky and for what reason? When would it make them decide that, and when would they act on that decision? What, if anything, would they invest in OTHER than the thing they decide is too risky?

If you cannot answer these questions with non-hypothetical answers, all you have is a guess.