Arthur Laffer's theory on tax cuts comes to life once again

[Jacque67 7,328]

WASHINGTON — A white cloth napkin, now displayed in the National Museum of American History, helped change the course of modern economics. On it, the economist Arthur Laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue.

More than 40 years after those scribblings, President Trump is reviving the so-called Laffer curve as he announces the broad outlines of a tax overhaul on Wednesday. What the first President George Bush once called “voodoo economics” is back, as Mr. Trump’s advisers argue that deep cuts in corporate taxes will ultimately pay for themselves with an explosion of new business and job creation.

[Jacque67 7,328]

https://www.nytimes.com/2017/04/25/us/politics/white-house-economic-policy-arthur-laffer.html

[Amica Nostra 4,803]

 

[Jacque67 7,328]

 

[OriZ 3,165]

5 hours ago, Jacque67 said:

WASHINGTON — A white cloth napkin, now displayed in the National Museum of American History, helped change the course of modern economics. On it, the economist Arthur Laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue.

More than 40 years after those scribblings, President Trump is reviving the so-called Laffer curve as he announces the broad outlines of a tax overhaul on Wednesday. What the first President George Bush once called “voodoo economics” is back, as Mr. Trump’s advisers argue that deep cuts in corporate taxes will ultimately pay for themselves with an explosion of new business and job creation.

Under different circumstances it might be more effective, but right now it's nothing but a pipe dream.

[IAMX 3,055]

As much as I am a fan of classical, supply side economics would be a workable theory, along with virtually any other theory, if the situation didn't include exporting middle class unskilled labor, going nuts with debt financed consumption, and monetizing the debt. All that happens is it winds up being stimulus to the rich who are the people least in need of such. 

Edited April 26, 2017 by IAMX

[Amica Nostra 4,803]

1 hour ago, IAMX said:

As much as I am a fan of classical, supply side economics would be a workable theory, along with virtually any other theory, if the situation didn't include exporting middle class unskilled labor, going nuts with debt financed consumption, and monetizing the debt. All that happens is it winds up being stimulus to the rich who are the people least in need of such. 

[Dashinka 25,885]

2 hours ago, IAMX said:

As much as I am a fan of classical, supply side economics would be a workable theory, along with virtually any other theory, if the situation didn't include exporting middle class unskilled labor, going nuts with debt financed consumption, and monetizing the debt. All that happens is it winds up being stimulus to the rich who are the people least in need of such. 

I heard a story from my buddy who was debating wealth re-distribution with an avowed socialist (i.e. someone just like Bernie Sanders).  The debate went something like this, if all the money in the US were equally divided by all the US citizens and legal residents, there is a study that says within 6-9 months all of it would be back in the hands of the people providing the useful goods and services.  The socialists solution for this is to do the same thing every year.

 

Corporate tax cuts are a good thing in my opinion, why in God's name would the government try to stifle the entities that actually create the wealth and drive the economy.

[smilesammich 10,727]

38 minutes ago, ccneat said:

[CaliCat 3,957]

35 minutes ago, Bill & Katya said:

I heard a story from my buddy who was debating wealth re-distribution with an avowed socialist (i.e. someone just like Bernie Sanders).  The debate went something like this, if all the money in the US were equally divided by all the US citizens and legal residents, there is a study that says within 6-9 months all of it would be back in the hands of the people providing the useful goods and services.  The socialists solution for this is to do the same thing every year.

 

Corporate tax cuts are a good thing in my opinion, why in God's name would the government try to stifle the entities that actually create the wealth and drive the economy.

 

In this case, they should give an even bigger tax cut to the consumers. It is not true that companies create wealth - alone. Working capital does, to the extent there is a consumer market. Without the consumers, wealth becomes glut. 

 

Tax cuts to the firms only make the shareholders wealthier. It creates wealth to a small number of people. Tax cuts to the households is what really gets the economy moving. Remember that households provide labor and a consumer market. 

 

Edited April 26, 2017 by CaliCat

[IAMX 3,055]

5 hours ago, Bill & Katya said:

I heard a story from my buddy who was debating wealth re-distribution with an avowed socialist (i.e. someone just like Bernie Sanders).  The debate went something like this, if all the money in the US were equally divided by all the US citizens and legal residents, there is a study that says within 6-9 months all of it would be back in the hands of the people providing the useful goods and services.  The socialists solution for this is to do the same thing every year.

 

Corporate tax cuts are a good thing in my opinion, why in God's name would the government try to stifle the entities that actually create the wealth and drive the economy.

Across the board tax cuts I think are beneficial, but the US is a high spending, high debt country.. more than anything else if one were to cut taxes it would make sense to cut spending as well because they're also cutting their tax revenue. More income in the pockets of everyone is good for the economy, since the government cannot create wealth, only distribute it, it's clear that current policies are only aimed at distributing wealth to the poorest and laziest, or the richest and laziest. My concern is the overwhelming portion of the populace in between.. the useful people.

 

This is also why I am an advocate of protectionism, because while it limits growth, it also caters to what the US should be doing in the first place -- producing. The US #1 export is debt, which is why finance is the top industry now for making good money. It should be tangible goods produced. This game they're playing is a short term game aimed at helping wealthy people become that much wealthier, fully knowing that kicking that can down the road is going to hurt the people that have fewer tangible assets the most. That's why I don't simply agree to cutting taxes solely for the wealthy.. their investments tend to go abroad thanks to free trade deals. I mean, even my own investments have been away from the US. Why should I, as an investor, invest in a place that is hardly producing anything, whereas places in developed areas of the world there are natural resources aplenty to invest in, such as oil, mines, etc. I would like to invest in the US because that benefits everyone, especially the middle class unskilled worker. However, they will never be middle class unskilled workers working for the lowest echelon of McDonalds, nor should they be.

Edited April 26, 2017 by IAMX

[OriZ 3,165]

I have several issues with it; For starters, they have nothing to pay for it with. It will surely add to the deficit, as I believe the magical growth they expect to pay for it won't happen.

 

Secondly, this doesn't help the ones who need it even more and I'm not talking just about households, but even small businesses and the self employed. I can tell you self employment tax just kills ya. First you pay 15% off the TOP(before you get to make any deductions) and then on top of that income tax as well. 

 

Third, the effective corporate tax rate(what corporations actually pay as a fraction of pre-tax profits) is already near the lowest level in history outside of recessionary periods(the negative figures represent recessionary periods when corporations had a net tax benefit as a result of loss write-offs), after having already declined from 50% in the 1950’s to less than half that level currently, and earnings would benefit rather little even from quite a sharp reduction in tax rates. With reduced labor force slack, upward interest rate pressure and little room for further reduction in effective taxes, the data suggest that no one should be surprised to see S&P 500 operating earnings lower in 4 years than they are today. US corporate taxes represent just over 4% of corporate revenues. Historically, the lowest level outside of recession(and the recent recovery) has been about 3%. From here, even moving to the lowest effective US corporate tax rates in history would boost corporate profit margins by scarcely 1%. Even if the effective corporate tax rate was suddenly and permanently cut in half, the incremental long term boost to the level of corporate profits, from here, would be hardly 10%. I'm not saying necessarily they should pay more than they do now, but I definitely don't see a reason for them to pay any less, not when the rest of us have to pay what we pay. 

 

Edited April 27, 2017 by OriZ

[CaliCat 3,957]

They are expecting that a 3% rate of GDP growth will pay for the tax cuts, which is not only unlikely, but it's an assault on the intelligence of the American people. In the end, the tax reform will benefit the richest the most, and of course, it will benefit the Trumps far more than most. Remember we haven't seen his taxes yet, and this tax reform is just a big con on the people. As with any other act of this administration there is a lot of theatrics, smoke and mirrors, and no substance.

Corporations will surely rake in the benefits when they file taxes next year, and they will need to hoard as much cash as they can to survive the recession we will have to deal with in a couple of years.

 

 

[OriZ 3,165]

36 minutes ago, CaliCat said:

They are expecting that a 3% rate of GDP growth will pay for the tax cuts, which is not only unlikely, but it's an assault on the intelligence of the American people. In the end, the tax reform will benefit the richest the most, and of course, it will benefit the Trumps far more than most. Remember we haven't seen his taxes yet, and this tax reform is just a big con on the people. As with any other act of this administration there is a lot of theatrics, smoke and mirrors, and no substance.

Corporations will surely rake in the benefits when they file taxes next year, and they will need to hoard as much cash as they can to survive the recession we will have to deal with in a couple of years.

 

 

I honestly, genuinely believe there is a bigger chance Mexico will pay for the wall than this magical growth paying for tax cuts. 3% is simply not happening. It's an insult to arithmetics.

Edited April 27, 2017 by OriZ