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Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing partici

by Day1 5y ago

Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too

adam_arthur 5y ago
For sure, I'm familiar with the concept, but wouldn't expect that effect alone to close the gap. But maybe companies actually chose to realize more gains once the rate was lowered. Need to find a good post hoc analysis of how revenue ended up higher. Also weird side note, Arthur Laffer is in his 80s but sounds/looks in his 60s in his interviews. Kind of amazing!
scsilver 5y ago
It allowed a cash out of pent up wealth that was waiting for a tax favorable environments to realize.
- adam_arthur 5y ago
  That likely explains part of it, but if you look at total revenues per year looks like it basically just subtracted one year of annual growth from trend. If it was primarily due to one time realizations, you would expect a spurt shortly afterwards, followed by decline.
  - scsilver 5y ago
    Any chance you have some some charts I can dig through, at hand?
gumby 5y ago
Evidence of efficacy of the Laffer curve has been, to be kind about it, scant, and not for lack of looking! The 2017 tax change pulled taxes forward from subsequent years.
whakim 5y ago
The "Laffer Curve" has been widely discredited by economists across the political spectrum. Tax revenues in the year after the the Trump tax cuts (the Tax Cuts and Jobs Act) did indeed rise (FY2018). That being said, much of that was attributable to economic growth and inflation. The real question is what would revenue have been had the TCJA not been passed? It's obviously impossible to answer a counterfactual, but the Congressional Budget Office's predictions for 2018 taxes - made before the tax cuts were passed - were $276bn higher than actual receipts. These predictions ended up being pretty close to accurate for types of taxes that weren't affected by the TCJA, so it's a good ballpark.
- adam_arthur 5y ago
  I agree that revenues almost certainly would have been higher without the cuts, but still pretty amazing that it seemed to only pull one year of growth from trend. To be honest, I would have expected a much bigger decline
  - whakim 5y ago
    I understand where you're coming from, but $276bn is a pretty substantial amount of money though! I think it's also worth noting that this outcome (revenue would increase due to expected economic growth, but would end up lower than in the no-tax-cuts scenario) was correctly predicted by most of the organizations that studied the impact of the legislation.
tablespoon 5y ago
>> Interesting thing about the Trump tax cuts was that government tax revenue never declined. The year after they went into effect, Federal tax revenues were higher. > Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too I doubt that was what was going on there. IIRC, the "Laffer Curve" is some neat BS that's mainly useful to sell tax cuts, but all those tax cuts never resulted in the greater revenue the curve predicted. Maybe there's some truth to the curve when effective tax rates are 90%, but that's not the world we live in.
Day1 5y ago
I’m surprised at how much this got downvoted. The laffer curve is pretty intuitive. I’m not sure why there is all the hate
- tablespoon 5y ago
  > I’m surprised at how much this got downvoted. The laffer curve is pretty intuitive. I’m not sure why there is all the hate "Intuitive" does not necessarily imply "true." Some of the most pernicious false ideas are ones that have an intuitive appeal (especially in an oversimple example scenario). The Laffer curve likely falls into something like that category. If it has any truth to it, it's in conditions that don't actually exist (like an effective 90% tax rate).
  - Day1 5y ago
    There is nothing false about the laffer curve. What is contentious is what the optimal rate is. There is no evidence that I’m aware of that says the optimal is 1% or 99%.
- jacobolus 5y ago
  The Laffer Curve was a made up justification for a policy (tax cuts for wealthy people and corporations) a GOP administration wanted to implement as a favor to their political patrons. Laffer came up with it on the spot and sketched it on a napkin. It (and “supply-side economics” in general) is not a serious economic theory.
  - dragonwriter 5y ago
    The Laffer Curve is pretty obviously trivially a real thing, the contentious part is the parameters defining the curves and/or points in multidimensional tax policy space where the Laffer Curve hits a maximum of tax collection and where variation leads to decreases (or no change if there is a ridge maximum and the change exactly follows it.) Well, also the usual one-dimensional presentation of the tax-policy space that goes with the curve, but that's not so much contentious as obviously wrong. The people who think it is important tend to have a religious faith that the status quo is in a space where decrease of taxes in any aspect of tax policy moves is back toward the maximum, which, even if you accept the existence of the Laffer Curve, is a claim which needs a lot of justification which is never offered.

by Day1 5y ago

Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too

adam_arthur 5y ago

For sure, I'm familiar with the concept, but wouldn't expect that effect alone to close the gap. But maybe companies actually chose to realize more gains once the rate was lowered. Need to find a good post hoc analysis of how revenue ended up higher. Also weird side note, Arthur Laffer is in his 80s but sounds/looks in his 60s in his interviews. Kind of amazing!

scsilver 5y ago

It allowed a cash out of pent up wealth that was waiting for a tax favorable environments to realize.

adam_arthur 5y ago
That likely explains part of it, but if you look at total revenues per year looks like it basically just subtracted one year of annual growth from trend. If it was primarily due to one time realizations, you would expect a spurt shortly afterwards, followed by decline.
- scsilver 5y ago
  Any chance you have some some charts I can dig through, at hand?

gumby 5y ago

Evidence of efficacy of the Laffer curve has been, to be kind about it, scant, and not for lack of looking! The 2017 tax change pulled taxes forward from subsequent years.

whakim 5y ago

The "Laffer Curve" has been widely discredited by economists across the political spectrum. Tax revenues in the year after the the Trump tax cuts (the Tax Cuts and Jobs Act) did indeed rise (FY2018). That being said, much of that was attributable to economic growth and inflation. The real question is what would revenue have been had the TCJA not been passed? It's obviously impossible to answer a counterfactual, but the Congressional Budget Office's predictions for 2018 taxes - made before the tax cuts were passed - were $276bn higher than actual receipts. These predictions ended up being pretty close to accurate for types of taxes that weren't affected by the TCJA, so it's a good ballpark.

adam_arthur 5y ago
I agree that revenues almost certainly would have been higher without the cuts, but still pretty amazing that it seemed to only pull one year of growth from trend. To be honest, I would have expected a much bigger decline
- whakim 5y ago
  I understand where you're coming from, but $276bn is a pretty substantial amount of money though! I think it's also worth noting that this outcome (revenue would increase due to expected economic growth, but would end up lower than in the no-tax-cuts scenario) was correctly predicted by most of the organizations that studied the impact of the legislation.

tablespoon 5y ago

>> Interesting thing about the Trump tax cuts was that government tax revenue never declined. The year after they went into effect, Federal tax revenues were higher. > Lookup ‘laffer curve’ for the explanation. Essentially, decreasing the tax rate incentivized more participants into the market and incentivized existing participants too I doubt that was what was going on there. IIRC, the "Laffer Curve" is some neat BS that's mainly useful to sell tax cuts, but all those tax cuts never resulted in the greater revenue the curve predicted. Maybe there's some truth to the curve when effective tax rates are 90%, but that's not the world we live in.

Day1 5y ago

I’m surprised at how much this got downvoted. The laffer curve is pretty intuitive. I’m not sure why there is all the hate

tablespoon 5y ago
> I’m surprised at how much this got downvoted. The laffer curve is pretty intuitive. I’m not sure why there is all the hate "Intuitive" does not necessarily imply "true." Some of the most pernicious false ideas are ones that have an intuitive appeal (especially in an oversimple example scenario). The Laffer curve likely falls into something like that category. If it has any truth to it, it's in conditions that don't actually exist (like an effective 90% tax rate).
- Day1 5y ago
  There is nothing false about the laffer curve. What is contentious is what the optimal rate is. There is no evidence that I’m aware of that says the optimal is 1% or 99%.
jacobolus 5y ago
The Laffer Curve was a made up justification for a policy (tax cuts for wealthy people and corporations) a GOP administration wanted to implement as a favor to their political patrons. Laffer came up with it on the spot and sketched it on a napkin. It (and “supply-side economics” in general) is not a serious economic theory.
- dragonwriter 5y ago
  The Laffer Curve is pretty obviously trivially a real thing, the contentious part is the parameters defining the curves and/or points in multidimensional tax policy space where the Laffer Curve hits a maximum of tax collection and where variation leads to decreases (or no change if there is a ridge maximum and the change exactly follows it.) Well, also the usual one-dimensional presentation of the tax-policy space that goes with the curve, but that's not so much contentious as obviously wrong. The people who think it is important tend to have a religious faith that the status quo is in a space where decrease of taxes in any aspect of tax policy moves is back toward the maximum, which, even if you accept the existence of the Laffer Curve, is a claim which needs a lot of justification which is never offered.