Taxation and Revenue

**JayGatz** · 17th July 2010 11:35 AM

I'm not sure how experienced many of you are with macroeconomics; but let's see!

This is in response to:

Originally Posted by Oldschool

We've estaablished that tax cuts increase federal revenues. thanks.

I assume most will disagree with this statement, but to help my point:

If taxes were decreased by 10% for each bracket (so that someone paying 25% now paid 22.5%); the CBO estimates that the budget would suffer from: (in billions)

Conventional Estimate [-466 -775; -1,241]

This means that only considering the tax cuts, their estimated effect on the economy, production, and so on; the first FIVE years would see a drop of 466 billion, the second FIVE years would see a drop of 775 billion, and overall, that'd be -1.241 trillion over 10 years.

Additional Debt Service on Conventional Estimate [-56 -261 -317]

This now takes into account that the lost revenue were borrowed (not at current rates of borrowing, this study is almost 5 years old).

The first FIVE years would see 56 billion going towards debt interest, the second FIVE costing 261 billion; for a total of -317 billion over 10 years.

Total [-522 -1,035 -1,557]

For a total, that'd give us -1.557 trillion dollars over 10 years for a 10% decrease in tax rates.

For other indicators:

Impact on Real GNP of a Deficit-Financed 10 Percent Cut in Federal Income Tax Rates; most options and scenarios put economic growth, because of the tax cuts, at less than 1%.

This study is one of the more comprehensive in regard to American public policy on tax cuts; takes into account capital flow, working place results, and so on. It's also non-partisan; unlike almost every other 'study'.

Source: CBO

**anonnymous** · 17th July 2010 01:03 PM

That seems to be about right. It is pointless to initiated tax cuts through deficit spending. We must regain sovereignty over our money before any reasonable approach to curing what ails this economy.

Simply put, we do not produce enough, spend to much at the consumer and government levels and save virtually nothing. I know common wisdom is that consumer spending is what drives this economy but that is because we have a debt based system. The best system to have is just the opposite and that is to have a production based economy. Even though those in power would have you believe inflation is under control, it is not. If you truly want to control inflation we need sovereign currency.

**Macduff** · 17th July 2010 02:22 PM

Well then, let's just increase tax rates to 100% and watch the money roll in.

**JayGatz** · 17th July 2010 02:59 PM

Originally Posted by Macduff

Well then, let's just increase tax rates to 100% and watch the money roll in.

I see you're not familiar with the Taxable Income Elasticity principle or the Laffer Curve model of taxation. Here's an example:

**Macduff** · 17th July 2010 03:05 PM

Originally Posted by Jardines

I see you're not familiar with the Taxable Income Elasticity principle or the Laffer Curve model of taxation. Here's an example:

So there is a point where lower tax rates will bring in higher revenues?

**JayGatz** · 17th July 2010 03:24 PM

Originally Posted by Macduff

So there is a point where lower tax rates will bring in higher revenues?

If you're past the optimal rate, yes.

**GrumpyOM** · 17th July 2010 03:27 PM

Originally Posted by Jardines

If you're past the optimal rate, yes.

And where on that curve are we currently, in your opinion?

**Macduff** · 17th July 2010 03:28 PM

Originally Posted by Jardines

If you're past the optimal rate, yes.

So tax cuts can increase revenues. Glad we got that settled then. It's just a matter of figuring out where we are on the curve.

**JayGatz** · 17th July 2010 03:31 PM

Originally Posted by GrumpyOM

And where on that curve are we currently, in your opinion?

My opinion, along with most economists, would be that America is currently far to the left; as tax cuts have had negative impacts on revenue and since tax receipts as a percentage of GDP are the lowest in over 50 years.

Source: TPC; Individual and total tax receipts as a percentage of GDP haven't been as low as they are now since about 1950; for a short while— and since 1940 for more than a year or two.

These low taxation rates are unsustainable.