Re: Laffer Curve

[AdmrlLocke]

In a message dated 4/21/05 1:38:10 PM, [EMAIL PROTECTED] writes:

>And I have a sneaking suspicion that more equitable distributions of
>income lead to less social conflict and rent seeking and lead to higher
>growth. Unlike you I can point to some theoretical and empirical
>studies that back my suspicion up (though I wouldn't bet my life on it
>being true).  My point is that any of us can have sneaking suspicions.
>Dueling sneaking suspicions aren't going to bring us any closer to
>agreement.

You're raising the bar on me.  I was just trying to meet your earlier
challenge;

>But there is no reasonable argument (at least none that I've seen)
that >tax increases in any range we've seen in this country don't raise
>revenue.

Disagree or not, I think my argument about long-term damage to
entrepreneurship and the work ethic is a reasonable one.

The Annual Reports of the Secretary of the Treasury for the early 1920s show that higher marginal tax rates did at first raise revenue, and then in succeeding years cause revenue to fall in the brackets to which the higher rates applied.  People couldn't immediately adjust their much of their activities to avoid the higher rates, but over time did just that.

Congress imposed something like a 100% tax on luxury boats (as I recall, as part of the tax hike of 1990), and found that they collected zero revenue from the tax.

So we do have empirical evidence that higher marginal tax rates can produce less revenue.

We also know that as marginal rates rise, people have more incentive to lobby for special provisions to exclude themselves or their particular activities from the the higher rates, which in turn generates hostility among people with similar incomes from non-excluded activities, generating further lobbying for expansion of the list of excluded activites.  Higher marginal rates in general also raise the ire of  people who see themselves as getting punished for working harder, giving more incentive to people with high incomes to work less and spend more time in leisure.  Thus we had the phenomenon of doctors playing golf more often than seeing patients, etc., before Congress made large cuts in marginal tax rates during the 1980s.