Wednesday, January 25, 2006

The last Laffer

The Laffer Curve postulates that there is an optimal tax rate to maximize revenues and that by lowering current rates, revenues would actually increase.

If you remember the wailing and gnashing of teeth by the left wing pundits and Democrat shills about the budget deficits you may have noticed that they have gotten quiet.

Their claim was: “you can’t cut taxes, there is a budget deficit, tax cuts for the rich will just increase the deficit.” Of course this is silly for two reasons, deficits are a function of spending as much as they are a function of receipts. If you make 3k a month and spend 4k a month, you are running a deficit of 1k a month. You could demand an increase in pay to eliminate the deficit spending, (which is what our gov’t does to us) or you could just decrease your spending…

The Bush tax cuts of ‘01 and ’03 have brought us solid economic expansion, lower unemployment, the stock market has increased over 4 trillion in value, home values have increased by over 10 trillion in value, next to zero inflation, and yet the chorus from the Dems was, “tax cuts for the rich will just increase the deficit.” They are wrong again…

There was a $120 billion reduction in the budget deficit in 2005. That's because tax receipts rose by more than in any previous year in U.S. history, even adjusting for inflation. Receipts were up by $55 billion above projections in 2004; $122 billion above projections in 2005; and are already running well ahead of projections so far in fiscal 2006 (which began in October).


Blogger SoWhat said...

You're absolutely correct. When tax rates to pay for WWII were over 70% for the wealthiest individuals, a few people could be on the "right side of the curve" (where lowering tax rates would increase revenues). In that era, the Laffer Curve was applicable. This is clearly no longer the case in this modern ear where the top tax bracket is 35%.

I agree with the theme of your post, however. What isn't important is to maximize tax revenues by being at the peak in the Laffer curve. What we need to do is have a budget that is rational and fund it with a fair tax strategy.


10:18 PM  

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