Re: "You can't ever know precisely. [Where you are on the Laffer Curve]"
Well, if you can't at least pin it down to a general area of the curve... then it is useless to you when it comes to making policy prescriptions!
(And, yes, you CAN know fairly precisely --- because the effects of tax changes can be tracked and measured... to the extent that ANYTHING in economics can actually be 'measured', I guess. :-) THIS is WHAT THE US TREASURY DEPARTMENT JUST DID.)
Re: "The Laffer curve is more of a short term effect."
No, it's not.
Re: "If I understand it correctly the dynamic analysis is about extra economic growth in the short to mid term."
No. 'Dynamic analysis' simply means that they ASSUME 'Laffer Curve effects' are true, i.e. that reducing taxes ALWAYS increases the incentive to work, to produce... and thus increases the potential rate of economic growth, CEUTERUS PARIBUS! (That means: all other things being held equal.)
Re: "Over a few years, perhaps since Bush's tax cuts took effect. That may well have gained back 10% of the revenue that was lost to lower rates. But growth compounds. Its not a one time effect."
Yes, they KNOW THAT. It was factored into the Treasury Department analysis.
Unfortunately, DEBT also *reduces* the economy's growth rate. So, when SPENDING stays high (& is financed by debt), while REVENUE is reduced because of lowered tax rates --- the beneficial effects of the lowered rates are soon SWAMPED by the negative effects of the also-compounding DEBT. :-(
Re: "In other words, they DO project SOME 'Laffer Curve benefits' from the tax cuts."
Correct. From this particular 'odd' mix of tax changes they determined that about 10% of the revenue that was lost to the government was 'regained' - at least in the short-to-mid-term - by extra growth.
Still, that left 90% of the forgone revenue that was NOT regained through faster growth... and, since government spending was NOT REDUCED by that amount (but, sadly, spending actually *increased* dramatically), this 'lost revenue' was added directly to the national debt --- where it continues COMPOUNDING and REDUCING the ECONOMY'S GROWTH RATE.
The extra debt is depressing growth *more* then the 'Laffer Curve effect' is raising growth....
ALL the studies (Treasury's, C.B.O.'s, O.M.B.'s, Trend Macrolytic's) came to the same conclusion: without DRASTIC cuts in spending to cover that forgone revenue... then by the end of this decade, and on into the future, we are SIGIFICANTLY WORSE OFF then if we'd made no changes at all to the tax codes.
(Clearly, the best-of-all-world's solution would be to reduce and simplify taxes... AND to slash government spending and run balanced budgets. Unfortunately, that ain't happening.)
Re: "The Laffer curve benefits happen even if spending is not cut."
True. But ALL the studies (including the WH one now) show that the NEGATIVE EFFECTS of the rising debt (caused by failing to cut spending) OVERWHELM *all* of the Laffer-effect benefits, and THEN SOME!
There IS NO 'FREE LUNCH'.
Re: "Apparently the treasure report calculated only a 0.04% extra growth rate which is minuscule. Others might say its higher, but it does seem that much of the positive effect of lower taxes is countered by the negative effects of the borrowing."
Yes. ALL countered and then a LOT MORE. They show (as predicted also by all the earlier reports) that we are already into the area of LOWER GROWTH then would have happened sans-changes. |
