cj,
Tim, it is the measure that most tax cutters like to use. Remember the claim that tax cuts pay for themselves?
The original argument was Arthur Laugher's, and it was regarding tax rates. It said that if taxes are beyond certain point, you can actually collect more revenues at reduced tax rates then at the original, higher tax rates.
The truth of the validity of Laugher curve is self evident. What is less self evident is where exactly is that point, at what tax rate do you maximize your revenue?
Remember, before Reagan came to office, highest marginal tax rate was 70%. I think it is very likely that 70% is above the point of revenue maximization. But when you get down to 30 to 40% range of late, it is not as clear.
As much or more important consideration than the dollar amount of tax revenue raised is the health, size and growth of the economy.
Consider a hypothetical example where you have a tax cut of say $10 billion, which results in economy growing by $100 billion, and the increased economic activity brings back $9 billion. Now, it didn't exactly pay for itself, but consider this: It is entirely possible that the $100 billion growth of the economy reduced the need for government assistance by at least a $1 billion. Maybe more.
Joe |
