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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: i-node who wrote (544253)	1/16/2010 11:07:43 AM
From: RetiredNow	Read Replies (2) \| Respond to of 1574907

I'll have to address your post in a couple of separate replies, but first let me address the Laffer Curve, which I also believe is a decent encapsulating theory of the relationship between tax rates and corporate profits/tax revenues. There's is this common misconception among the GOP that tax cuts are always good. In fact, under Bush Jr., the GOP never met a tax cut they didn't like. In addition, they always talk about the Laffer curve to prove their point that tax cuts will increase tax revenues. However, cutting taxes is not always good thing, if you are trying to maximize the economic good and tax revenues. First, there is an optimal level of taxes according to Laffer. So to determine if tax cuts will generate more corporate profits and tax revenues, you must first understand which side of the optimal point of the Laffer curve you are on. Reagan was on the right side, so his overall tax cutting exercises, produced unprecedented levels of corporate and economic prosperity, which lead to higher tax revenues. Arguably, Clinton was near or at the optimal level tax rates. That sweet spot lead to again unprecedented levels of economic prosperity and eventually budget surpluses. Bush Jr., on the other hand, was on the left side of the Laffer curve. It's easy to see that now with 20/20 hindsight. His two tax cuts reversed the trajectory of budget surpluses established by Gingrich and Clinton and lead to the unsustainable budget deficits that we have today. See the chart I created below to help depict my points above:

To: i-node who wrote (544253)	1/16/2010 11:29:20 AM
From: RetiredNow	Read Replies (1) \| Respond to of 1574907

What you seem to miss is that tax revenues correlate more closely with economic growth than they do with tax rates. OK. The second point. Although, I do applaud you posting evidence of your assertion, it's not a complete picture. An old statistics saying is that "correlation is not causation". I might buy the assertion that tax revenues are more closely correlated with economic growth than with tax rates, but that doesn't mean there is no correlation with tax rates. In fact, tax rates are a very important driver of tax revenues and when you increase tax rates, you will almost always increase revenues in the short run. If those rates rise too high, it is entirely possible that over the long run it might stifle economic activity, which could eventually decrease revenues. However, if you increase rates in a period of rising economic activity, as happened during the 1990's, then you most certainly increase revenues, and as we saw, it does not necessary mean you stifle economic activity. Let's use common sense for a second. Take a look at the following two equations. What do they tell you? Consumer & Business Profits * Tax Rate = Tax Revenues GDP (or Aggregate Demand) = Consumer Spending + Business Spending + Gov't Spending - Tax Revenues QED GDP = Consumer Spending + Business Spending + Gov't Spending - (Consumer & Business Profits * Tax Rate) So by defintion, BOTH tax revenues and economic growth are impacted by Tax Rate Policy.