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September 12, 2005


Ah, c'mon, it's Norquist! He's a total loon. Let's wait until someone slightly closer to normal makes the suggestion.

brendan, i thought that you were a smarter guy.

Brendan, thanks for running an upscale blog.

I have some questions. I am no expert on economics but it seems obvious that when government taxes more it get more and when it taxes less it gets less. But doesn't the principle of diminishing returns come into play eventually, otherwise government would tax 90% and we would have free health care and other essential services for all? Is there an optimal rate that obtains the highest revenues without being too high (some sort of gaussian-shaped curve)? Are there any economists that have studied/determined this optimum tax rate and structure? Any answers (perhaps in the form of links to other websites) to these questions would be greatly appreciated. Thanks.

Mr. Norquist is hardly alone -- even in the specific realm of federal tax policy -- in asserting that Katrina makes it even more clear and urgent to do what he always thought we should do anyway.

Last week, the inimitable Eleanor Clift wrote a piece subtitled: "If there’s an upside to Katrina, it’s that the Republican agenda of tax cuts, Social Security privatization and slashing government programs is over."

Heck, a senior Senate Democrat on the Judiciary Committtee invoked this strategy last week (in the Boston Globe) for judicial nominations. Katrina makes it clear we need a liberal Chief Justice?

Suggesting that the idea that tax cuts generate revenue is "discredited" is ridiculous. Having spent a good deal of time working on Wall Street I can report that virtually everyone in the business of generating revenue believes that tax cuts generate revenue. You are the one being disingenuous here. You refer to this idea glibly as a "discredited bit" as though supply-side theory was just some passing flotsam that no one really paid attention to. In fact many scholarly people and many whose live are dedicated to analyzing macro-economic data for personal profit disagree with you. This little game is rigged. You put forward the premise that to believe that tax cuts generate revenue is discredited. Your second premise follows that anyone who suggests cutting taxes is being disingenuous. Now you have a neat little trap for catching the disingenuous. Your problem is that you first premise is flawed. Many people believe that cutting taxes generates revenue.


It's called the Laffer curve. The salient point there being that it is a curve, which means that, yes, there is a point of diminishing returns (for the government) in raising taxes too high, or lowering them too much. To use an analogy, you can work a slave to death, or you can let him laze around all day so that he doesn't earn his keep. Somewhere in between is the optimum.

US taxpayers aren't slaves though--theoretically. From our perspective, anything we are taxed for beyond maintaining law enforcement and the armed forces is a dead loss.

Aaron, the question of supply-side tax theory is not whether cutting taxes stimulates the economy. It always does, in the absence of ecomomic catastrophe.

The question is whether the stimulating effect on the economy is high enough that the federal government actually increases their tax revenues, a much higher and certainly, very discredited theory.

Supply-side has has ceased to be a realistic taxation theory for a long time; it only sticks around as a politically convenient tool, and to some, almost a religion.

Norquist is implying that tax cuts generate revenue rather than reducing it -- a discredited bit of supply-side cant that even Bush administration economist Greg Mankiw has disavowed.

Actually I'd say you need to bone up on your macro-economics. The idea that lowering taxes can raise revenues is pretty reasonable and not all that shocking. The problem is that, not all tax cuts have to raise tax revenues, which is where many conservatives like Norquist look like fools.

Further, I'd say your portrayal of Mankiw's statements are less than 100% honest. I'd say Mankiw views the current tax cuts as unlikely to result in more revenue, not that he thinks all tax cuts can never raise revenue as you are implying.

So, reducing tax rates to boost economic activity and government revenues is discredited supply - side cant? Where are your numbers to back this up? If your assertion is correct, Government revenue should have declined sharply after the Kennedy, Reagan and Bush tax cuts. In fact,
each Federal tax cut led to increased economic activity and more tax revenue.


Brendan would have been quite right if he had included some sort of qualification that with historical tax rates there doesn't seem to be much evidence supporting the notion of cutting tax rates leads to higher tax revenues. Historically, this is true in aggregate. Some new research is looking at tax responsivness based on income. That is, the higher one's income the more likely one is to respond to marginal tax rates, especially high marginal tax rates.

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