The implication here is that the Reagan Era tax cuts resulted in increased revenue due to moving down past the hump of the Laffer curve. Of course that turned out to be "voodoo economics" as described by eventual Vice President Bush during the primary campaign. The tax cuts may have stimulated the economy (opinions vary somewhat), but they definitively resulted in reduced tax revenue and huge deficits. Subsequent tax increases under Reagan reversed some of the red ink, but even counting the tax increases the net result was a loss of revenue.
See https://fred.stlouisfed.org/series/W006RC1Q027SBEA. There is a slight decline in 1981-2, but revenues continued to grow through the 80s and 90s. Deficits increased because the House continued to spend on social programs and Defense spending was raised until 1989.
Yes, there is an immediate decline due to the tax cuts, then the curve resumes the approximate growth pattern it had before the tax cuts. If there had been a transition to the other side of the Laffer curve hump the growth rate would be expected to sharply accelerate. Nope, doesn't happen. The economy continues to expand has it had before, any slight temporary acceleration can easily be explained by the increased deficit spending (as Nixon paraphrased Milton Friedman "we're all Keynesians now"). Additionally, if we had been on the other side of the Laffer curve hump, can you point me to the point earlier in the spending curve history where revenue growth declined because we crossed over that hump point. Looks like a pretty smooth curve with minimal long term disruption to me.
I provided a graph that shows that revenue did not markedly decrease and you respond with “it didn’t increase faster” which is a different position. If you look at the slope of revenue growth in the. 90s, when the full effect of the tax cuts were present, there is clearly a change. The tax cuts passed in the early 80s were not all instantaneous as I recall.
I am thoroughly enjoying the Paul 'n' Gary show. Intelligent, well-reasoned, polite comments on both sides. ... Paul, as I told you offline, I've always been somewhat of an agnostic as to whether we were above the line (i.e., Laffer was right with respect to revenues) or below the line (i.e., Laffer was wrong). There were enough confounding variables to muddy any conclusions (e.g., how the cuts were implemented, increases in entitlement and defense spending, the painful results of rapid disinflation). But I'd say the last comment from each of you speaks favorably of Laffer's thesis. I'm not agnostic on whether the tax cuts boosted real output/growth--I'm quite confident that they did so. If, as Paul suggested, revenue growth was "a pretty smooth curve with minimal long term disruption," that would suggest that Laffer's argument was essentially correct. By what you've both said, we weren't way up top on the curve (as drawn above) but, rather, somewhere near the inflection point. If that were the case, then I'd say that "boosting real growth/real output without diminishing the government's revenues" would be quite a vindication for what Laffer was arguing to Cheney, Wanniski, and Grace-Marie). Not quite as sweet as "boosting real growth/output AND increasing government revenues," but sweet nevertheless. I think that's where Gary's most recent point was heading. Mind you, I'm not arguing this on the basis of any formal data--I'm only arguing it on the basis of what both Paul and Gary both said in different ways.
For those interested, sheet music for voice and piano of Meredith Willson's "WIN" march is available on Amazon.com for $10. That's $1.75 in 1975 money.
Thanks to Bob for inviting me to write this piece for Bastiat's Window. Art addressed many of the economic questions about his theory in a paper he wrote for The Heritage Foundation in 2004, "The Laffer Curve: Past, Present, and Future." https://www.heritage.org/taxes/report/the-laffer-curve-past-present-and-future
One can almost smell the stale beer on the restaurant's floor. The 4th lesson is "a picture is worth a thousand words." The drawing with Art explaining it would make sense to almost anyone. Without the drawing, it would seem baffling to most people. Of course, it also oversimplifies a very complex issue and makes assumptions that have been endlessly debated....
On the more important matter of the artifact: clear evidence that the Smithsonian item isn't the original is all the detail, including math formulas. No conversation over drinks in DC involves differential equations!
There is an extraordinarily high probability that the stale beer was either Budweiser, Miller, or Schlitz. (And, no, Bud Light wasn’t around till 1982.) Thinking about the likely wine offerings would send a c.2023 œnophile into convulsions.
You touch on one serious virtue: if a little sketch can spark a 49-year debate among really intelligent folk, that’s a pretty significant accomplishment in itself.
The implication here is that the Reagan Era tax cuts resulted in increased revenue due to moving down past the hump of the Laffer curve. Of course that turned out to be "voodoo economics" as described by eventual Vice President Bush during the primary campaign. The tax cuts may have stimulated the economy (opinions vary somewhat), but they definitively resulted in reduced tax revenue and huge deficits. Subsequent tax increases under Reagan reversed some of the red ink, but even counting the tax increases the net result was a loss of revenue.
Thanks Paul. Lively discussion to ensue. :)
See https://fred.stlouisfed.org/series/W006RC1Q027SBEA. There is a slight decline in 1981-2, but revenues continued to grow through the 80s and 90s. Deficits increased because the House continued to spend on social programs and Defense spending was raised until 1989.
Yes, there is an immediate decline due to the tax cuts, then the curve resumes the approximate growth pattern it had before the tax cuts. If there had been a transition to the other side of the Laffer curve hump the growth rate would be expected to sharply accelerate. Nope, doesn't happen. The economy continues to expand has it had before, any slight temporary acceleration can easily be explained by the increased deficit spending (as Nixon paraphrased Milton Friedman "we're all Keynesians now"). Additionally, if we had been on the other side of the Laffer curve hump, can you point me to the point earlier in the spending curve history where revenue growth declined because we crossed over that hump point. Looks like a pretty smooth curve with minimal long term disruption to me.
I provided a graph that shows that revenue did not markedly decrease and you respond with “it didn’t increase faster” which is a different position. If you look at the slope of revenue growth in the. 90s, when the full effect of the tax cuts were present, there is clearly a change. The tax cuts passed in the early 80s were not all instantaneous as I recall.
I am thoroughly enjoying the Paul 'n' Gary show. Intelligent, well-reasoned, polite comments on both sides. ... Paul, as I told you offline, I've always been somewhat of an agnostic as to whether we were above the line (i.e., Laffer was right with respect to revenues) or below the line (i.e., Laffer was wrong). There were enough confounding variables to muddy any conclusions (e.g., how the cuts were implemented, increases in entitlement and defense spending, the painful results of rapid disinflation). But I'd say the last comment from each of you speaks favorably of Laffer's thesis. I'm not agnostic on whether the tax cuts boosted real output/growth--I'm quite confident that they did so. If, as Paul suggested, revenue growth was "a pretty smooth curve with minimal long term disruption," that would suggest that Laffer's argument was essentially correct. By what you've both said, we weren't way up top on the curve (as drawn above) but, rather, somewhere near the inflection point. If that were the case, then I'd say that "boosting real growth/real output without diminishing the government's revenues" would be quite a vindication for what Laffer was arguing to Cheney, Wanniski, and Grace-Marie). Not quite as sweet as "boosting real growth/output AND increasing government revenues," but sweet nevertheless. I think that's where Gary's most recent point was heading. Mind you, I'm not arguing this on the basis of any formal data--I'm only arguing it on the basis of what both Paul and Gary both said in different ways.
Fun read, especially with the unexpected reference to Meredith Willson!
For those interested, sheet music for voice and piano of Meredith Willson's "WIN" march is available on Amazon.com for $10. That's $1.75 in 1975 money.
That's great! Especially the inflation-adjusted part.
Thanks to Bob for inviting me to write this piece for Bastiat's Window. Art addressed many of the economic questions about his theory in a paper he wrote for The Heritage Foundation in 2004, "The Laffer Curve: Past, Present, and Future." https://www.heritage.org/taxes/report/the-laffer-curve-past-present-and-future
One can almost smell the stale beer on the restaurant's floor. The 4th lesson is "a picture is worth a thousand words." The drawing with Art explaining it would make sense to almost anyone. Without the drawing, it would seem baffling to most people. Of course, it also oversimplifies a very complex issue and makes assumptions that have been endlessly debated....
On the more important matter of the artifact: clear evidence that the Smithsonian item isn't the original is all the detail, including math formulas. No conversation over drinks in DC involves differential equations!
There is an extraordinarily high probability that the stale beer was either Budweiser, Miller, or Schlitz. (And, no, Bud Light wasn’t around till 1982.) Thinking about the likely wine offerings would send a c.2023 œnophile into convulsions.
You touch on one serious virtue: if a little sketch can spark a 49-year debate among really intelligent folk, that’s a pretty significant accomplishment in itself.