Robert Murphy’s prediction of what four more years will bring us: massive spending, massive deficits, and massive debt. After all, that’s what Republican presidents do, if history is any guide. They even offer a theory to back it up. Though cutting taxes is an important component of rolling back Leviathan, but Republicans need to realize that cutting spending is just as crucial. [Full Article]
Source link: http://blog.mises.org/2693/bread-circuses-tax-cuts-and-debt/
Bread, Circuses, Tax Cuts, and Debt
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I’ve never really liked the mainstream explaination of the Laffer curve – that people will have no incentive to work if the tax were 100%, and at a 0% tax rate, there would be no revenue. These positions are likely correct, but the Laffer curve is actually a derivation from the concept of “deadweight loss,” or the unrealized gains from trade. As a tax increases, the deadweight loss increases exponentially and the tax revenue forms the familiar parabolic Laffer curve. All of this stems from an assumtion of linearity, continuity, and traditioanl shape for the supply and demand curves. The “incentive” explanation only describes the endpoints of the Laffer curve. The shape is derived from the assumptions that give supply and demand schedules their familiar shape. That these assumptions are valid is another argument, but they are responsible for the Laffer curve, not the concept of tax rate versus incentives.
One thing that I find almost universally missing in any debate that concerns the deficit is that there are no reliable figures as to its size. The official numbers rely on accounting principles that would land most of us in jail if we used them, and there is a huge amount of expenditure and borrowing that isn’t even in the budget. How can we have an intelligent discussion without meaningful measurement of the dimensions of the problem?
“. . . government spending in and of itself is unproductive . . .” is the Libertarian mantra but is not necessarially correct. The city govt paving the street in front of my house might be more cost effective than the home owners chipping in an hiring their own contractor to do the job, particularly if my street is part of a larger city contract and/or if there are Libertarians on my street who drive large fwd trucks and don’t care to be good neighbors.
The growth in tax receipts as a percent of GDP under Regan, allowing for the phase-in of tax rate cuts, actually supports the Laffer Curve theory. How else can you explain that with an actual cut in tax rates the government received a higher percentage of GDP. It necessarily means that there were more people earning more money and entering into the less-onerous highest tax brackets.
Just beacuse Government spending is mostly counter productive does not discredit the thrust of the Laffer Curve. I think most supply-siders would agree that less govt. spending would likewise be more productive. Unfortunately, they have chosen not to make this a priority.
We can get into the whole empirical argument about proving the Laffer curve, but we must remember that the curve is not a theory all by itself. It is merely a mathematical extension of assumptions of supply and demand curve. The theory is more in the shape of the supply and demand curves, not in the Laffer curve. Supply-siders are merely the fiscal representatives of Keynesian philosophy; the Laffer curve is no more intrinsic to their framework than are the supply and demand schedules themselves.
It is very unfortunate that today’s “conservatives” have so readily adopted paternalistic Keynesian philosophy.
Bill, do bid-rigging, bribery and kickbacks exist in your city? They do in mine, and these problems grow in proportion to the size of the government. I would love nothing better than to fire all the city councillors and smug, entitled city employees who rob me of more and more property tax dollars every year, and provide worse and worse services. After all, Neighbors get together all the time to get deals on things like lawn mowing, roofing, and fencing. There is nothing exotic or complicated about laying asphalt that requires a huge and overpaid city engineering department, accounting department and cultural department. That’s not a Libertarian mantra, that’s the real world.
At this point I do not believe it is a matter of IF the deficit will grow, but HOW much it will grow. Due to the unprecedented control that Republicans now have, we can only assume that however much it grows, it is not going to be a small amount.
Nice writing, the analog with temperature to maximise taxes was good.
But the assumption that government spending is always counter productive is not correct from elemtary considerations. If true the alternative would be to give, for example, the US military a NASDAQ listing.
Most people see no economical progress in this, so adjust your thinking on this please.
Furthermore; In one of the comments posted above I found again that the US deficits are indeed badly accounted. The ‘real figure’ is hard to find, this is correct.
Here in Europe, where I live, even rumors go around like it could be double.
Can you folks pay a bit of attention at estimating what is the ‘real deficit’?
Greetings & good luck with the mises institute.
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