The Laffer Curve
Between 1980 and 2000, the top marginal income tax rate was slashed to 39.6% from 70%, and between 1977 and 1997 the capital gains tax rate was cut to 20% from 39.9%.
When it comes to raising tax revenues by raising tax rates on the rich, Mr. Buffett would again appear to be on the wrong side of the argument. Between 1921 and 1928, the top marginal income tax rate fell to 25% from 73%. During this period, tax receipts from the top 1% of income earners rose to 1.1% of GDP from 0.6% of GDP. The top income tax rate dropped to 70% from 91% after the Kennedy tax cuts began in 1964, while tax receipts from the top 1% of earners rose to 1.9% of GDP from 1.3% of GDP in the period 1960 to 1968. By the way, these periods were two of the biggest booms in U.S. history…
Since 1978, the top earned income tax rate fell to 35% from 50%, the top capital gains tax rate fell to 15% from 39.9%, and the highest dividend tax rate fell to 15% from 70%. After taking office in 1993, President Clinton virtually eliminated the capital gains tax from the sale of owner-occupied homes and cut government spending as a share of GDP by the largest amount ever.
Meanwhile, the top 1% of earners saw their tax payments climb to 3.3% of GDP in 2007 from 1.5% of GDP in 1978, while the bottom 95% saw their tax payments drop to 3.2% of GDP in 2007 from 5.4% of GDP in 1978.
Full article on a proposed surtax on “millionaires.”
Clearly, this is evidence that Buffetonomics doesn’t work.
We’ve had the experiment to see if this works -the boom of the 80’s and 90’s prove that it does. The Great Depression and Great Recession prove that Keynesian Economics doesn’t. Why can’t the politicians see this? I guess because it is about command and control not economics. America deserves better.
I can get behind the argument that the tax decreases between Kennedy and Reagan eras produced booms that subsequently augmented government revenues. But this leaves out the tax break that, from my point of view, is most controversial insofar as it takes advantage of the Laffer Curve: the Bush tax cuts. They produced no such boom and government revenues were drastically undercut. The Bush tax cuts at least contributed to the deficits of the 2000s.
Do you believe that they pushed us left of the peak of the Laffer Curve, making them inefficient and damaging in terms of total revenue?
@Ambrose
Good point. Too often people just robotically assume that tax cuts always increase revenues, when there is evidence that this is not always the case (though presumably, they’ll find a way to rationalize that contradictory evidence). I realize this may have been drilled into their heads by politicians, but still…
Cut tax rates to zero, then we will have even more revenue.
Steve