Do High Taxes Raise More Money?
Tim Groseclose, professor of political science and economics at UCLA, deserves all the attention that he’s receiving as a result of two courses he’s made for Prager University.
First, he’s courageous. Any professor willing to take on his peers, almost all of whom reject just about everything he stands for, has courage. Second, he’s very clear. His first course, Proving Media Bias, presents scholarship-based evidence of the media’s left-wing tilt and concludes with a startling vision of what the country would like if that bias didn’t exist.
His new course -- Do High Taxes Raise More Money? -- is the best explanation I’ve ever seen of the Laffer Curve. Using impeccable liberal sources, Groseclose demonstrates the point at which taxes start to bring in less revenue.
On a general note, if you haven’t visited Prager University yet, please do so. You’re in for a treat. We’re assembling a dream team faculty: the best people, presenting their best ideas. It’s literally something to see. Tim Groseclose and his two courses are a shining example.
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Jun '10
Re: Do High Taxes Raise More Money?
First, you have to convince liberals that a 100% income tax rate would alter the behavior of the rich. They don't understand that rich people are not robots.
Jun '11
Re: Do High Taxes Raise More Money?
You had me at "Laffer."
Excellent work as always, Dennis.
You too, Tim.
Oct '10
Re: Do High Taxes Raise More Money?
The fallacy herein is the assumption that the purpose of taxation is to raise revenue to fund the government. From day one, the progressive income tax had an overriding objective. To shape people's behavior. In that scheme, bringing about the progressive paradise requires the discouragement of the enterprising person, and hence the status of equality. Purest socialism. Every person equally miserable.
Laffer, to the progressive socialist, is a laugher, indeed.
Jun '11
Re: Do High Taxes Raise More Money?
raycon: The fallacy herein is the assumption that the purpose of taxation is to raise revenue to fund the government. From day one, the progressive income tax had an overriding objective. To shape people's behavior. In that scheme, bringing about the progressive paradise requires the discouragement of the enterprising person, and hence the status of equality. Purest socialism. Every person equally miserable.
Laffer, to the progressive socialist, is a laugher, indeed. · 11 minutes ago
Your point's a good one. But the video isn't designed with the pure socialist in mind. It's intent, I believe, is to capture the minds of the majority of the population that isn't insane.
Apr '12
Re: Do High Taxes Raise More Money?
Nice graph, now if we can just figure out how to get the Buffets and the Romneys (13%) of the world to start paying higher percentages we might start reducing these huge federal budget deficits.
Jun '12
Re: Do High Taxes Raise More Money?
Or we could spend less...
Jul '12
Re: Do High Taxes Raise More Money?
We don't have a revenue problem. We have a spending problem.
Confiscating 100% of the income of "the rich" will not be enough to pay for it all.
http://billwhittle.net/?p=562
http://hotair.com/archives/2011/03/31/excellent-bill-whittle-on-eating-the-rich/
Edited on September 21, 2012 at 2:17amJun '10
Re: Do High Taxes Raise More Money?
If your income is from stock sales and dividends, you're paying the rate for capital gains, which is much less, and should be much less. You want there to be a strong incentive for investing in companies.
Dec '10
Re: Do High Taxes Raise More Money?
This is a great video for opening some eyes to the realities of of the great tax debate, it's true. But with QE3 making funny money of all our dollars, I could almost give a rip about tax policy. Tax rates cause a slow death compared to Timmy's monetary policy. We're so scre... dead.
May '12
Re: Do High Taxes Raise More Money?
A few observations:
- I don't think the tipping point on the Laffer Curve is a fixed number.
- There probably is a short-term Laffer Curve and a long term Laffer Curve, the short term one having a tipping point more to the right of the long term. Meaning you might be able to get more revenue for one year at 45% tax rate, but over a ten year period you would probably bring in less money than if you were to have a 35% tax rate.
- When it comes to corporate taxes, the curve is going to be different depending on the tax rates in other countries. The tipping point is probably to the left of where it was 50 years ago.
- The tipping point is probably going to be at a different point depending on what kind of income you are taxing (income made from taking risks will have a tipping point more to the left), and probably at a different point depending on what income level you are taxing (my hunch is middle class people have a tipping point to the right of the rich, not that taxing them more is a good policy).
Edited on September 21, 2012 at 3:05amJun '10
Re: Do High Taxes Raise More Money?
Is Dr. Groseclose tenured?.....
What a great video!
Apr '12
Re: Do High Taxes Raise More Money?
GregoryB
Or we could spend less...
This is an important point. The Democrats are demanding higher taxes for an already bloated and wasteful government while teaching the entitled masses to bite the hand that feeds them.
This is also a very good point.
Jan '11
Re: Do High Taxes Raise More Money?
Oh great. Now the Mickey Kauses of the world will say "Ok - govt spending should be 33% of GDP.
Mar '12
Re: Do High Taxes Raise More Money?
Great lecturette, Tim. This concept, regardless of where the hump is, should be required teaching in every middle school in the country.
It's good for everyone to grasp this, but it could also lead to very interesting civics discussions. For example, even if government could raise tax rates to generate more revenue, should it? Or, with tax policy, should government seek to (a) maximize revenue, (b) fund itself or (c) influence consumer behavior regardless of revenue implications?
May '12
Re: Do High Taxes Raise More Money?
You would have to tax everyone at a 33% rate to get 33% of GDP, actually probably more.
Anyway, maximizing revenue to the government should not be the top goal when politicians set tax rates. It is a very government centric way of thinking about taxes, and most Americans would reject messages based on that way of thinking (it would be a great way for conservatives to frame the debate and a trap they can set for liberals).
Edited on September 21, 2012 at 4:24amSep '12
Re: Do High Taxes Raise More Money?
I've learned over the past couple of years from watching Obama administration officials and Clintonites talk on the Sunday talk shows that the top income tax rate needs to be precisely 39.6%, where the economic genius Clinton put it, for the economy to work correctly.
In fact, I've gleaned that if Bush had kept that 39.6% in place instead of idiotically reducing it, we'd have had budget surpluses every year since, instead of soaring deficits, and we'd be well down the road toward zeroing out the national debt. And the jobless rate would have stayed down instead of gone up. Might even be as low as negative 4 or negative 5 by now.
And plus, if McCain had won in '08 instead of Obama, we'd be in a Depression right now. McCain would have literally pushed us over the brink. While holding a slurpee. And we'd be losing like 800,000 jobs per month.
Nov '10
Re: Do High Taxes Raise More Money?
Well Herbert, aside from the fact that the main problem is on the spending, not the revenue side, your statement shows a misunderstanding of the Laffer curve. It is not about how much the upper-income folks actually pay. It is about where the marginal tax rate is set, regardless of what folks are paying. It seems that where this rate is set actually changes people's behavior, such as how much of their income they shelter.
As far as it goes it's an informative piece. But it misses two things. First, there is no discussion of the current tax rate (i.e., are we above or below the hump today?). But it also fails to discuss the relationship of tax rate, revenue and GDP. Forbes wrote about it last year. But more interesting even than their analysis is Hauser's Law, from which one gleans that to improve revenue it is far more important to boost GDP.
May '12
Re: Do High Taxes Raise More Money?
As I said in my other post, income that is made by taking a risk has a tipping point to the left of, say, income from a fixed salaried job.
Actually the kind of risk taking that Romney and Buffet are taking is very beneficial to the economy, it is the right kind of risk taking, it probably shouldn't be taxed at all.
Jun '10
Re: Do High Taxes Raise More Money?
Mel Foil
If your income is from stock sales and dividends, you're paying the rate for capital gains, which is much less, and should be much less. You want there to be a strong incentive for investing in companies. · 1 hour ago
Sure, but there should also be a strong incentive for working. I confess I don't see the justice in taxing people who have to work to earn a living at a higher rate than people who have a large enough fortune to live solely off their investment income.
I'm in favor of a flat tax: everyone pays the same tax rate, on all types of income regardless of source.
May '12
Re: Do High Taxes Raise More Money?
Joseph Stanko
Sure, but there should also be a strong incentive forworking. I confess I don't see the justice in taxing people who have to work to earn a living at ahigherrate than people who have a large enough fortune to live solely off their investment income.
I'm in favor of a flat tax: everyone pays the same tax rate, on all types of income regardless of source. · in 0 minutes
That would certainly simplify the tax code, it would be better than what we have now. But there is a reality that when you make the pay off for a risk less you lessen the likelihood someone would take that risk (which we want people to take, as it can lead to other sources of revenue for the government), if you want to maximize tax revenues or economic growth I would argue taxing that kind of investment at any significant rate doesn't make much sense at all.
Edited on September 21, 2012 at 4:48am