Excellent Article About Taxes

[Lemur]

Hooray for empiricism.

The lesson, then, is that it is indeed irresponsible to think of a tax cut as a free lunch. If citizens wish to enjoy lower taxes, and do not wish to foist their debt on the next generation, they cannot avoid the responsibility of also cutting spending. This is how it should be. Truly "free" tax cuts make big government too much of a bargain. If you care about nothing more than getting out from under high tax rates, then self-funding tax cuts are a political dream come true: you don't have to ask anyone to give anything up. But if you worry about the intrusions, abuses, and injustices other than the confiscatory tax rates enabled by a massive state, you should not want too much slack in the relationship between the spending levels and tax rates.

It's nice when research confirms the obvious.

[Ice]

Hooray for empiricism.

The lesson, then, is that it is indeed irresponsible to think of a tax cut as a free lunch. If citizens wish to enjoy lower taxes, and do not wish to foist their debt on the next generation, they cannot avoid the responsibility of also cutting spending. This is how it should be. Truly "free" tax cuts make big government too much of a bargain. If you care about nothing more than getting out from under high tax rates, then self-funding tax cuts are a political dream come true: you don't have to ask anyone to give anything up. But if you worry about the intrusions, abuses, and injustices other than the confiscatory tax rates enabled by a massive state, you should not want too much slack in the relationship between the spending levels and tax rates.

It's nice when research confirms the obvious.

I found this part fairly interesting:

So there you have it. Tax cuts don't exactly "pay for themselves", but they also don't diminish revenue after about two years. That is, after about two years, the government receives revenues equal to what it would have received at the higher rate, but taxpayers enjoy a lower burden. It is an important advance to discover that because cuts do lead to an immediate dip in revenue, they often inspire offsetting tax increases that retard the growth effect of the original cut. Nevertheless, the effect of cuts on output is generally strong enough to bring revenue back to where it would have been otherwise.

Looks good for the long term, but not so good for the short term.

Good Find, Lemur. A rarely seen balanced article.

[Crazed Rabbit]

Well said. The thing I like about tax cuts is that they - in theory - force spending cuts by the government. Of course, common sense isn't always common in the government.

The report also said this;
tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.



CR

[Ice]

Well said.

The report also said this;
tax increases appear to have a very large, sustained, and highly significant negative impact on output. Since most of our exogenous tax changes are in fact reductions, the more intuitive way to express this result is that tax cuts have very large and persistent positive output effects.



CR

Indeed. Lower the taxes on things, and they will, most of the time, work more efficiently . Only problem is the lack of revenue. The government does need tax money to pay for essential things.

[Lemur]

The thing I like about tax cuts is that they - in theory - force spending cuts by the government.

Are you talking about the much-discredited "starve the beast" theory? Tax cuts do not force any spending cuts. Period. Deficit spending does not create a smaller government. From the article:

In another fascinating new working paper on the "starve the beast" hypothesis (it is false, FYI), the Romer duo directly discuss the revenue effects of tax cuts.

If you follow the link, there's a large-ish study about the whole "starve the beast" philosophy.

It sure must be fun to cut taxes without cutting spending! It's like every day is your birthday, and everything is free, free, free!

[macsen rufus]

Am I the only temporarily dyslexic one here, who wanted to see what Lemur had found that was so great about Texas??

IMHO the big issue that has to be grasped is not how much you tax, but WHAT you tax. Folks go to all sorts of effort to avoid tax. Tax the 'bad' stuff like wasteful resource use, pernicious pollutants and various recreational drugs of choice, not the 'good' stuff like jobs, enterprise and income, and everyone will be much better off (except maybe accountants )

[HoreTore]

Am I the only temporarily dyslexic one here, who wanted to see what Lemur had found that was so great about Texas??

Nah, you're not the only one...

The article says nothing about the other point of taxes though; redistribution of wealth.

[Xiahou]

Don't the two passages quoted in Ice's post seem to contradict each other somewhat?

[Ice]

The article says nothing about the other point of taxes though; redistribution of wealth.

Somewhat. Taxes are also used on projects for everyone, not just redistributed

Roads, Sanitation, Police, Military, etc.

[Seamus Fermanagh]

The article says nothing about the other point of taxes though; redistribution of wealth.

Most Americans do not consider this a valid purpose for taxation.

Sadly, we fall prone to it via political pandering, but our system is not predicated on this value.

[Devastatin Dave]

Am I the only temporarily dyslexic one here, who wanted to see what Lemur had found that was so great about Texas??

Ha!!! I thought I read the same thing. I was wondering if Strike for the South and Lemur had run off to Boston and got married or something...

[Strike For The South]

Ha!!! I thought I read the same thing. I was wondering if Strike for the South and Lemur had run off to Boston and got married or something...

Well louis wouldnt like that much

[Crazed Rabbit]

Are you talking about the much-discredited "starve the beast" theory? Tax cuts do not force any spending cuts. Period. Deficit spending does not create a smaller government.

It sure must be fun to cut taxes without cutting spending! It's like every day is your birthday, and everything is free, free, free!

Um ... that's why I said 'in theory'.

And where did I say I support cutting taxes without cutting spending?!

CR

[Byzantine Mercenary]

Im no expert on tax but ive always wondered what would happen if the rate of vat was reduced. Would you would get roughly same amount of revenue just from more people?