Tue. Oct 3rd, 2023

Written by Robert Warden

This is kind of an emergency post. although it is a topic that I have been intending to post about for a long time. Now that Republicans are close to passing their tax scam plan, it is apparent that their only budgetary justification for the tax cuts in the bill is given by the Laffer Curve. If you are not familiar with the Laffer Curve, I will explain it here. According to a person named Arthur Laffer, tax cuts can actually increase government revenue by stimulating the economy and making everyone have higher incomes. This, of course, if true, would make everything hunky dory with tax cuts. However, if you believe what Laffer says about cutting taxes paying for itself, you would also probably believe that you can build a humongous wall between the United States and Mexico to keep the Mexican rapists and job stealers out, and it would pay for itself; or, that we could have invaded an oil rich nation such as Iraq, and that would have paid for itself.

In fact, the Laffer Curve is being used as an excuse by Republicans to argue that the tax cuts in their plan will basically pay for themselves, when in fact, the opposite is demonstrably true. According to a study by Trabant and Uhlig in 2011, as reported in Wikipedia, tax revenues are maximized at a tax rate of 70%. That’s correct — 70%, or maybe even a little higher (https://en.wikipedia.org/wiki/Laffer_curve). Even if we add up all the various taxes and government fees that Americans pay, it comes nowhere close to 70% of income, even for the wealthiest Americans. Actually, according to the following article, the average effective total tax rate in the United States is only 29.8%, in fact (https://www.fool.com/…/whats-the-average-americans-tax-rate…). This is among the lowest tax rates among industrialized nations, if not the lowest, as I discussed in an earlier post. Yet, Republicans want to cut these taxes even further. And that’s not all. According to the Wikipedia article, the Congressional Budget Office in 2005 analyzed the likely effects of a 10% decrease in the existing tax rates of that time, which were already far lower than 70% even at the highest income bracket. They found that such a decrease in taxes, would cause further budget deficits, which would primarity benefit the wealthy, while placing further burdens on the rest of us. As if that weren’t enough, a comparison of job growth rates to top tax rates in the U.S., reveals that the best job growth occurs when the top tax rate is at 85-90%.

The Republican tax bill is nothing but a further money and power grab by the financial elite. Fortunately, more Americans are catching on than in past generations, so that this bill is actually very unpopular already — historically so for a tax cut, which are usually greeted with glee by the majority of the public. The core of the bill is to lower corporate tax rates, which is obviously something that will basically benefit corporation owners, especially owners of large, lucrative corporations. I did searches yesterday asking what economists think of the Republican tax bill, and found 6 new articles on the topic (within the past few days). All 6 of them, without exception, as I read every one of them, basically said that this bill will further exacerbate wealth disparities and the federal budget deficit and overall debt. In addition, it is likely to hurt the large majority of Americans, especially women and children, and middle class families, in a variety of ways, such as causing inflation or loss of relied upon tax deductions, and probably worst, the proposed repeal of the healthcare mandate is expected to make millions of Americans lose their health insurance, while premiums skyrocket for the rest of us. (I won’t link to these articles here, but various ones can easily be looked up online.)

Clearly, Republican politicians are either lying to us all, or living in an alternate reality in which money magically appears when taxes are cut. Perhaps it’s some of both. But to those who believe that the proposed tax cuts will benefit any but the wealthiest Americans, there is a snake oil salesman and a land dealer at your front door with some prime Florida swampland for sale that you have to visit at low tide or else it will be covered in seawater. I would be laughing at the ridiculousness of what the GOP dinosaurs are trying to sell us, but the effects of their policy decisions are too tragic not to take seriously.

We need to oppose this bill now, while we still can. And even if it passes, we need to elect new, progressive leadership who will reverse this disastrous policy as soon as possible.

Laffer curve


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