Lower Taxes = Higher Revenue (No, really!): The Laffer Curve

Fact: People change their behavior based on actions.

So, what really happens when taxes are lowered? Based on the propaganda from the "Left" and "Progressives", you would think that raising taxes significantly would generate more revenue and that would be the logical step in a stagnant economy and a large deficit.  In fact, the exact opposite is true.  The Laffer Curve is a simple economic model with proven positive historical economic results. 

1) The basic premise is: Less (Average) Taxes = More Output  > More Output = More Revenue

According to the Laffer Curve, there is a "sweet spot" to maximize revenue (see graph).  Raising taxes too much penalizes participation in taxed activities (working, starting a business, investing, spending, etc.) and increases the need for expenditures (unemployment, medicare, social services, etc.)

2) A high tax rate on a small tax base, the top 10% percentile, (and what progressive democratic "socialists" label the evil 1%) generates LESS revenue.
A lower tax rate on a large tax base generates MORE revenue.

"Supply-side economics was never just about slashing tax rates. As Laffer told me in a recent interview: “We also emphasized sound money, free trade and deregulation. It was a package of reforms to clear away the obstacles to increased economic output.” [2]

Lets give a few examples.

A) The Harding-Coolidge tax cuts in 1920. This cut the tax rate on the highest-income bracket through to the lowest-income bracket. This increased the GDP, unemployment decreased thus putting more workers in the tax-base, and improved everyone's general quality of life significantly.

[http://www.heritage.org/~/media/images/reports/2004/bg1765/figure5.ashx]

B) Kennedy tax cuts in 1964. In the 4 years following JFK's tax cuts, the top tax bracket went from 94% > 70%, as well as lowering taxes for all other brackets as well.  The government revenue increased 9% annually and at a faster rate. 

[http://www.heritage.org/~/media/images/reports/2004/bg1765/figure7.ashx]

C) Regan tax cuts.  During the 1980's the country was suffering from Stagflation, which is high inflation, high interest rates, and high unemployment.  Reducing income taxes and capital gains taxes in 1981 helped launch what we now appreciate as one of the greatest and longest periods of wealth creation in world history.

"Prior to the tax cut, the economy was choking on high inflation, high Interest rates, and high unemployment. All three of these economic bellwethers dropped sharply after the tax cuts. The unemployment rate, which peaked at 9.7 percent in 1982, began a steady decline, reaching 7.0 percent by 1986 and 5.3 percent when Reagan left office in January 1989.

Inflation-adjusted revenue growth dramatically improved. Over the four years prior to 1983, federal income tax revenue declined at an average rate of 2.8 percent per year, and total government income tax revenue declined at an annual rate of 2.6 percent. Between 1983 and 1986, federal income tax revenue increased by 2.7 percent annually, and total government income tax revenue increased by 3.5 percent annually.

The most controversial portion of Reagan's tax revolution was reducing the highest marginal income tax rate from 70 percent (when he took office in 1981) to 28 percent in 1988. However, Internal Revenue Service data reveal that tax collections from the wealthy, as measured by personal income taxes paid by top percentile earners, increased between 1980 and 1988--despite significantly lower tax rates."

Reducing capital gains taxes in 1997 further increased asset values, productivity, and private sector capital investments than in the previous decade starting in 1987.

During periods of tax increases, budget offices consistently over-estimate revenues because they fail to consider economic feedback effects incorporated in the Laffer Curve. 

"Seldom in economics does real life conform so conveniently to theory as this capital gains example does to the Laffer Curve. Lower tax rates change people's economic behavior and stimulate economic growth, which can create more--not less--tax revenues."

 Sources:
1. http://www.heritage.org/research/reports/2004/06/the-laffer-curve-past-present-and-future
2. https://www.washingtonpost.com/opinions/the-laffer-curve-at-40-still-looks-good/2014/12/26/4cded164-853d-11e4-a702-fa31ff4ae98e_story.html
3.  Supply-Side Economics: https://en.wikipedia.org/wiki/Supply-side_economics

Bernie Sanders: Reading Past the Campaign Slogans (Part 2)

1. Minimum Wage: "Wednesday, July 22, 2015, Sanders introduced a bill to increase the minimum wage to $15 an hour over a period of five years, called the "Pay Workers a Living Wage Act." You can view the press release here, the summary here, and the full bill here.

This bill proposes the follow wage adjustments:

+ Minimum wage - $9 in 2016, $10.50 in 2017, $12.00 in 2018, $13.50 in 2019, and $15 in 2020.
+ Tipped min wage - $3.15 in 2016, then increased $1.50 each year until matching standard minimum.
+ Youth min wage - can be no less than $3.00 less the standard minimum.

Business are expected to adjust their finances to cover this cost." (Source)

Question: Why does no one mention the elephant in the room? Inflation. 

1972: Dollar removed from gold standard
Average costs:
Car: $4,500
Home: $40,000
Gallon of gas: $.36
Visit to the doctors: $25.00
Average nominal salary: $8,424

Today: [price || percentage increase]
Car: $32,495[5] || 722%
Home: $208,000[7] || 520%
Gallon of gas: $3.48[8] || 966%
Visit to the doctors: $220[9] || 880%
Average nominal salary: $49,486[10] || 587%
http://www.valuewalk.com/2015/02/history-u-s-dollar-inflation-infographic/ 

"So let's take this claim apart. Suppose some menial job is now offering $15 dollars an hour. That does increase the employment pool because more people will want to apply for it. But what that really means is that some people who would have never dreamed of doing that job, because they were too overqualified for it, now don't really care about that, they just want the $15/hr. So, now the low-skilled people who would normally be competing among themselves, are now competing with much more educated high-skilled people for the same job. And so the people who are the most vunerable, who have the least skills are even LESS likely to find entry jobs. How does this help the people at the bottom of the socioeconomic ladder?" -Tom Woods

Inflation Calculator

So, if the buying power of the dollar has decreased, yet the Federal Government wants to mandate a higher minimum wage without taking into consideration how inflation affects the economy (a hidden tax), this will force businesses to raise the cost to produce goods and provide services.  These cost increases affect the lower-income and middle-class the most.  Higher Minimum Wage + Higher Costs for Goods = No Significant Net Benefit.  As well, mandating a minimum wage increase will deter many companies that hire those employees to cut back on hiring new employees who have little skills and need those jobs the most.