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 3)

"All power struggles need to create a "bad guy" to justify retaining their positions of power."

[Image source: http://bluestarchronicles.com/wp-content/uploads/2011/10/Occupy_Wall_Street.jpg]

In the "us-vs-them" mentality, especially in politics, Right-vs-Left, Democrat-vs-Republican, Rich-vs-Poor, the disagreements and anger serve as a tool to divide and incite mistrust, and treats the public (you) as a means to and end: votes for political and ideological power.  As Kant rightly said, "Act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only".  This moral philosophy seems to fall on deaf ears in our current political climate, rife with identity politics and corruption.

Bernard Sanders is using you, preying on your hatred for the "Rich 1 Percent" in order to secure your vote and legislate via his numerous "Acts" a socialist ideology in place of what should be a free market with limited government, otherwise called a Constitutional Republic.  Continuing with the sentiments and frustration that spurred Occupy Wallstreet, Sanders' main campaign platform calls for the Rich 1% and Wall Street to pay their "Fair Share".  But what does this actually mean? Calling things by their proper names is the beginning of wisdom.

Sanders said, "The fairest way to reduce wealth inequality and to rebuild the disappearing middle class, preserve our democracy, is to enact a progressive estate tax on multi-millionaires and billionaires," and "Our nation cannot survive morally or economically when so few have so much and so many have so little. We need a tax system which asks the business class to pay it's fair share of taxes." 

At face value, these statements seem perfectly logical and hit a nerve with the majority of Americans.  But: What is fair? What is equality? Logically we all know nobody is exactly equal to another.  Some people have greater intelligence, or greater beauty.  Some people are born extremely tall or athletic, giving them advantages in sports.  Some people are geniuses who invent amazing and profitable inventions.  We know that not everyone can be exceptional, and in reality the majority of us are destined to be perfectly average. For the in depth scientific study on this topic, see The Bell Curve. 

This rhetoric implies that the rich are evil.  It implies the rich and business class prey upon the lower and middle class by cheating, lying, and stealing to create their wealth.  This is pure propaganda created to incite anger, resentment, frustration, and indignation at a group of people in America that for the most part, created their wealth by hard work, ingenuity, delayed gratification, intelligence, smart investments, and creating products and services that have value.  Now, if a wealthy person makes money but doesn't produce anything of value that is stealing.  You have to ask yourself, did all the people in the say, top richest 10% of society make all their money by stealing it from the bottom 90%? No! They created value and provided services that the market and consumers demanded.  Communism preyed on the hatred and resentment of the rich Bourgeoisie, which is the class of people or the "other" that you are allowed to hate and despise.  So why not just steal from the Bourgeoisie to reduce inequality if all they do is steal from us? The faulty logic says, "I am poor because someone else is rich." This is a ridiculous zero-sum argument and lacks basic economic understanding of how markets and government actually function.  Politicians like Sanders promise to take rich peoples' money and redistribute it to the "underclass" - this is simply a bribe for your vote.  So when people say Sanders is a Communist, even though they are technically incorrect, they're not far off. 

"A claim for equality of material position can be met only by a government with totalitarian powers." - F.A. Hayek. For further reading: The Road to Serfdom - Hayek