The Armey curve and the Laffer curve: Neither progressives nor regressives seem to think in these terms.

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I don't see either progressives or regressives talking about the Armey curve and the Laffer curve. And I don't understand why not, because it's necessary to think of the concepts behind those curves if any conceptual agreement on budgets is to be reached, leaving people to argue about exact numbers.

The concept behind Dick Armey's curve is simple: Zero government spending is a state of anarachy, the war of all against all, and economic growth is impossible. But extremely high government spending kills economic growth. Somewhere in between is a happy optimum that maximizes economic growth, and academic work says that happy optimum is at 33% of USA GDP.

But right now the USA is taxing at only 29.9% of GDP, while spending at 40.8% of GDP to support Bush's wars, so we need both tax increases and spending reductions to hit the 33% optimum. As a separate issue, we're now in a recession emergency where short-term Keynesian stimulus abive the static 33% optimum may be frutful.

Meanwhile the top 0.1% of income earners in the USA are taxed at a rate of only 11%, so they are not pulling their own weight.

Likewise the concept bethind Arthur Laffer's curve is simple, but different: Government can tax at a rate that maximizes its immediate revenues, and that rate is about 45% of GDP, much higher than the Armey optimum.

http://www.truthfulpolitics.com/http:/truthfulpolitics.com/comments/the-... has a discussion of both curves. And a recent article "Sizing the Government" says that the USA should be spending 33% of its GDP on government in order to maximize economic growth. (http://www.springerlink.com/content/mxtp6l2l7w67p505/fulltext.pdf). Data on current government spending is at http://www.usgovernmentspending.com/numbers. Data on taxation versus income is at http://www.newthinktank.com/2011/06/income-in-united-states/.

attobuoy's picture
attobuoy
Joined:
Jul. 31, 2007 3:01 pm

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Quote attobuoy:

But right now the USA is taxing at only 29.9% of GDP, while spending at 40.8% of GDP

This figure of 40.8% jives with the Tax Freedom Day published this last April:

http://www.ocregister.com/articles/work-294274-californians-pay.html

The most interesting statistic is toward the end of the article that states that "to pay the "real cost of government," taxes plus this year's deficit, Americans would have to work until May 23."

If we have to work until May 23 (at present income tax rates, and with enormous deficits, and with a miserable economy) that is 143 days out of 365, or a little more than 39%. So if we had a flat income tax rate of 39% (and NO other taxes - no sales, no property, no payroll, no NOTHING) that would pay for ALL government spending, federal, state, and local.

Of course, spending 39% on guns versus spending 39% on butter, yields different economic outcomes...

chilidog
Joined:
Jul. 31, 2007 3:01 pm

Other than having names easy to parody, these curves do not provide a useful measure of what works because they are very general. How much who should be taxed for maximum positive effect depends upon how you measure the collective investment's value and worth. If you treat education as overhead and complain about offering it for free, you find that not enough people can afford to go to school and you don't have the skills the economy needs.

Laffer never gets the positive relationship between taxes and prosperity. The whole point of that stunt was to argue for reduced taxes creating greater revenues; but we see great infrastructure and social investments helping commerce instead of taking away its money. When investments pay off and increase wealth, even if it is the collective shared wealth of the Commons rather than cashbox profits, the economy is served in the sense that people do well and society thrives. If all you want to measure is the heat of the economy or its Gross Product and skimmed wealth, casino-style speculation tells you that you are rich. Until the bubble bursts.

You have to have a social vision to be able to design the economy that fits it. If you just ask the economy to tell you what to do, you can get plutocracy from the numbers more easily than you can democracy. Mammon was never a democrat.

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DRC
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Jul. 31, 2007 3:01 pm

holy shit chilidog. You just can't let that flat tax go. That has been ripped to shreds so many effing times in these forums I can't even count and it is like your friggin endless meme to post that every time a tax rate discussion comes up. FLAT TAX IS THE SHITTIEST IDEA IN THE HISTORY OF THE WORLD. LET IT GO.

ah2
Joined:
Dec. 13, 2010 9:00 pm

You've got it wrong: there are two things I can't let go of. First, the flat tax. I NEVER ADVOCATE FOR A FLAT TAX. I always say that the discussion of a flat tax is initiated by right-wingers to set a rate at something like 19%, so why can't the left change the discussion to set the rate at 52%? Why is the higher rate "less fair" than the lower rate?

The second thing I can't let go of is this Tax Freedom Day. This is a right wing propaganda piece, yet it still shows that WE ARE NOT BROKE. We don't have to make grandma go back into the mines, we don't have to let people die from tooth infections.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

Actually, if all banking was government-owned and operated as a utility based on the model of the state-owned Bank of N. Dakota, low interest rates could replace taxes. Interest collections could be spent back into the economy to support government func tions rather than being channeled into esoteric financial paper. Figures jive to do that.

It isn't likely we'll make the switch. We have an ideology to maintain. People seem to prefer paying taxes and supporting billion dollar bankster bonuses.

Retired Monk - "Ideology is a disease"

polycarp2
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Jul. 31, 2007 3:01 pm

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The other way we're subsidizing Walmart...

Most of us know how taxpayers subsidize Walmart's low wages with billions of dollars in Medicaid, food stamps, and other financial assistance for workers. But, did you know that we're also subsidizing the retail giant by paying the cost of their environmental destruction.

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