Comments on: Relatively Minor? http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/ The Sweet Release of Reason Thu, 09 Feb 2012 18:11:50 +0000 hourly 1 By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10796 LarryM Wed, 19 Sep 2007 21:00:06 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10796 One more small point/request, this time proofread, and then I'll shut up (at least until I something to respond to). My impression is that these debates tend to occur, on both sides, in an almost evidence free environment. My own take, specifically with regard to the Bush tax cuts, is that the critics have the better underlying economic arguments. But the lack of rigor in the public debate makes it frankly very difficult for me to make that conclusion with any degree of certainty. Somewhere in my responses to one of these threads I said that I suspected that most support of the Bush cuts was based upon either political concerns or a starve the beast rationale. But probably that was at least a little unfair. One thing that hasn't been discussed in these threads was the capital gains tax. I suspect that, to the extent that people support the Bush tax cuts on purely economic grounds, the capital gains tax cut is a big part of the reason. But it's hard to be sure, because most of the PUBLIC arguments in favor of the Bush taxes cuts (I'm not talking so much about the first one, given that, as I recall, the budget was still in surplus, though even then there were doubts that it would stay that way) were facially pretty weak. I'd love someone here to come right out and say something like this: "look, we realize that most of the Bush tax cuts had a pretty poor rationale from an economic perspective, but on the whole it was worth it to get a cut in the capital gains tax." Or is that expecting too much honesty? One more small point/request, this time proofread, and then I’ll shut up (at least until I something to respond to). My impression is that these debates tend to occur, on both sides, in an almost evidence free environment. My own take, specifically with regard to the Bush tax cuts, is that the critics have the better underlying economic arguments. But the lack of rigor in the public debate makes it frankly very difficult for me to make that conclusion with any degree of certainty.

Somewhere in my responses to one of these threads I said that I suspected that most support of the Bush cuts was based upon either political concerns or a starve the beast rationale. But probably that was at least a little unfair. One thing that hasn’t been discussed in these threads was the capital gains tax. I suspect that, to the extent that people support the Bush tax cuts on purely economic grounds, the capital gains tax cut is a big part of the reason.

But it’s hard to be sure, because most of the PUBLIC arguments in favor of the Bush taxes cuts (I’m not talking so much about the first one, given that, as I recall, the budget was still in surplus, though even then there were doubts that it would stay that way) were facially pretty weak. I’d love someone here to come right out and say something like this: “look, we realize that most of the Bush tax cuts had a pretty poor rationale from an economic perspective, but on the whole it was worth it to get a cut in the capital gains tax.”

Or is that expecting too much honesty?

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10798 LarryM Wed, 19 Sep 2007 21:00:00 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10798 One more small point/request, this time proofread, and then I'll shut up (at least until I something to respond to). My impression is that these debates tend to occur, on both sides, in an almost evidence free environment. My own take, specifically with regard to the Bush tax cuts, is that the critics have the better underlying economic arguments. But the lack of rigor in the public debate makes it frankly very difficult for me to make that conclusion with any degree of certainty. Somewhere in my responses to one of these threads I said that I suspected that most support of the Bush cuts was based upon either political concerns or a starve the beast rationale. But probably that was at least a little unfair. One thing that hasn't been discussed in these threads was the capital gains tax. I suspect that, to the extent that people support the Bush tax cuts on purely economic grounds, the capital gains tax cut is a big part of the reason. But it's hard to be sure, because most of the PUBLIC arguments in favor of the Bush taxes cuts (I'm not talking so much about the first one, given that, as I recall, the budget was still in surplus, though even then there were doubts that it would stay that way) were facially pretty weak. I'd love someone here to come right out and say something like this: "look, we realize that most of the Bush tax cuts had a pretty poor rationale from an economic perspective, but on the whole it was worth it to get a cut in the capital gains tax." Or is that expecting too much honesty? One more small point/request, this time proofread, and then I’ll shut up (at least until I something to respond to). My impression is that these debates tend to occur, on both sides, in an almost evidence free environment. My own take, specifically with regard to the Bush tax cuts, is that the critics have the better underlying economic arguments. But the lack of rigor in the public debate makes it frankly very difficult for me to make that conclusion with any degree of certainty.

Somewhere in my responses to one of these threads I said that I suspected that most support of the Bush cuts was based upon either political concerns or a starve the beast rationale. But probably that was at least a little unfair. One thing that hasn’t been discussed in these threads was the capital gains tax. I suspect that, to the extent that people support the Bush tax cuts on purely economic grounds, the capital gains tax cut is a big part of the reason.

But it’s hard to be sure, because most of the PUBLIC arguments in favor of the Bush taxes cuts (I’m not talking so much about the first one, given that, as I recall, the budget was still in surplus, though even then there were doubts that it would stay that way) were facially pretty weak. I’d love someone here to come right out and say something like this: “look, we realize that most of the Bush tax cuts had a pretty poor rationale from an economic perspective, but on the whole it was worth it to get a cut in the capital gains tax.”

Or is that expecting too much honesty?

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10795 LarryM Wed, 19 Sep 2007 20:20:04 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10795 Also, obvious there will also be diminishing returns from lower marginal tax rates, i.e., the ralationship isn't linear there either. As string as the case is for lowering marginal rates from the 60 to 70% range, I get the impression that going from 40 to 35, say, doesn't get you much. The flat tax has always seemed to me, to the extent that it's sold as boosting the economy, as snake oil. But what, if anything, does the research say? Also, obvious there will also be diminishing returns from lower marginal tax rates, i.e., the ralationship isn’t linear there either. As string as the case is for lowering marginal rates from the 60 to 70% range, I get the impression that going from 40 to 35, say, doesn’t get you much. The flat tax has always seemed to me, to the extent that it’s sold as boosting the economy, as snake oil. But what, if anything, does the research say?

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10805 LarryM Wed, 19 Sep 2007 20:20:00 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10805 Also, obvious there will also be diminishing returns from lower marginal tax rates, i.e., the ralationship isn't linear there either. As string as the case is for lowering marginal rates from the 60 to 70% range, I get the impression that going from 40 to 35, say, doesn't get you much. The flat tax has always seemed to me, to the extent that it's sold as boosting the economy, as snake oil. But what, if anything, does the research say? Also, obvious there will also be diminishing returns from lower marginal tax rates, i.e., the ralationship isn’t linear there either. As string as the case is for lowering marginal rates from the 60 to 70% range, I get the impression that going from 40 to 35, say, doesn’t get you much. The flat tax has always seemed to me, to the extent that it’s sold as boosting the economy, as snake oil. But what, if anything, does the research say?

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10794 LarryM Wed, 19 Sep 2007 20:15:41 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10794 Ugh, more poor proofreading on my part, hopefully it's all intelligible. The last sentence in the third paragraph should have read "How much additional growth do we get from lowering taxes across the board." That's still not entirely clear, and obviously the relationship isn't linear throughout the range of possible tax rates. But let's say the range between 15 and 25 percent of GNP for federal taxation - holding the tax structure constant, and taking all factors (e.g., increased deficits) into account, how much additional growth do we get for each 1% decrease in overall tax rates? The sense that I get is the answer to that question is "very, very little." Ugh, more poor proofreading on my part, hopefully it’s all intelligible. The last sentence in the third paragraph should have read “How much additional growth do we get from lowering taxes across the board.” That’s still not entirely clear, and obviously the relationship isn’t linear throughout the range of possible tax rates. But let’s say the range between 15 and 25 percent of GNP for federal taxation – holding the tax structure constant, and taking all factors (e.g., increased deficits) into account, how much additional growth do we get for each 1% decrease in overall tax rates? The sense that I get is the answer to that question is “very, very little.”

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10808 LarryM Wed, 19 Sep 2007 20:15:00 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10808 Ugh, more poor proofreading on my part, hopefully it's all intelligible. The last sentence in the third paragraph should have read "How much additional growth do we get from lowering taxes across the board." That's still not entirely clear, and obviously the relationship isn't linear throughout the range of possible tax rates. But let's say the range between 15 and 25 percent of GNP for federal taxation - holding the tax structure constant, and taking all factors (e.g., increased deficits) into account, how much additional growth do we get for each 1% decrease in overall tax rates? The sense that I get is the answer to that question is "very, very little." Ugh, more poor proofreading on my part, hopefully it’s all intelligible. The last sentence in the third paragraph should have read “How much additional growth do we get from lowering taxes across the board.” That’s still not entirely clear, and obviously the relationship isn’t linear throughout the range of possible tax rates. But let’s say the range between 15 and 25 percent of GNP for federal taxation – holding the tax structure constant, and taking all factors (e.g., increased deficits) into account, how much additional growth do we get for each 1% decrease in overall tax rates? The sense that I get is the answer to that question is “very, very little.”

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10793 LarryM Wed, 19 Sep 2007 20:09:33 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10793 The difference in my calculation was caused by my focus on Will's "30 years" in his third paragraph. But, yes, previous paragraphs refer to a 36 year period, so there is some sloppiness there, on both my part and Will's. But really this seems like a silly thing to focus on (yes, I refer to my own contribution as well, to a certain extent), given that the 1% number comes out of thin air. My question - and it's a serious one - are there reputable estimates as to the real average yearly increase to GNP growth during those years would have been with different tax policy? Will asks a similar question, though he says "much lower tax rates," which is unhelpful for a couple of reasons. I'd like to have answers to two seperate questions: (1) how much additional growth would we have gotten with a more rational (but revenue neutral) tax structure? Rationale in the sense of lower marginal rates and fewer deductions (which is not NECESSARILY more regressive, particularly if you eliminate many deductions). (2) How much additional groth do we get from lowering taxes across the board. The sense I have - and I'd love to see research to conirm or deny this - is that, tot he extent that we see significant benefits from changes in tax policy, the effect of a more rational tax structure is far greater than the effect of lowering the aggregate rate of taxation. Now, obviously the implications of this aren't WHOLLY comforting to "liberals," as it has at least some implications regarding progressivity, but there are ways to smooth out marginal rates somewhat without abandoning progressivity. The difference in my calculation was caused by my focus on Will’s “30 years” in his third paragraph. But, yes, previous paragraphs refer to a 36 year period, so there is some sloppiness there, on both my part and Will’s.

But really this seems like a silly thing to focus on (yes, I refer to my own contribution as well, to a certain extent), given that the 1% number comes out of thin air.

My question – and it’s a serious one – are there reputable estimates as to the real average yearly increase to GNP growth during those years would have been with different tax policy? Will asks a similar question, though he says “much lower tax rates,” which is unhelpful for a couple of reasons. I’d like to have answers to two seperate questions: (1) how much additional growth would we have gotten with a more rational (but revenue neutral) tax structure? Rationale in the sense of lower marginal rates and fewer deductions (which is not NECESSARILY more regressive, particularly if you eliminate many deductions). (2) How much additional groth do we get from lowering taxes across the board.

The sense I have – and I’d love to see research to conirm or deny this – is that, tot he extent that we see significant benefits from changes in tax policy, the effect of a more rational tax structure is far greater than the effect of lowering the aggregate rate of taxation. Now, obviously the implications of this aren’t WHOLLY comforting to “liberals,” as it has at least some implications regarding progressivity, but there are ways to smooth out marginal rates somewhat without abandoning progressivity.

]]> By: LarryM http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10810 LarryM Wed, 19 Sep 2007 20:09:00 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10810 The difference in my calculation was caused by my focus on Will's "30 years" in his third paragraph. But, yes, previous paragraphs refer to a 36 year period, so there is some sloppiness there, on both my part and Will's. But really this seems like a silly thing to focus on (yes, I refer to my own contribution as well, to a certain extent), given that the 1% number comes out of thin air. My question - and it's a serious one - are there reputable estimates as to the real average yearly increase to GNP growth during those years would have been with different tax policy? Will asks a similar question, though he says "much lower tax rates," which is unhelpful for a couple of reasons. I'd like to have answers to two seperate questions: (1) how much additional growth would we have gotten with a more rational (but revenue neutral) tax structure? Rationale in the sense of lower marginal rates and fewer deductions (which is not NECESSARILY more regressive, particularly if you eliminate many deductions). (2) How much additional groth do we get from lowering taxes across the board. The sense I have - and I'd love to see research to conirm or deny this - is that, tot he extent that we see significant benefits from changes in tax policy, the effect of a more rational tax structure is far greater than the effect of lowering the aggregate rate of taxation. Now, obviously the implications of this aren't WHOLLY comforting to "liberals," as it has at least some implications regarding progressivity, but there are ways to smooth out marginal rates somewhat without abandoning progressivity. The difference in my calculation was caused by my focus on Will’s “30 years” in his third paragraph. But, yes, previous paragraphs refer to a 36 year period, so there is some sloppiness there, on both my part and Will’s.

But really this seems like a silly thing to focus on (yes, I refer to my own contribution as well, to a certain extent), given that the 1% number comes out of thin air.

My question – and it’s a serious one – are there reputable estimates as to the real average yearly increase to GNP growth during those years would have been with different tax policy? Will asks a similar question, though he says “much lower tax rates,” which is unhelpful for a couple of reasons. I’d like to have answers to two seperate questions: (1) how much additional growth would we have gotten with a more rational (but revenue neutral) tax structure? Rationale in the sense of lower marginal rates and fewer deductions (which is not NECESSARILY more regressive, particularly if you eliminate many deductions). (2) How much additional groth do we get from lowering taxes across the board.

The sense I have – and I’d love to see research to conirm or deny this – is that, tot he extent that we see significant benefits from changes in tax policy, the effect of a more rational tax structure is far greater than the effect of lowering the aggregate rate of taxation. Now, obviously the implications of this aren’t WHOLLY comforting to “liberals,” as it has at least some implications regarding progressivity, but there are ways to smooth out marginal rates somewhat without abandoning progressivity.

]]> By: Will Wilkinson http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10792 Will Wilkinson Wed, 19 Sep 2007 19:59:39 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10792 Guys, Sorry for the imprecision. I meant the difference between two doublings versus three doublings in national income in a given period. The heuristic is you can tell how quickly GDP doubles at a particular growth rate by dividing that rate into 72. (See here: http://www.econlib.org/LIBRARY/Enc/EconomicGrowth.html). A 4% rate doubles the economy twice in 36 years. a 5% rate doubles three times in a bit more than 37. That's slightly longer than the range I was talking about in the post, but I meant to be making a general point about the size of the effect. Three doublings versus two leaves you with twice as much. Guys, Sorry for the imprecision. I meant the difference between two doublings versus three doublings in national income in a given period. The heuristic is you can tell how quickly GDP doubles at a particular growth rate by dividing that rate into 72. (See here: http://www.econlib.org/LIBRARY/Enc/EconomicGrowth.html). A 4% rate doubles the economy twice in 36 years. a 5% rate doubles three times in a bit more than 37. That’s slightly longer than the range I was talking about in the post, but I meant to be making a general point about the size of the effect. Three doublings versus two leaves you with twice as much.

]]> By: Will Wilkinson http://willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10804 Will Wilkinson Wed, 19 Sep 2007 19:59:00 +0000 http://www.willwilkinson.net/flybottle/2007/09/17/relatively-minor/#comment-10804 Guys, Sorry for the imprecision. I meant the difference between two doublings versus three doublings in national income in a given period. The heuristic is you can tell how quickly GDP doubles at a particular growth rate by dividing that rate into 72. (See here: http://www.econlib.org/LIBRARY/Enc/EconomicGrowth.html). A 4% rate doubles the economy twice in 36 years. a 5% rate doubles three times in a bit more than 37. That's slightly longer than the range I was talking about in the post, but I meant to be making a general point about the size of the effect. Three doublings versus two leaves you with twice as much. Guys, Sorry for the imprecision. I meant the difference between two doublings versus three doublings in national income in a given period. The heuristic is you can tell how quickly GDP doubles at a particular growth rate by dividing that rate into 72. (See here: http://www.econlib.org/LIBRARY/Enc/EconomicGrowth.html). A 4% rate doubles the economy twice in 36 years. a 5% rate doubles three times in a bit more than 37. That’s slightly longer than the range I was talking about in the post, but I meant to be making a general point about the size of the effect. Three doublings versus two leaves you with twice as much.

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