"The Speaker is correct in that nothing we are called upon to do comes close to matching the heroism of our troops," McCain said. "All we are called upon to do is not spend our nation into bankruptcy while our soldiers risk their lives. I fondly remember a time when real Republicans stood for fiscal responsibility. Apparently those days are long gone for some in our party." Awesome!
Estimating the laffer curve is different for a number of reasons. I won't get into a lot of the statistical reasons, but the basic idea is that we don't know exactly what kind of functional form it would take (other than the fact that it looks like a hump), so we can't use a parametric or semi-parametric estimation framework. Using any non-parametric technique would require us to have some data points to the right of the breakeven point (on the downward sloping side of the hump). Basically, it's tough to draw an upside down "U" if all the points you have look like a "/" Unfortunately, we've never had any example of either: a) tax increases which led to reduced tax revenue, or b) tax decreases which led to increased tax revenue so we can't be to that side of the laffer curve. For what it's worth, we haven't observed negative marginal returns to taxation in any other countries either at any point in modern history (correcting for huge macroeconomic shocks, on the order of WWII in Europe). Even Scandinavian countries that tend to have much higher income tax rates don't exhibit this "Laffer phenomenon." Granted, there may be huge cultural differences between the two of us which reduces the analogy, but that said, the idea that increasing income taxes by a small amount (<10% ?) from where we are now would decrease revenue has absolutely no basis in empirical evidence and is only a pathological possibility.
Of course, you can't look at the deficit itself since there is a spending side of the equation. The point is revenues. When you've got spending rising faster than revenues, you're going to have a problem no matter the tax rate. One could point out that taxers went up under the first Bush and the deficit got larger. Or point out that the deficit actually got smaller during the Clinton administration when taxes were staying equal. I would venture to bet that most economists would have guessed there would be a deficit in 2001 even if tax rates had remained the same simply from the falling economy. I personally don't think we'd be seeing a balanced budget right now even had tax rates remained at their 2000 levels.
I guess it depends on how you look at it. Certainly the government revenue was larger throughout the 1980s than it had been prior to the tax cuts at the time. And we certainly saw smaller increases in revenue than we had been following the tax increase in 1990, though it's probably the case that that was related to the downturn in the economy rather than the taxes themselves. I guess what you're saying is that we've seen it, but it doesn't count when it happened because that could've been for other reasons. Therefore we can't prove it. I admit that it's more likely that the post-1993 level of taxation was probably an acceptable level of taxation (or at least if I had been cutting, I might well have done so differently) and that the tax cuts probably exacerbated the current deficit (though spending increases are to blame, as well), though I believe the tax cuts were meant to be a stiumulus rather than necessarily fall into line with the supply-side theories. But I also don't think we have to get to 70% taxation levels to get to the other side of the curve.
I grant you that there are other factors involved in deficits and spending is a huge one. The causes for the spending can also vary to large degrees. There are also billions of dollars in uncollected taxes every year. I know that at one point in the 90's it was around 80billion dollars in uncollected taxes. I wouldn't mind tax relief, but I want sensible tax relief that's responsible. I think there should be a deficit tax or something like that where each year there was a deficit people paid an additional 2% in taxes to help cover the cost. I bet that spending would drop then, and the govt. would be able to balance the budget a lot more often. We would be able to begin bringing down the debt which would reduce intrest payments, and we could then lower the taxes and not hike up the debt, or cut any programs. I'm sure that if politicians knew that out of control spending, or tax cuts were put in place they'd hear about it. They would be costing their voters more money. Their irresponsibility would have more of a direct effect, and people would hold them more accountable. It would discourage pork barrel spending, and tax hikes of political friends.
Facing Defeat, Senate GOP Tables Budget By ALAN FRAM, Associated Press Writer WASHINGTON - Republican leaders say they will try again to win Senate passage of a $2.4 trillion budget, after avoiding an embarrassing election-year defeat Thursday by postponing a vote on the measure until at least next month. But pivotal GOP moderate senators oppose the plan because of concerns over cutting taxes at a time of record deficits, and they say there is no reason to change their minds. Senate Majority Leader Bill Frist's decision to postpone the vote came hours after President Bush (news - web sites) used a rare visit to the Capitol to urge Republicans to push the measure to final passage. The House narrowly approved the legislation Wednesday. "I'm disappointed I haven't been able to pass yet the budget proposed by the president," Frist, R-Tenn., told a reporter. "But it's not over." Shortly after the president's private session with Republicans, the White House issued a statement in which Bush said: "I urge the Senate to follow the House's lead and pass this budget so that we can continue making progress on our shared agenda of building a safer, stronger, and better America." But that — along with the harsh reproof that House GOP leaders directed at moderates this week — proved insufficient to win votes. Those maverick senators were Susan Collins and Olympia Snowe, both R-Maine; Lincoln Chafee, R-R.I.; John McCain, R-Ariz.; and a Democrat, Ben Nelson of Nebraska. "I think they're just sore we we're right and we've gotten into deficits," Chafee said of the House leaders' remarks. "We all try and be team players when we can, but I think the core Republican philosophy is fiscal conservatism." House Speaker Dennis Hastert, R-Ill., had asked reporters if one holdout, McCain, was a Republican. And House Majority Leader Tom DeLay, R-Texas, said the moderates "need to read the Republican philosophy" of cutting taxes. Frist and other Republicans expressed hope that the chamber would revisit the compromise spending plan after Congress' weeklong Memorial Day recess, which begins Friday. But it was unclear when, or if, the Senate would address the measure or perhaps a truncated version that would help the chamber work on later tax and spending bills. The moderates and nearly all Democrats say tax cuts should be curbed because they would deepen federal deficits. Bush and GOP congressional leaders oppose such restrictions; they view them as roadblocks to their agenda of repeated tax cuts. This stalemate has persisted for two months, despite earlier statements by GOP leaders that they would complete the plan by April 15. "They control the House, Senate and White House. They just seem incapable of organizing in a way to meet about any objectives," said Sen. Byron Dorgan, D-N.D.
Actually, I'm saying that we haven't even seen it. Laffer phenomenon occurs when there's a negative elasticity of tax revenue to tax rate. In other words, if -- holding exogenous factors constant -- when we move the tax rate in one direction, the tax revenue moves in the other direction. There are two ways that we could see a decrease in tax rates result in an increase in tax revenue: a) lower income tax rates induce people to work more (VERY weak evidence for this) b) lower tax rates induce people to shift more from non-taxable consumption to taxable consumption (e.g. a little less for the salvation army, a little more for the entertainment center) However, we don't really see this happening. If you want to see a very thorough (and technical) overview of potential laffer responses to Tax Cuts in the US, I recommend checking out this paper: Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform Austan Goolsbee; Robert E. Hall; Lawrence F. Katz Brookings Papers on Economic Activity, Vol. 1999, No. 2. (1999), pp. 1-64. I don't know much about Austan Goolsbee (an economist at UChicago... must be good), but Larry Katz and Bob Hall are top notch economists at Harvard. If you'd like, I could send you a PDF of this paper; just give me your email address.
Moving on from the Laffer Curve (yes, it gave me a laugh), here is another example of a Republican joining forces with a Liberal Democrat to enhance American security. I can foresee seizers and flying spittle coming from some of our members... ( ...a winky, in the new spirit of goodness decending upon D&D) Sens. Clinton, Graham call for larger U.S. military Former political foes strike an alliance WASHINGTON (CNN) -- An unlikely pair of Senate allies called for a larger military Sunday and pledged a thorough investigation of abuse against Iraqi prisoners in Baghdad. Sens. Hillary Rodham Clinton, D-New York, and Lindsey Graham, R-South Carolina, are both members of the Senate's Armed Services Committee. "A number of us have been sounding this alarm. We have to face the fact we need a larger active-duty military," Clinton told the television show "Fox News Sunday." "We cannot continue to stretch our troops, both active-duty, Guard and Reserve, to the breaking point, which is what we're doing now." Graham said the United States is "putting too much pressure on the men and women in uniform." "We need more of them, sooner rather than later," he said. The senators acknowledged that an increase in the size of the military would be an expensive venture. Clinton said, "I don't think we have any alternatives." And Graham said, "If we lose Iraq -- if it fails to go from a dictatorship to a democracy -- then we've had a great setback in the Mideast." Recently published photographs depicting U.S. soldiers abusing Iraqi prisoners don't help matters, the senators said, and both said the investigation into the scandal would continue. Graham said he believed the investigation would eventually reveal that more than the privates and sergeants currently charged were involved and that military intelligence officers directed some of the abuse. He said he thought the investigation also would show that some soldiers did what they did on their own and that "it was the worst-run command situation I've ever seen." "I think you're going to find a sophisticated plan that was in [place at the U.S. detention facility at Guantanamo Bay,] Cuba, about how to interrogate al Qaeda people was translated to an unsophisticated group in Iraq [that] was poorly trained, understaffed, and that the result was a cocktail for disaster," said Graham, an Air Force Reserve colonel. He predicted there would be more courts-martial involving soldiers farther up the chain of command. Graham and Clinton both appealed for an end to partisan wrangling so that the problems that created the Abu Ghraib scandal -- too few troops, and those being poorly trained and unprepared, along with a breakdown of command -- can be fixed. "We are the greatest nation in the history of the world," Clinton said. "We have rule of law. We have due process. We have ideals and values. And, frankly, that's what we think we're fighting for. It is imperative that we do this right and that we follow the investigations wherever they lead." "I would ask both sides to kind of knock it down a notch, work together to find more troops. If we can work together," Graham said, referring to himself and Clinton, "that's a good sign." The former first lady was making her first appearance on "Fox News Sunday," and host Chris Wallace pointed out that she was appearing with Graham -- who was one of the "managers" from the House of Representatives who unsuccessfully prosecuted her husband's impeachment in his Senate trial. "I don't think that was lost on her," Graham commented wryly. Clinton said she believes "in redemption and growth." "People who were previously misguided can see the light," she said. Clinton said she and Graham had found "common cause" on several issues, particularly in their drive to grant the same health care benefits to National Guard and Reserve forces now provided to active-duty military. "We have polar opposite views on a lot of things," Graham said. "But we're not going to win this war if we focus on what divides us. We need to focus on what brings us together. "The men and woman who serve us are not Republicans or Democrats," he said. "They're Americans." http://www.cnn.com/2004/ALLPOLITICS/05/23/senate.military/index.html Good stuff.
Wow, Clancy and Zinni are closer than I thought. If a longtime Republican, and darling of conservatives everywhere, like Clancy feels this way, then where does that leave Bush? The President and his most diehard supporters look increasingly isolated. -------------------------------------------------------------------------------- HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Houston Lifestyle & Features May 25, 2004, 9:03PM Critical approach Author voices concern about invasion of Iraq while promoting new book about former general By HILLEL ITALIE Associated Press NEW YORK — A brand-name author with many admirers in the military criticizes the U.S.-led invasion of Iraq, citing it as proof that "good men make mistakes." That same writer says he almost "came to blows" with a leading war supporter from the Pentagon. The author: Tom Clancy. The hawkish master of such million-selling thrillers as Patriot Games and The Hunt for Red October now finds himself adding to the criticism of the Iraq war, and not only through his own comments. His latest book, Battle Ready, is a collaboration with another war critic, retired Marine Gen. Anthony C. Zinni. Battle Ready looks at Zinni's long military career, dating back to the Vietnam War, and includes harsh remarks by Zinni about the current conflict. In an interview Monday, Clancy and Zinni sat side by side in a hotel conference room in midtown Manhattan, mutual admirers who said they agreed on most issues, despite "one or two" spirited "discussions" during the book's planning. Zinni has openly attacked the war, but Clancy reluctantly acknowledged his own concerns. He declined repeatedly to comment on the war, before saying that it lacked a casus belli, or suitable provocation. "It troubles me greatly to say that, because I've met President Bush," Clancy said. "He's a good guy. ... I think he's well-grounded, both morally and philosophically. But good men make mistakes." Battle Ready was published Monday with a first printing of 438,700. It is the fourth in Clancy's "Commanders" series, in which military leaders reflect on their careers and discuss military strategy. "In the movies, military leaders are all drunken Nazis," said Clancy, who has worked on books about retired Gen. Chuck Horner, who led U.S. Central Command Air Forces during the Persian Gulf War, and retired Gen. Carl Stiner, whose missions included the capture of Panamanian leader Manuel Noriega. "In fact, these are very bright people who regard the soldiers and Marines under them as their own kids. I thought the people needed to know about that. These are good guys, and smart guys." While the 57-year-old Clancy is tall and thin, with bony arms and round, sunken eyes, the 60-year-old Zinni has the short, stocky build of an ex-Marine. He served as commander in chief of the U.S. Central Command from 1997 to 2000 and as a special Middle East envoy from 2001 to 2003. But even as an envoy, Zinni spoke out against invading Iraq, regarding it as disastrous for Middle East peace and a distraction from the war against terrorism. On Monday, he said getting rid of Saddam Hussein was not worth the price. "He's a bad guy. He's a terrible guy and he should go," Zinni said. "But I don't think it's worth 800 troops dead, 4,500 wounded — some of them terribly — $200 billion of our treasury and counting, and our reputation and our image in the world, particularly in that region, shattered." In discussing the Iraq war, both Clancy and Zinni singled out the Department of Defense for criticism. Clancy recalled a prewar encounter in Washington during which he "almost came to blows" with Richard Perle, a Pentagon adviser at the time and a longtime advocate of the invasion. "He was saying how (Secretary of State) Colin Powell was being a wuss because he was overly concerned with the lives of the troops," Clancy said. "And I said, 'Look, he's supposed to think that way!' And Perle didn't agree with me on that. People like that worry me." Both Clancy and Zinni praised President Bush but would not commit to voting for him. Clancy said that voting for Sen. John Kerry, the Democrats' presumptive nominee, would be "a stretch for me," but wouldn't say that he was supporting Bush. Zinni, a registered Republican who voted for Bush in 2000, said he could not support the president's re-election "if the current strategists in the Defense Department are going to be carried over." Zinni makes a point of answering all questions, just as he prides himself on speaking out against Iraq. He called it a lesson learned from Vietnam, when "we were all imprinted with the idea that we can't let this come about again."
