Steve Lonegan and the 'Laffer Curve', by Paul Mulshine of the New Jersey Star-Ledger.
My Commentary:
Posted by Zemack on 05/21/09 at 7:25PM
I think Lonegan understands better than Christie a fundamental law of nature--production comes before consumption. His flat tax proposal is a recognition of this fact (although I would like to see the income tax abolished altogether). Despite misgivings, I will be voting for Lonegan largely on the basis of his strong statement that the progressive income tax is immoral..., which it certainly is.
As far as government spending goes, the only way to cut spending is to eliminate programs and departments. Making marginal cuts while leaving existing programs in place is the Corzine approach, and is worse than futile. The basis for deciding where to make structural cuts in government begins by reaffirming the original American concept of government, which is to protect individual rights. Therefor, one must distinguish between legitimate and illegitimate spending. Paying for the law courts, police, National Guard, arguably the fire and rescue squads, etc are proper. Use of the government's tax and spend powers to transfer wealth and earnings from those who earned it to those who didn't is both immoral and unconstitutional. None other than Barack Obama, a constitutional scholar, acknowledges as much. He said that the constitution provides for no "redistributive authority", which he called a "fundamental flaw"...no surprise there (from a 2001 interview on Chicago's public radio station WBEZ FM).
So eliminating redistributive state programs (in addition to regulatory agencies) would be not only moral but would be based upon strong constitutional grounds. All redistributive tax-and-spend government programs, including the entire welfare state, are unconstitutional...period. This provides a large target for the spending ax. Here again, I think Lonegan is best positioned, philosophically, to make real spending cuts.
As far as Laffer goes, I think his fundamental justification for cutting taxes...the "Laffer Curve"...amounts to an acceptance of the belief that the wealth of the nation belongs to government. Basing tax policy on the principle of maximizing government revenues is an acceptance of that left wing/collectivist notion. I'm reminded of the old saw that "republicans are the tax collectors for the welfare state".
I agree with gabe71's third paragraph above. Taxes, such as they are necessary to fund the proper functions of government, should be structured so as to minimize damage to production and trade. Rather than Laffer Curve reasoning, I prefer Milton Friedman's idea that "if you cut taxes and government's revenues rose, you haven't cut taxes enough."
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4 comments:
If you're interested, this guy has a site that goes into a lot of detail regarding the proper role of government, especially in local affairs, and has put forth a number of strategies for making that transition.
Harold;
Thanks. I'll check it out.
>Basing tax policy on the principle of maximizing government revenues...<
There is nothing in the Laffer Curve theory that says government should maximize its revenue. The theory says there are 2 tax rates that will raise a given amount of taxes. (The exception is the single-point maximum.) Thus if the goal is to raise a certain amount of money, you likely can do so at the lower of two rates while leaving more money in the people's wallets.
This theory is of course very simplified: There are many taxes with many different rates. There are short-term and long-term effects. (The rate that would maximize tax collections next year would dampen economic activity in the long-run.) There's competition from other countries. (If other countries cut their corporate income taxes more than we do, that would attract still more investment to their economies and away from ours, thus cutting our tax base.)
“There is nothing in the Laffer Curve theory that says government should maximize its revenue.”Perhaps.
But the Laffer Curve, for which Art Laffer is best known (fairly or not), is a simple graph showing tax rates of from 0% to 100%. On that graph is a curved line showing theoretical government revenues, with one end starting at the 0% tax rate (indicating 0 revenue) and the other end connecting at the 100% tax rate on the chart (also indicating 0 revenue, since presumably no one would work for nothing). Somewhere in the middle of the chart the revenue line reaches its apex, indicating the optimum tax rate at which government maximizes its tax take.
Regardless of how Mr. Laffer intended his chart to be used, the implicit meaning in it is to tie tax policy to the maximization of government—and that is a major cornerstone of how conservatives have traditionally “sold” tax cuts. Paul Mulshine states that: “Many people have since distorted the meaning of the Laffer Curve to argue that all tax cuts produce revenue gains.”
This may be true, but the implied meaning behind the curve can’t be dismissed. My argument is that raising government revenue should not be the criterion for cutting taxes. The modest Bush tax cuts were sold as a way to spur economic growth while raising government revenue. Revenues did rise, and helped spur a huge expansion of government under an allegedly “free market” president.
Taxes should be massively cut so as to leave more money in the hands of those who earned it and to drastically reduce the size and scope of government until it returns to its proper role as protector of individual rights. The Laffer curve should be retired from the tax cutters’ lexicon.
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