THE LAFFER CURVE
It’s too bad that most Democrat politicians are very ignorant of how a free market Capatalistic System works. They are too busy investing in forced redistribution and class warfare.
When Trump’s Tax Cuts were passed Democrats claimed that Republicans were adding to the deficit and this was a bad thing. After Barrack Obama added trillions to the deficit by spending over the top and all these concerned Democrats not saying a word, you have to think this was hypocritical political expediency because it sure wasn’t economic fact.
Here’s the deal. At a certain point high taxes discourage incentive to work and stifle both businesses and individuals. If you were taxed 100% of what you made would you work? If you were taxed 75% some would work and some would not. Some businesses would hire and expand and some would not. At 50% more individuals and businesses would be willing to work longer and harder and expand and create new and better-paying jobs. At 40 % the increase would be even greater.
When more people are working more people are paying taxes. That’s why tax revenues go up even though tax rates may go down. Business also pays more taxes if it is employing more people and expanding by adding new plants and new jobs.
McDonalds could sell their hamburgers at double the price they do now. Does that mean they would receive double the revenue they do now? No. Many people would go to other burger providers such as Burger King. Others, but not all, would refuse to pay the higher prices and substitute their menu – say to chicken.
In fact, McDonalds has learned that making a good hamburger at cut-rate prices sells trillions more burgers. The profit per burger is lower but the increase in sales far outstrips the loss in what is charged for each burger.
So let’s spell this out for you Left Wing Democrat Dummies.
1 trillion burgers sold at $5 each yields a gross revenue of $5 trillion. If the cost of production and sales is 50% the net profit would be $2.5 trillion
5 trillion burgers sold at $2 each yields a gross revenue of $10 trillion. If the cost of production and sales is 50% the net profit would be $5trillion
By lowering the price (i.e. tax rate) more people bought burgers to the point that sales increased so greatly that the lower price charged yielded more revenue.
You can’t look at tax cuts in a static environment. Increasing tax rates does not always increase tax revenues if the tax rates discourage people from working and business from expanding or new startups from being formed. LOWER RATES ARE AN INCENTIVE TO WORK AND AN INCENTIVE FOR NEW STARTUPS TO BE FORMED AND PRESENT BUSINESSES TO EXPAND.
There is a certain point where reducing taxes decrease tax revenue. What Left Wing Democrats fail to understand is that is a certain point where increasing taxes also decreases tax revenue. The Laffer Curve explains where the optimal point tax rate yields the most tax revenue.
I can remember as a young man when there were 7,8,9 tax brackets where a factory worker would turn down Saturday overtime work that would put him in a higher tax bracket for all his income thus yielding no increase in net take-home pay. So by working Saturday, he was working for nothing.
Bad news for Dems: Trump tax cuts have led to increased tax revenue
Democrats developed a sudden new concern with the size of budget deficits – something that failed to trouble them as Barack Obama doubled the national debt in just eight years – when President Trump’s tax cuts were first proposed. Nancy Pelosi assured us, “[T]his thing will explode the deficit.”
And the Congressional Budget Office, sticking to obviously incorrect static model thinking – i.e., that people don’t change their behavior when tax rates change – produced an estimate that the deficit would rise from $665 billion to $804 billion.
Now, data are out showing that, just as the Laffer Curve predicts, a reduction in tax rates produced such an increase on economic activity that tax revenues increased.
Investor’s Business Daily writes:
The latest monthly budget report from the nonpartisan Congressional Budget Office finds that revenues from federal income taxes were $76 billion higher in the first half of this year, compared with the first half of 2017. That’s a 9% jump, even though the lower income tax withholding schedules went into effect in February.
The CBO says the gain “largely reflects increases in wages and salaries.”
For the fiscal year as a whole – which started last October – all federal revenues are up by $31 billion. That’s a 1.2% in increase over last year, the CBO says.
The Treasury Department, which issues a separate monthly report, says it expects federal revenues will continue to exceed last year’s for the rest of the 2018 fiscal year.
The mainstream media are not going to point this out, but fortunately, President Trump is not in the least bit shy about pointing out his successes via Twitter and in public speeches. He has a ripe target here, and he can quote Pelosi and the rest offering phony warnings, and make the point that their concerns about confirming Brett Kavanaugh are equally fatuous.
Isn’t it amazing how often good news for Americans is bad news for Dems?