Tuesday, July 10, 2012

What A Laffer!


So, our Trophy President (as I still choose to call Obama) is attempting to extend the Bush tax cuts, but only for those making less than $250,000 per year. In other words 98% of all Americans, leaving out the 2% of affluent people at the top. Romney, while trying to distract people away from his off shore accounts in the Cayman Islands and Switzerland, is vowing to protect the remaining 2% from the passive/aggressive tax increase upon these wealthy few that would result.

This one’s a Laffer.

No, I spelled it right. Laffer is the name of a curve on a graph which describes how government income relates to tax rates. That’s right, folks, you’re in for an economics lesson. The Laffer curve looks like this:

Where the y-axis (up-down) shows how much the government gets in tax revenue, and the x-axis (back-forth) shows what the tax rate is. With me so far? Now, this is a simplified form of the graph, because it’s nice and symmetrical, whereas on most actual graphs the arch would lean to one side or another. Also, it’s only really accurate for the upper 2% of income earners, because for most people, the curve would be so short and flat that it would barely even be a hill, and it wouldn’t make much difference where anybody put the tax rate on the x-axis. But we’re talking about the upper 2% anyway, aren’t we? Besides, it gets the general idea across, and that’s all I’m trying to do here.

The ideal, of course, is to have the tax rate set where it makes the government the most money, which is right there at the top of the arch. (See that dashed line up the middle?) We need to pay down a huge deficit and debt, don’t we? So we need to maximize the money coming in so as to pay that bill down. But we also need to add jobs, too, and that adds a little twist. You see, to create jobs, the Laffer curve looks a little bit different. To show you what I mean, let me overlay the original curve in red with the jobs curve in blue:

As you can see, the peak of the curve for job growth is at a slightly lower tax rate than the one for maximizing government income. That means, by maximizing job growth, you hurt government revenue a bit. Or, conversely, by maximizing government income, you’d hurt job  growth a little. What’s the best thing to do here? Keep in mind, we need jobs and the ability to pay down our national debts to China. So, there’s really only one thing to do, and that’s aim here:

That sweet spot in the middle. See that? We need to adjust our tax rates upon the rich right there. That way, we maximize both national income and job growth at the same time.

Okay, now here comes the billion dollar point: Republicans say that we can create more jobs and maximize tax revenue by lowering the tax rate. But that’s only true if you are somewhere around this green-dotted on the graph to begin with:

Democrats argue the opposite, saying that more jobs and maximized tax revenue will come by raising taxes on the upper 2%. That’s true of you are on the opposite side of the graph, like this:

So which one’s right? Fortunately, we have some empirical proof. Under the Clinton administration, tax rates upon the upper 2% were higher than they are today. That means the green dotted line was shifted to the right. And job growth was also higher than it is today, so we were closer to the top of the blue arch. The budget was also balanced and unemployment was hovering down around 3.5%, or less than half what it is today. That means, logically, that we are currently about HERE on the Laffer curve:

There can be no other logical conclusion! That means (just this once if nothing else) that Democrats are right. Republicans are arguing that we should shift the arrow to the left, which would clearly hurt job growth and tax revenue at the same time – the LAST thing we need! And not only do they want to do that, but they’re signing (get this) a pledge to never shift the arrow on the curve to the right! They are promising to do exactly the wrong thing for our economy, permanently, and irrevocably!

And here, I simply hang my head. Please excuse me while I go laugh my ass off, then cry my eyes out.

That’s why I put these curves up here for you. So you could see what I see, and know what I know. Even without women’s reproductive rights on the line, even without the erosion of Church/State separation, even without the destruction of education, and even without the homosexuality witch-hunt, the economic message Republicans are putting out is exactly the opposite of what’s needed.

THIS is what those taking advantage of the Citizens’ United ruling are destroying voter equity in order to buy. This is what your local conservative talk show dudes are bitching for. They want to shift the arrow on the curve THE WRONG WAY.

It doesn’t matter if you’re a Keynsian or a Hayak economist, fresh-water or salt-water. It doesn’t matter if you’re on the Right or the Left. It doesn’t matter if you believe Obama is the Antichrist or not. It doesn’t matter if you accept Romney as the liar that his fellow Republicans called him or somehow aren’t bothered by his beliefs over silly sanctified skivvies.

All that matters is what you see on that Laffer curve.

Let’s aim for that sweet spot in the middle!


Eric

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