House of Eratosthenes

Anyway. The Professor opines in the Wall Street Journal. I’m liking the first two paragraphs because they are difficult, perhaps impossible, for the opposition to dispute. The very name “Laffer Curve” invokes a disputatious undertone; indictments of the status quo tend, by their nature, to be disputatious; this is not. It’s just highly inconvenient — for some.

It used to be that the sole purpose of the tax code was to raise the necessary funds to run government. But in today’s world the tax mandate has many more facets. These include income redistribution, encouraging favored industries, and discouraging unfavorable behavior.

To make matters worse there are millions and millions of taxpayers who are highly motivated to reduce their tax liabilities. And, as those taxpayers finagle and connive to find ways around the tax code, government responds by propagating new rules, new interpretations of the code, and new taxes in a never-ending chase. In the process, we create ever-more arcane tax codes that do a poor job of achieving any of their mandates.

I make the point that it’s hard to deny the truth of these paragraphs, never mind how much some may wish to, on my way to making a larger point: Our tax code sucks. It’s one of those things nobody is defending, anywhere. They gripe that it punishes such-and-such a group too harshly, or doesn’t punish it enough, or “We here at the IRS don’t make the rules, that’s up to Congress” or “We here in Congress didn’t write the tax code, it’s some previous Congress that did that” or that it doesn’t generate enough loot. But it is the culmination of this self-imposed mission to reward and punish behavior. It is the very best scenario that can be produced from that. That’s what you get — when some behavior is to be “softly” punished through the tax code, since there is disagreement on what behavior is to be punished, eventually all behavior will fall under this. And this is exactly where we’re going.

Whatever it doesn’t punish, it rewards. If you don’t like that, you demagogue against it and eventually, if you get enough people ticked off about it, you get your way. Then that behavior loses its cozy little exemption clause, and is dutifully punished like all the other behaviors. Whenever you hear the word “loophole,” that is exactly what is happening. If you like the exemption clause or if you’re taking advantage of the exemption clause, it’s an exemption; if you don’t like it and want it to go away, you call it a loophole. In the long run, it seems, the loophole people generally win.

On this issue of static versus dynamic scoring, regular reader cylarz sez…

I don’t get it. What’s so hard about recognizing that economic policies shape economic behavior? Cause, effect. Stimulus, response. We can debate about what the response is or whether it’s desirable or whether the chicken or the egg came first….but why are we sitting around pretending that there isn’t going to be any response, that it’s all going to work out in the three-dimensional real world just like it did on paper?

Any military veteran will tell you that no battle plan survives contact with the enemy. We’ve got cliches like, “The best laid plans…” and “The road to hell is paved with good intentions.” I just don’t understand what’s so hard to grasp about this, or how anyone sane can ignore at least a hundred years of economic history and think things are going to turn out differently this time….or worse, how people this dense manage to get elected to high public office.

I suppose it comes from advocating for a tax increase. The third-grade math says, you’re bringing in so-many dollars by hiking the rate so-much. That helps your argument for an increase; the more sophisticated examination of human behavior, would reverse this. Why belabor a more complicated review that hurts your argument, when the simpler one helps your argument? Maybe you’d do that if you were sitting in judgment and mulling it over logically. But liberals don’t do that — they like to look like they’re doing that, when they’re selling things, but all they’re really doing is selling things. No really, go see what they say, and go do the research on things when they tell you something is a certain way. You’ll see what I mean. They sell things, and they’re very fond of making it look like they’re weighing things fairly, bringing zero preconceptions to their little weighing session, when they know at the outset exactly what conclusion they want to reach and so does everybody else.

Like I’ve said before: It would almost be adorable if it didn’t cost us so much human potential and money.

Anyway. To the subject at hand: The 9-9-9 draws glowing praise from Prof. Laffer:

The whole purpose of a flat tax, à la 9-9-9, is to lower marginal tax rates and simplify the tax code. With lower marginal tax rates (and boy will marginal tax rates be lower with the 9-9-9 plan), both the demand for and the supply of labor and capital will increase. Output will soar, as will jobs. Tax revenues will also increase enormously—not because tax rates have increased, but because marginal tax rates have decreased.

By making the tax codes a lot simpler, we’d allow individuals and businesses to spend a lot less on maintaining tax records; filing taxes; hiring lawyers, accountants and tax-deferral experts; and lobbying Congress. As I wrote on this page earlier this year (“The 30-Cent Tax Premium,” April 18), for every dollar of business and personal income taxes paid, some 30 cents in out-of-pocket expenses also were paid to comply with the tax code. Under 9-9-9, these expenses would plummet without a penny being lost to the U.S. Treasury. It’s a win-win.

Me, I find Laffer’s remarks edifying, but I’m still on the fence about it. I’m one of the people he acknowledges in the final paragraph:

Still, a number of my fellow economists don’t like the retail sales component of the 9-9-9 plan. They argue that, once in place, the retail rate could be raised to the moon. They are correct, but what they miss is that any tax could be instituted in the future at a higher rate. If I could figure a way to stop future Congresses from ever raising taxes I’d do it every day of the week and twice on Sunday. Until then, let’s not make the perfect the enemy of the good.

Valid point, just an insufficient one. For the last century or so, this has been the history of taxation in the United States: Gotta do something, we’re not collecting “enough.” Well waitaminnit, the geniuses in Washington just got done spending 40% last year than they did the year before, and what they spent the year before was 20% higher than the year before that. These spending binges never seem to attract the scrutiny they deserve. It’s always the taxpayer’s fault for not paying enough. And that, as is usually the case, is my beef with the “perfect enemy of good” argument: Since it seeks to dismiss rather than explore, it leaves legitimate objections largely intact.

But Laffer is right. The 9-9-9 plan is static-score neutral, and as it shows the “failings” of this static scoring in a dynamic-scored world — refer back to cylarz‘ comment about “no battle plan survives contact with the enemy” — said “failings” would work to the benefit, rather than to the detriment, of the generation of the tax base. So I’m still undecided, but this is a powerful argument in favor of the plan.

Whether or not it could actually happen, is a question future events will settle, or at least help to discern.

[…] Herman Cain President 2012 News Source- http://www.peekinthewell.net/blog/laffer-on-the-999-plan/ […]
- Herman Cain 2012 President » hermancain.electionnewstweets.com » Laffer on the 999 Plan | 10/19/2011 @ 09:05
Thanks for the shout-out, Morgan. I do love it when you quote me…
- cylarz | 10/20/2011 @ 20:23

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Laffer on the 999 PlanWednesday, October 19th, 2011

Laffer on the 999 Plan
Wednesday, October 19th, 2011