House of Eratosthenes

Over the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states to make the case that it is foolish to ignore the Laffer Curve. Not surprisingly, leftists never seem to learn.

More recently, I’ve explained why Obama’s class-warfare tax policy is especially misguided because of Laffer Curve effects.

But I sometimes wonder whether I make any progress with these arguments. Maybe I’m being too much of a wonk? Perhaps I need an example that strikes a chord with regular people.

I don’t know if that’s true, but let’s give it a try. I now have an example of the Laffer Curve for the MTV audience. Best of all, the story is from USA Today.

The IRS got red-faced trying to collect the new tanning tax, burning a hole in estimates on how much the levy would bring in to federal coffers, a new report said Thursday. …Tanning tax receipts for that nine-month period totaled $54.4 million, the report found. That was below projections by the Congressional Joint Committee on Taxation, which had estimated the tax would raise $50 million in the last three months of fiscal year 2010 and $200 million for the full 2011 fiscal year.

Let’s deconstruct the numbers from the article. The Joint Committee on Taxation estimated that this new “Snooki” tax (part of the awful Obamacare legislation) was going to raise about $50 million every three months.

Yet during the first nine months, the tax raised just $54.4 million, not $150 million.

To be fair, some of this huge revenue shortfall may be a result of short-run factors associated with levying a new tax, but does anyone think the actual revenues will match the JCT’s estimates at any point in the future? If you think that will happen, get in touch with me so we can make a friendly wager.

Since Laffer, it has strangely become a left-right point of disagreement when we consider the potential behavioral change shown by people in response to a changed economic incentive, with the “right” side of the spectrum predicting the change will occur and the “left” side of the spectrum insisting it won’t, that people will just stand still like stationary architectural structures, takin’ it.

Time was when it was the foundation of what we call “economics” to believe that altered prospects bring altered behavior. After all, if this is not the case, what is there to study?

It has all become a bit embarrassing to watch. The local newspapers, as I have observed repeatedly — since it happens repeatedly — plaster all over Page B1 all the sob stories about the welfare cases who don’t know what they’re going to do with the budget cuts that are coming. At the federal, state and county level there is weeping, wailing, gnashing of teeth about the red ink and the shortfalls and the “crisis” and the missed deadlines and the defaults and the expanding deficits…the talking heads go on the Sunday morning talk shows to spew their gibberish about “the discredited Laffer curve,” someone makes that tragic observation that “the money’s gotta come from somewhere” and so there is a tax increase. Wait for the seasons to change a couple times, and we have the stories like what you see in USA Today: It was expected to take in X, it actually took in less than X. Unexpectedly.

But pay no attention to the curve behind the curtain.

Then we go back, Jack, and do it again.

Since Laffer, it has strangely become a left-right point of disagreement when we consider the potential behavioral change shown by people in response to a changed economic incentive, with the “right” side of the spectrum predicting the change will occur and the “left” side of the spectrum insisting it won’t, that people will just stand still like stationary architectural structures, takin’ it.

I’ve been making the same point in countless debates with liberals, for at least fifteen years now. You think it has sunk in? Worse, many of those who think the Laffer Curve is discredited, aren’t just rank-and-file liberals. They’re people like Pat Quinn, governor of Illinois…who believed he could solve his state’s budget problems with massive tax increases…and is utterly mystified as to why his state’s jobs are headed for Indiana and other neighboring states.

You might say it’s not a Laff-ing matter.
- cylarz | 10/18/2011 @ 19:19
I mean…these Laffer-deniers…aren’t they the same people who think everything in nature affects everything else – that it’s all one big interconnected web?
- cylarz | 10/18/2011 @ 19:21
See, I think they’re just arguing dishonestly. These same people, when we’re deliberating a cigarette tax, seem to have a whole different take on it. We fund the education camps…so gimme a high five…with a tax on those cigarettes we want people to stop smoking, so gimme another high five. Double-high-five. But does the new tax change the consumption of cigarettes? I haven’t seen any of them offer a straight answer to that. I think they just want their high-fives and they haven’t put any serious thought into it.
- mkfreeberg | 10/18/2011 @ 20:44
For that matter, are they willing to admit that the cigarette tax works like anything else? It gets too high and you start having people going to neighboring jurisdictions to buy cigarettes….in extreme cases, you’ve got black markets in untaxed cigarettes – people buying them in low-tax or tax free jurisdictions, then bringing them across the border and selling them for cash (at a profit) in the high-tax zone.

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.

Oh, what am I saying? These people are reading Cosmopolitan, not National Review.
- cylarz | 10/18/2011 @ 21:06
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- House of Eratosthenes | 10/19/2011 @ 05:21

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The Laffer Curve WinsTuesday, October 18th, 2011

The Laffer Curve Wins
Tuesday, October 18th, 2011