Difference Between Conservative and Liberal: Tax Rates

In my head, I keep a running tally of the differences between conservatives and liberals, Republicans and Democrats (sometimes conservatives and Republicans coincide, sometimes they don’t; sometimes liberals and Democrats coincide, sometimes they don’t’).  One of the significant differences I’ve noticed in the past few months is a difference on the economic impact of tax policy.

Tax The Rich

Yes, I can see your eyes slowly rolling into the back of your head now.  Let me explain: one school of thought (typically conservative) believes that tax rates drive the behavior of people.  Specifically, higher taxes on one form of income will drive the behavior of people away from that activity.

The other school of thought (held typically by liberals and Democrats) is that tax policy does not drive behavior.  Specifically, the “tax the rich” mantra of President Obama and congressional Democrats recently is founded upon this belief.  They believe that when you raise tax rates on people, an increase in tax revenues necessarily follows.

From the conservative side: Mark Perry, a professor of economics and finance at the University of Michigan, had a post yesterday on his blog, Carpe Diem, in which he writes, “An endless source of confusion seems to exist regarding the frequently used term ‘raising taxes,’ […] which usually refers to a proposal to raise tax rates in an attempt to raise tax revenues.  Not so fast.  It doesn’t always work that way, and frequently works in reverse—higher tax rates result in lower, not higher, tax revenue collected.”

From the liberal side: Mark Thoma, professor of economics at the University of Oregon, also had a post yesterday on his blog, Economist’s View, in which he argues against a correlation between tax rates and work hours (not specifically against a correlation between tax rates and tax revenues, but here’s an earlier post about the correlation of tax rates and revenue).  He concludes that, even though there seems on the surface to be a correlation, “If we adjust for institutional-political group membership, the negative association between tax levels and work hours disappears.”

Political commentators from the right cite stories like the one from Maryland where, after the state increased the tax rates on people making over a million dollars a year, there were fewer such people living in Maryland, and thus less tax revenue came into the state coffers.  Thomas Sowell also cites an example of Britain in 2009.  Britain announced that it would increase the tax rate to 51% on high-income people, and “many people specializing in high finance in Britain relocated to Switzerland.”

Questions: Have you observed this distinction?  Do you think that there’s truth in either side?  In both sides?

  • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

    Hey Bob, I’m going the other way…again. Honestly given all the topics and different opinions that Republicans and Democrats have on the issues that are out there, tax policy is small stuff.  I have been going through issues which will be most likely debated in the 2012 campaign and put them together in my most recent blog post in an effort to find America’s political middle.  Here is a brief list:
     Abortion, Budget & Spending, Civil Rights, Corporations/Regulation, Crime & Punishment, Drug Policy, Education, Energy Policy, Environment, Foreign Policy, Gun Control, Health Care, Immigration, Iraq/Afghanistan & “War on Terror”, Jobs & Unemployment, LGBT Rights, National Security, Social Security, Stem Cell Research, Tax Policy, Trade & Globalization, Welfare & Poverty
    So, because of the economic downturn there is going to be added emphasis on anything related to taxes, spending, jobs etc.  However I would not say that tax policy and its effects are significant differences in light of other issues such as Abortion, Energy Policy, The War on Terror, and National Security.
    Now to your question directly, Yes to a CERTAIN EXTENT businesses will make decisions not based solely off of taxes because there is a cause and effect however it is a SMALL part of the overall equation not a central driver.  Bob you hate taxes and we just had a huge tax hike…why are you moving out of state, because there are a million other things that affect that decision besides taxes.  I think a big problem with tax policy is there is such an overwhelming amount of data now available that anyone with a theory or idea can get numbers that support the policy that they like.  Honestly do I want our government wasting months of debate over 3.5% of tax rates for rich people, No but I can not control the system.  Everything in politics is negotiated and compromised.  Nothing is free. You could achieve the same amount of increased revenues by simply eliminating tax loop holes.  In the books, on paper the corporate tax rate is what 35%.  In reality most businesses only pay about 15%.  So if you want to lower the tax rates to 20%, fine more power to you, but since our deficit is so huge and we NEED, yes NEED, increased revenues close all the loop holes and actually make them pay the 20% rate.  Taxes are just a byproduct of a parties overall economic priorities, you can see where peoples values are by where they put their money.
     

    • http://bobewoldt.com Robert Ewoldt

      Broc, I’m not really talking about Tax Policy as a difference, but rather
      the fundamental difference between conservatives and liberals about the
      fundamental economic difference of how taxes influence behavior. This
      fundamental difference informs many of the other positions that WILL be
      debated in the 2012 election–Budget & Spending, Corporations/Regulation,
      and a bunch of other ones on your list. Most people think that the domestic
      economy and spending will be the big issues of the 2012 election, and this
      difference will be highlighted.

      In terms of your second paragraph… I think you’re being short-sighted.
      Over an EIGHT-YEAR period, 4.8 million people moved out of high-tax states
      to low-tax states. You asked the question, why haven’t I moved out of
      Illinois since they changed their individual income tax rate. The answer
      is, I haven’t… yet. I have DEFINITELY considered it, and if I were to (a)
      find a job in low-tax state or (b) decide to open my own business, I would
      probably move. Especially if I were to open a business, I would NOT open it
      in Illinois.

      When you say that “most” businesses only pay 15% in corporate income tax, I
      would say that you’re wrong. You’re opinion is being informed by stories
      about companies like GE and oil companies that actively lobby to get special
      loopholes for their company. The problem is… most companies don’t get to
      partake in those loopholes. Small- and medium-sized businesses DO pay the
      35% federal corporate tax rate, and they ALSO pay the 7% corporate tax in
      Illinois. Just because a few multi-national companies have huge tax
      departments whose job it is to lower their tax burden doesn’t mean that
      everyone pays less.

      In terms of closing loopholes, I’m all for that. I read an interesting post
      by Gary Becker (I think) in which he said that, while most government tax
      subsidies were bad, there were some that were justifiable, and even
      necessary. But, overall, I’m in agreement with you; we should really close
      the loopholes in the corporate tax structure, and lower the standard
      corporate tax rate. I think that this really should be done, independently
      of doing it to raise the revenues that are raised the the corporate income
      tax. I think a lower overall corporate tax rate would be good economically,
      and would benefit all companies (small and large) equally.
      On Wed, May 18, 2011 at 8:54 AM, Disqus <

      • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

        As a said at the end of my post…” Taxes are just a byproduct of a parties overall economic priorities, you can see where peoples values are by where they put their money.” You can see where Republican and Democrats values are by to whom and for what they give money to.  So yes there is a fundamental difference but that driver is not how taxes affect behavior it’s the values of a person or party.
         
        “Over an EIGHT-YEAR period, 4.8 million people moved out of high-tax states to low-tax states.”
        America’s official population, not including the estimated 10+ million illegal aliens, in about 309 million.  So while when you hear 4.8 million people you think it is a large number, in reality its 1.5% of our population.  So, over about a decade 1.5% of the population moved.  That isn’t so large when put into perspective, now does that mean it is not a trend? No I believe it is a trend but not a large one.
         
        As for Illinois corporate tax rate it’s lower than almost all neighboring states rates. Illinois: 7.3%, Indiana: 8.5%, Wisconsin-7.9%, Iowa (depending on income level) 6%-12%, Missouri: 6.25%.  Yes I agree that larger corporations have abused the tax structure to a further extent than the average small business, however small business in America are still not paying near the 35% rate.  There is plenty of statistical data to back that up.
        Why do Republicans consistently and repeatedly block legislation that would close tax loop holes?  Its a fairy tales to beleive you can cut enough spending to balance the budget without dramatically effecting the social security net of our nation.
         

        • http://bobewoldt.com Robert Ewoldt

          State and Local individual tax burden (updated for tax year 2011)… I think
          you were citing the individual income tax rates…
          Illinois: 9.5%
          Wisconsin: 7.9%
          Indiana: 8.5%
          Missouri: 6.25%
          Iowa: 6-12%, but you can deduct your federal taxes paid

          Illinois’ corporate income tax puts it higher than every other state except
          for Pennsylvania and Minnesota. The states that have experienced the
          greatest economic and population growth over the past 10 years have a
          different plan:

          Texas: 1%
          Nevada: No corporate income tax.
          Arizona: 6.9%
          Florida: 5.5%
          Utah: 5.0%

          Here are the states that have had the LEAST amount of economic and
          population growth over the last 10 years:

          New York: 7.1%
          Ohio: 8.5%
          Vermont: 8.5%
          Pennsylvania: 9.99%
          West Virginia: 8.5%

          Hmmmm… I don’t see ANY correlation between economic/population growth and
          corporate tax rates.

          Let me raise one question here that I know you’ll instinctively hate, but
          hear me out anyway: why not do away with taxes like the corporate income tax
          altogether? It’s really a hidden tax on consumers, anyways. Because
          businesses pay taxes, those taxes are built into their prices. Instead of
          having a corporate tax, why not raise the sales tax, or the individual
          income tax rates? You’ll get the same tax revenues, but it will (a) be more
          transparent to people who’s paying taxes and who’s not, (b) it will be
          easier to administer (fewer IRS agents will be needed to
          audit corporations), and (c) you can have an even MORE progressive tax
          policy (which I’m sure you’re in favor of). I’m not saying that we SHOULD
          do this, but it’s an interesting concept to think about, don’t you think? I
          can expound on this concept later in another blog post, if you want.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

            Let’s take a look at the effects of those epically low tax rates in Texas. Texas has $31 BILLION dollar budget deficit it has to close b/c Republican leadership wont raise taxes to create more revenue. So who is feeling the pitch?  Education, Medicaid and Prisons.  So to create a “great” business environment they are closing 4 community colleges, 60,000 students won’t get student loans, Pre-K education is slashed.  They lowering the funding for education so much its bordering being literally illegal, Texas might be forced to change its minimum funding law because funding is so low.  Health and human service is being cut by 25% (food service for seniors etc) Medicaid providers are losing 10%. So for your “great” business attracting environment in Texas has cut funding that helps kids, students and seniors. NICE!
             
            Paul Ryan’s plan will only work if he gets everything he wants. Not withstanding the debate on whether it is good for America or not.  Didn’t we just say that everything is politics is compromised and negotiated. That is why his plan will never work. A balanced approach like Simpson/Bowles that is a MIX of revenue increases and spending cuts is the only plan that has a chance of getting through Congress.  You have to work in a BIPARTISAN WAY. So if that is true why shoot for a plan that CAN NOT work
             
            NO! If you eliminate Medicaid and turn it into a voucher system it is not perspective or how you see. You are removing a fundamental social safety net. You think it going to be easy or cheap for a SENIOR CITIZEN to get Medical insurance without MASSIVE healthcare reform. Think about how insurance companies would charge a senior citizen in the private sector to medical coverage. Get real man, the system is broken which is why Obama care was passed.
             

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

            Its $27 Billion not $31B  

          • http://brocmiddleton.blogspot.com Broc

            HEY DOWN HERE!!!! LOL I replied down here because the columns are getting a bit squeezed. 

            Of course Medicare doesn’t provide the actually Health services neither do private insurance companies… but it’s the guarantee that provides the social safety net that a voucher system can not and does not provide to seniors and kids lets not forget Medicare is for children in needy families as well. Any who….the voucher would only give them a chance at coverage hoping that they could find a company that would insure them, now I know some of the market could get some value from picking up seniors but the security is not there like it is with Medicare.  Also, no the power would not be with doctors the power would go to insurance companies and as a father to a son with a pre-existing condition I can tell you before healthcare reform an affordable quality coverage plan was not possible, insurance companies are businesses its their job to make money, its not a bad thing, but for them each person is an investment into cost/benefit analysis seniors who have health issues are not going to be viewed as a “good investment.” Hold on, before you say “that what the voucher is for, to pay for that cost” insurance companies will know how much vouchers will be paying out at so they will know how much they can squeeze out of seniors, I know that sounds really cold and cruel but lets not pretend it wont happen.  Damn I thought I felt this winding down…did you think our debate was kind of wrapping up?
             

          • http://brocmiddleton.blogspot.com Broc

            HEY DOWN HERE!!!! LOL I replied down here because the columns are getting a bit squeezed. 

            Of course Medicare doesn’t provide the actually Health services neither do private insurance companies… but it’s the guarantee that provides the social safety net that a voucher system can not and does not provide to seniors and kids lets not forget Medicare is for children in needy families as well. Any who….the voucher would only give them a chance at coverage hoping that they could find a company that would insure them, now I know some of the market could get some value from picking up seniors but the security is not there like it is with Medicare.  Also, no the power would not be with doctors the power would go to insurance companies and as a father to a son with a pre-existing condition I can tell you before healthcare reform an affordable quality coverage plan was not possible, insurance companies are businesses its their job to make money, its not a bad thing, but for them each person is an investment into cost/benefit analysis seniors who have health issues are not going to be viewed as a “good investment.” Hold on, before you say “that what the voucher is for, to pay for that cost” insurance companies will know how much vouchers will be paying out at so they will know how much they can squeeze out of seniors, I know that sounds really cold and cruel but lets not pretend it wont happen.  Damn I thought I felt this winding down…did you think our debate was kind of wrapping up?
             

          • http://bobewoldt.com Robert Ewoldt

            Hey, good thoughts. I did think that our debate was winding down… I’ll
            have to write a post specifically on Medicare sometime… it’s an
            interesting debate.

            Here’s the thing, though. Yes, insurance companies exist to make a profit
            (most of them, anyways). However, they also keep up with costs and prices.
            Doctors also exist to make a profit. So, unless you’re going to start
            conscripting doctors, you can’t keep costs down. What’s the best way to
            keep costs down? Transparency, efficiency, competition. None of which the
            government offers. The government has tried (and failed so far) to
            artificially keep medical costs down by price controls. It’s not working.
            We need a system that offers more efficiency, and allows choice.

          • http://brocmiddleton.blogspot.com Broc

            We can both agree one thing…Reform is needed. Now whether we use a scalpul or a….(you hate that analogy) I just don’t believe that completely replacing Medicare with a voucher system is needed when Medicare reform is possible.  Analogy try number 2 – if your car’s engine needs a new manifold then you can replace the manifold, you don’t need to scrap the whole car? No…ok well a voucher system is drastic change and does not provide the same security that Medicare currently can. 
             

          • http://bobewoldt.com Robert Ewoldt

            OK, going along your analogy. If you have a 20-year-old car, and the
            transmission goes out, and the body’s all rusted out, and the A/C doesn’t
            work, and the radio doesn’t work, do you replace the trasmission to get a
            few more miles out of it, or get a better/newer car? I think that it’s not
            just the manifold that needs replacing in this case.

          • http://brocmiddleton.blogspot.com Broc

            This analogy is going to get out of hand lol…I disagree with the picture you painted of the two cars, the old beater and the “better/newer” car. The voucher would not be better/newer…we don’t even know if it runs…it would be like buying a car on criagslist….the picture may look like something that functions but you can see problem areas already and you really have no idea once you get it…
             

          • http://bobewoldt.com Robert Ewoldt

            Sure, you might get a car that doesn’t run on Craigslist, but you already
            have a car that doesn’t run, so why are you complaining? Yes, you have to
            do due diligence on the new car (get it checked out by a mechanic), but
            you’re not going to sink $4,000 into the car that you already have that’s
            only worth $1,000.00, and is just going to break down again in another 4
            months.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

             But that is thing we dont know if the new one is any better or if the old will break down again….

          • http://bobewoldt.com Robert Ewoldt

            Well, you kind of DO know that the old one will break down again.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

             Lets agree….NO MORE ANALOGIES!!! LOL

          • http://bobewoldt.com Robert Ewoldt

            OK! I can agree with you on that :)

          • http://bobewoldt.com Robert Ewoldt

            Re: budget deficits – So, since Illinois is running deficits, and Texas is
            running deficits, therefore both should have raised taxes to erase their
            deficits, right?

            Re: Medicare – So, let me see if I’m hearing correctly what you’re saying.
            You’re saying that the level of current reimbursement in Medicare is the
            ONLY acceptable level of reimbursement? You’re saying that seniors CANNOT
            handle paying more? You’re saying that we cannot “reform” Medicare unless
            we keep paying the same amount for healthcare?

            I’m going to write, probably soon, another post on the differences between
            conservatives and liberals, on the role of government, that I think will
            address some of these other issues that you bring up.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

             Budget deficits – If a government is running a deficit local, state, or federal ALL options should be on the table in order to find ways of balancing that budget.  Not just the ones that are in line with our own political ideals.

            Medicare – No if you want to alter the system b/c its is needed then alter it, however altering the program is not the same as removing it or eliminating it to replace it with a voucher which is not the same thing.

          • http://bobewoldt.com Robert Ewoldt

            Re: Medicare – I think you’re playing the semantics scare game. On the one
            hand, you have a program that pays for a portion of seniors’ healthcare
            costs, and you call it “Medicare.” On the other hand, you have a program
            that pays for a portion of seniors’ healthcare costs, and you DON’T want to
            call it “Medicare.” Just because you’re going about the same thing a
            different way doesn’t mean that you’re eliminating the program, or changing
            what it’s doing. Just because you’re becoming more responsible in the way
            that government spends money doesn’t mean that you’re dismantling the
            Medicare program.

            Re: Budget deficits – I see where you’re coming from in wanting all the
            options on the table. The problem with having all the options on the table
            is that politicians are cowards… they will always take the easiest way
            out, which is (a) kicking the can down the road further, so they don’t have
            to deal with it, or (b) raising taxes. Neither of these options,
            ultimately, are responsible actions. Yes, we can raise taxes now to close
            the budget gaps. But then politicians will spend more, and then we’ll have
            to raise taxes more (because, of course, we want to have “all the options on
            the table”). It’s an endless, and irresponsible, cycle for government.

          • http://brocmiddleton.blogspot.com Broc

            Medicare – It’s not semantics or a scare game, there is a legitimate difference between a guaranteed program and a voucher which provides no guarantee.  There is a huge difference for seniors in the reliability of real Medicare and a monetary voucher that does provide the same security for their healthcare coverage.  You could call the voucher system Medicare or “New Medicare” or Medicare 2.0, however whatever label you put on a voucher system is a fundamental change from historical what real Medicare has been.  

            Budget Deficits – I like the little jab in their saying you want all options to be on the table but then saying raising tax is an irresponsible decision, leaving only spending cuts…very sneaky.  I would say slashing funding to education, closing schools, and not providing the next generation with the tools in Education to succeed is irresponsible.  Also,  I disagree with your evaluation that no matter what the government will spend.  Clinton with a Republican congress balanced the budget with a surplus; it wasn’t until the Bush tax cuts, two unfunded wars, unfunded prescription drug program, housing market bubble popped, the economic collapse, bail outs, stimulus package, and then the deficit truly exploded.  The idea of fiscal responsibility and increasing tax revenues are NOT mutually exclusive ideas.  I believe that he budget that will eventually get passed by a bipartisan effort and compromise on both sides will show that. 

          • http://bobewoldt.com Robert Ewoldt

            Medicare is not a guarantee right now. More and more doctors are dropping
            out of the Medicare program, which doesn’t sound to me like it’s a
            guarantee! This is exactly what price controls do… creates a scarcity.
            Yes, seniors will pay more under a voucher program. But that doesn’t mean
            that there’s any less of a “guarantee” of care. In fact, there’s probably a
            GREATER “guarantee” of care under a voucher program, because at least
            doctors know that they will get paid.

            Budget Deficits – I’m not saying that I’m opposed to tax increases; I’m
            saying that they’re not the most reponsible way, and that they’re
            dangerous. I would be open to finding loopholes to close to raise revenues
            is acceptable, as long as they’re coupled with spending cuts on a 4-1 or or
            5-1 ratio of cuts/increases.

            You say, “I disagree with your evaluation that no matter what the government
            will spend.” I wasn’t aware that spending decreased under Clinton. How much
            did Congress decrease spending during the Clinton years?
            On Fri, May 20, 2011 at 6:36 AM, Disqus <

          • http://brocmiddleton.blogspot.com Broc

            Medicare – The standard for whether or not a program is guaranteed is not based off of the doctors that accept it, if that is the case there is no guaranteed coverage anywhere because doctors offices accept different payment methods Blue Cross/Blue Shield of IL the largest insurance carrier in IL does have 100% coverage with all doctors.  Medicare is guaranteed because UNLIKE insurance companies pre-existing conditions can not exclude you from coverage. This safety net is vital because old people have health problem that’s just the way it is.
             
            Budget Deficit – I am glad that we can agree that increasing revenues should be on the table, but I think some negotiation would be need over the ratio of spending cuts though.  But hey thats compromise. Regarding the spending increases during the Clinton years ….LOL to quote a recent interview between Bill O and John Stewart I think you are pettifogging….lol, the budget was balanced, we had a surplus and had the ability to start paying off the national debt…are you really going to complain about that in light of where we are today?

          • http://bobewoldt.com Robert Ewoldt

            Medicare – what good is a program that pays for seniors’ healthcare if
            there’s no one to provide care? That’s where Medicare is headed. I guess
            that’s what the Democrats would prefer: that Medicare keep paying less and
            less and less, and finally there’s no one that will provide services for
            seniors under Medicare. I guess that’s one way to eliminate Medicare. To
            each his own, I guess.

          • http://brocmiddleton.blogspot.com Broc

            Really? You think Medicare will be covered by no one? There are doctors who love Medicare because they know they will actually receive payment for services.  Your slippery slope is completely imaginary
             

          • http://bobewoldt.com Robert Ewoldt

            Doctors are leaving Medicare precisely because they DON’T get paid.

          • http://brocmiddleton.blogspot.com Broc

             its not that they dont get paid, its the rate at which they get paid at for their services. It’s a circular effect, the government cuts Medicare payments which leads to doctors getting paid less, which leads to more doctors dropping which leads to people to say Medicare isn’t working lets cut Medicare…then it starts all over.  That circle can be stopped but not if we do not change the program, however like we discussed earlier changing the program is fundamental different than eliminating and replacing the program with a voucher system.  

          • http://bobewoldt.com Robert Ewoldt

            Medicare, by its very nature, does not provide services to seniors. It’s
            only a funding mechanism by which the service providers get paid. A voucher
            system is also a funding mechanism by which the same service providers get
            paid. The only way that it’s fundamentally different is that it’s taking
            power away from government to set prices for services (i.e. price controls,
            which create scarcity), and putting the power in the hands of two groups:
            seniors and their doctors. The seniors get to choose their doctor based
            upon the service that they need and the price that the doctor is charging.
            If they want to go to a certain doctor, and that doctor is only covered
            under 3 plans, then they would need to apply their voucher to one of those 3
            plans.

        • http://bobewoldt.com Robert Ewoldt

          You ask, “Why do Republicans consistently and repeatedly block legislation
          that would close tax loop holes? Its a fairy tales [sic] to beleive you can
          cut enough spending to balance the budget without dramatically effecting
          [sic] the social security net of our nation.”

          For two reasons:
          1. They believe that you CAN balance the budget without raising taxes.
          2. They believe that you CAN balance the budget without “dramatically”
          affecting the social security net of our nation.

          For example, Paul Ryan, in his budget proposal, believes that we can balance
          the budget by cutting Medicare, but still achieve the result of taking care
          of our seniors’ medical needs. Now, we may not be paying as much for
          Medicare than we used to, but we’re still fulfilling our promise/duty to
          take care of seniors. Now, people like Paul Krugman of the NY Times
          disagree, and say that if we change Medicare to a voucher program, then
          we’re necessarily eliminating Medicare, and breaking our promise to our
          seniors. It all depends on your perspective, and what you believe our
          responsibility to our seniors is. Our we responsible to provide 100%
          healthcare coverage to seniors? Are we responsible to provide 80% of a
          senior’s healthcare coverage? Are we responsible to provide 50% of a
          senior’s healthcare coverage (like it was when Medicare began)? What’s our
          responsibility?

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  • http://twitter.com/geekyisgood Harriet R

    I don’t think you have to be conservative to think the Laffer curve exists – but you could disagree about where we are on the Laffer curve and how strong it is. In the US I imagine it’s very easy to move between states, which makes state Laffer curves much more sensitive, but here in the UK it’s a bit harder to move due to language and culture differences. It’s possible, but much harder. Basically my argument is that Laffer curves are closely related to factors that also affect Optimal Currency Areas – if you’re a small part of an OCA then you’ve probably got a very sensitive Laffer curve, but if you’re all/the majority of an OCA it’s probably much less sensitve.

    • http://bobewoldt.com Robert Ewoldt

      Good thoughts. I agree with your statement about the argument being about
      where on the Laffer curve we are, not necessarily whether it exists. I do
      also agree with you about movement between states being fairly easy. As I
      don’t know very much about European dynamics, I can’t really speak to it. I
      always thought that movement was fairly easy in Europe, because of the
      smaller geography. How much do you think differences in language affect
      movement and commerce in Europe?

  • http://twitter.com/SoquelCreek Soquel by the Creek

    I cannot find the exact quote, but Art Laffer had a great quote that went something like “Taxes  redistribute people, not income.”

    A recent data chart from the Tax Foundation seems to echo that sentiment.  Using IRS, the charts shows the total income gained or lost by migration between states from 1999 through 2009.

    Annual Income Gained or Lost Due to Migration
    http://www.taxfoundation.org/UserFiles/Image/migration_large.png 

    High-tax states like California and New York lost the most income-producers.  Both are high-tax states.  My home state of California has both the nation’s 2nd and 4th highest marginal tax rates.  California’s second-from-top rate is 9.3% and starts at just $48,000 in taxable income.
    http://www.twitpic.com/8vguui/full 

    Interestingly, two of the three biggest gainers from internal migration were Texas and Florida.  Both have no state income tax.  Interestingly, #2 and #5 on the gainers list were Arizona and Nevada–both low-tax states adjacent to high-tax Californian.

    Just to add to California’s already crazy tax system, the Governor and his political cronies in Big Government want to increase taxes even more.  Most of the additional revenue comes from RAISING taxes on those making over $250,000, who ALREADY pay the majority of income taxes.  Ironically, the Governor and his cronies bill this as a “millionaire’s tax”, I guess because they are imposing the tax rate currently only paid by millionaires down to those making $250,000.

    So who is bankrolling Governor Brown’s tax hike?  No surprise, it’s the same public unions that nearly exclusively fund the Governor’s political party and will benefit from additional taxpayer revenues.  Meanwhile, the California Legislature, also dominated by Governor Brown’s political party, seemingly refuses any meaningful tax or spending reforms.
    http://www.twitpic.com/9bd8o6/full 

    It is any wonder that California’s state government was ranked the worst-run in the nation?
    http://247wallst.com/2011/11/28/best-and-worst-run-states-in-america-an-analysis-of-all-50/6/