Friday, July 19, 2013

Laffer Wants to Raise At Least One Tax

Art Laffer along with Donna Arduin released some fantasy called Pro-Growth Tax Reform and E-Fairness that claims that if we would tax Internet sales then we could have a huge increase in output and employment by 2022 if we used the extra sales taxes to reduce income taxes:
Gross domestic product would grow by more than $563 billion, creating 1.5 million jobs nationwide.
I just read what Laffer and Donna Arduin wrote and there really isn’t much there to support this conclusion. They note that after 1999, real GDP growth fell far short of the 3.5% per annum growth rates we enjoyed for much of the latter half of the 20th century. Then again – didn’t we try lower tax rates starting in 2001? How did that work out? A lot of conservatives seem to love this idea and why not. Sales taxes tend to be regressive while income taxes tend to be progressive. A switch from income taxation to sales taxation fits the bill if one wants a more regressive tax system. But to claim that this would lead to some magical surge in economic growth rates is a real Laugher.


Monsieur Boeuf Le Tet said...

I wonder what he'd say if you took the increased revenue from Internet sales tax and created state copycats of the federal Earned Income Credit? How hard could it be? I'm sure most states have or will have an estimate of what the Internet sales tax will bring in, be circumspect and only use 50% of it for a state EIC and just copy the distribution of the federal EIC.

Tax cuts work great when they're directed at people who are income constrained, so this could actually work to spur demand. Depending on the magnitude of the state level EIC, it could even help get people off public assistance so that's a plus for the state.

But for some weird reason, giving more money to poor people than rich seems too "complex" like a tax or rebate table is inscrutable, or in some people's perverse reasoning it's "unfair".

system failure due to insufficient evolution? said...

Maggie's ghost: what is haunting Europe