Thursday, January 11, 2007

Real Meaning of the Laffer Curve

Tim Worstall makes my day, as he always chooses an important Subject, and then presents a good Counterpoint to what I can comment. The current subject being the Laffer Curve, which consists of the graph of the points of Tax revenue maximization where Tax rates interact with Income. Anything above or below this Curve will be less than Tax revenue maximization. The major error in the Laffer Curve comes in it’s refusal to accept any impact from Inflation, the reality of Resource Consumption, or remedial impact of previous Tax years and pressure generated on later Tax years.

The real problem with the Laffer Curve comes in the overall denial of the drive to economic equilibrium. The total Economy must always respond to the Laffer Curve tenant of Tax revenue maximization; how it does this is through Inflation, or through reduced Productivity. The real impact of the Laffer Curve states that an Economy is most effective and successful, which holds to the real, rather than nominal, position of the Laffer Curve of Tax revenue maximization. Any other position will either produce Inflation or loss of Productivity.

The Following is my own Work and Estimates; therefore, the results must be rigorously questioned. I have found that no more than 82% of entrepreneurial Profits can be redirected back into the Economy without the production of intense Inflationary pressure; this entailing that the real Capital Gains Tax should never be lower than a real 18%. My second thesis states that Governmental functions (Security and Welfare transfers) must absorb a real 18% of these Profits, or the Inflationary pressures generated are not harmlessly released. I have previously written on the effects of Public Debt acquisition, which expand the Money Supply, and whose Interest on the Debt constitutes the equivalent increase in Resource Costs due to Resource overuse through Government expenditures.

What does this All say?

Here is where I begin to get Scalped! Taxes, and the devotion of Taxes to specific purpose, should be altered for economic clarity of purpose. National Security and Infrastructure should be financed solely by taxation on Labor Income. Education, Welfare transfers, and support for Science and the Arts should be financed by Property taxes, Business taxes, and Capital Gains taxation; which should also be tasked with elimination of Public Debt. The Later, of course, should be eradicated, except for specific Infrastructure mortgages. I will now accept charges of being a Communist from the Conservative, and charges of being Fascist from the Liberals. lgl

1 comment:

spencerengland said...

I won't call you any names.But I'll ask one question.

Would you support these institutional arrangements if defense spending was 0.01% of gdp and the arts were 10.0% of gdp?