Arthur Laffer’s Alice-in-Wonderland economy

Arthur Laffer is a famous economist with a PhD from Stanford. He is also, to some, a guru of sorts.

I, of course, am none of the above.

On the other hand, I also didn’t write the silly, myopic, Alice-in-Wonderland piece by Laffer published in yesterday’s Wall Street Journal in which he offers the following analysis of our jobless situation:

“Employment is low because the incentives for workers to work are too small, and the incentives not to work too high. Workers’ net wages are down, so the supply of labor is limited. Meanwhile, demand for labor is also down since employers consider the costs of employing new workers—wages, health care and more—to be greater today than the benefits.”

Interestingly, in Laffer’s explanation of how we got into this mess and how we might get out of it, the word “housing,” as in the bursting of the housing bubble, is never mentioned. Nor are the words “derivative” or “mortgage” or “Wall Street” or “foreclosure”.

The word “consumer,” as in the collapse of consumer demand and confidence, meaning companies have fewer people to sell to, is also never mentioned.

Instead, we get strange assertions such as:

“Employment is low because the incentives for workers to work are too small.”

That’s technically true, I suppose. If no one will pay you to work, I guess you could say your incentives to work “are too small”. But I’m not sure that fully captures what’s going on out there.

“The supply of labor is limited.”

I suppose that’s why companies seeking to hire have 500 or a thousand job applications for each opening, and why job fairs typically have lines that wind out the door and around the block and down the street.

I wonder: What would it look like if the supply of labor were ample?

“… the incentives not to work (are) too high”

Yes, I’m sure that the maximum unemployment benefit of $330 a week in Georgia offers a comfortable living, which explains why all those jobs are going unclaimed out there. (There ARE a lot of jobs going unclaimed out there, right? Right?)

In the piece, Laffer then goes on to recommend ways of fixing these problems. His very first proposal is the permanent extension of the Bush tax cuts, which according to Laffer’s theory should have led to a huge burst of employment since 2001 but in reality did nothing close to that, which is of course why those tax cuts must be made permanent even at the cost of mortgaging our future to China.

In his final recommendation (”saving the best for last,” he explains) Laffer proposes to introduce “incentive pay for politicians,” AKA “putting the politicians on commission”:

“Politicians must be held personally responsible for their actions. In business, firms align the incentives of decision makers with the incentives of shareholders to ensure that they take the best course of action. Washington must begin doing the same by creating an incentive structure that pays elected officials according to factors such as stock market performance and economic growth.”

Because you know, that approach has worked so beautifully in private industry, where corporate officials have manipulated earnings and managed their companies for short-term numbers rather than long-term health in order to maximize their own paychecks and bonuses. Imagine what members of Congress could accomplish with a similar mindset.

Personally, I think Laffer’s proposal credits government with a degree of control over the economy that it does not and should not have. In fact, such a system would give politicians a powerful financial incentive to intervene much more aggressively in the economy and goose it artificially, either through tax cuts or spending sprees, so they could collect their bonuses.

In other words, it seems to me that Laffer’s proposal would incentivize the very government interference in the economy that he claims to abhor. But hey, what do I know? He’s the one with the PhD from Stanford.

For another example of Laffer’s brilliance, there’s this, from Aug. 2006, just as the economy was about to go bust.

373 comments Add your comment

Who Cares?

November 12th, 2010
12:51 pm

Looks like Laffer has been to the same seminar on delusional thinking as Obama and Pelosi.

Granny Godzilla

November 12th, 2010
12:51 pm

We owe Mr Laffer a thanks…

For so perfectly illustrating Albert Einsteins definition of insanity-
doing the same thing over and over again and expecting different results.

Bosch

November 12th, 2010
12:58 pm

Mrs. G.,

Like tax cuts for the rich will create revenue and jobs!! Yippee! :roll:

Southern Comfort

November 12th, 2010
12:59 pm

Washington must begin doing the same by creating an incentive structure that pays elected officials according to factors such as stock market performance and economic growth.”

How in the hell can a politician be judged on stock market performance? The government does not issue stock. That is stupidity at its finest!!!

idaslaptor

November 12th, 2010
1:04 pm

Well – at least Bookman can acknowledge that he has no skills. Or economic intelligence – 2 requirements for working at the ajc.

jconservative

November 12th, 2010
1:08 pm

Laffer just does not work with the facts.

The facts are that from the 1940’s through the 1970’s the US had NET job creations that averaged 30% for the period. In the 1980’s and the 1990’s that percentage fell to 20%. From 2000 to 2009 that percentage was 0%. That is correct – Zero percentage.

There are simply not enough jobs to go around. There are more workers than jobs.

In the 1980’s we decided to cut taxes and sit back and watch the savings trickle down.

But instead of trickling down, the savings trickled out. Trickled out to Indonesia, India, Bangladesh and China.

Trickle Out Economics – TOE for short. You know, like we stuck our TOE up our………….

Granny Godzilla

November 12th, 2010
1:11 pm

Granny Godzilla

November 12th, 2010
1:11 pm

Hey Boschie!

Bubba Bob

November 12th, 2010
1:11 pm

What’s funny to me is that so many everyday folks saw this coming and got out before it happened. My investor and friend had us out a year early.

Krugman, Laffer, etc. sat around doing nothing. Who deserves the Nobel?

barking frog

November 12th, 2010
1:12 pm

To raise taxes you lower taxes. That’s a laffer, for sure.
The benefits of hiring someone to do something you need done
must outweigh
the benefits of not hiring someone do something you need done.
or
How much you need something done will determine whether or
not you hire someone to do it.
This requires a PhD?

Shawny

November 12th, 2010
1:12 pm

Laffer is correct except that the availability of labor is not too low. Not in a time of high unemployment.

Mick

November 12th, 2010
1:14 pm

Enough already with all the over anlysis….we have a huge debt that needs to be paid….end all the bush tax cuts and deal with this bitter medicine now, rather than later, when it will become even more difficult..

not Laffer ing

November 12th, 2010
1:14 pm

Arthur Laffer article takes into account many things except for his continuing(hopefully) treatment for his myopic view of this recession(maybe we do need Obamacare)

Jay

November 12th, 2010
1:15 pm

So Shawny, you think congressmen ought to be paid based on how the Dow does?

paleo-neo-Carlinist

November 12th, 2010
1:24 pm

what part of Laffer do people not understand? but seriously folks, the biggest “laffer” of all is the Federal Reserve Bank’s latest critic; Sarah Palin. I think she’s been cheating off Ron Paul in ECON class, but somebody needs to tell her she can’t have her “perpetual war” foreign policy without the Fed’s “monetizing of debt” (man, am I sick of that word. used to fear it, now I fear those who have reduced it to a “vote for me” soundbite).

barking frog

November 12th, 2010
1:24 pm

Congressmen ought to be paid a percentage of
the programs approved for their district.
Get them earmarks fired up….

Hillbilly Deluxe

November 12th, 2010
1:32 pm

“The supply of labor is limited.”

Then one would think wages would be going up, not going down or remaining stagnant. Of course, I’m not a guru.

Mick

November 12th, 2010
1:35 pm

Jay – but you are a guru, of sorts. The friday nite music exchange is one of the most innovative uses of you tube and you set the course.

not Laffer ing

November 12th, 2010
1:35 pm

Congressmen ought to be paid a percentage of the tax base they bring to their district – let them eat pork :-)

Peadawg

November 12th, 2010
1:35 pm

““… the incentives not to work (are) too high””

I wouldn’t say “too high” but it’s definitely high enough to effect unemployment numbers. Counting all the handouts by the government(food stamps, Medicaid, etc. etc.), why work when the gov’t will pay for everything?

Peadawg

November 12th, 2010
1:37 pm

“So Shawny, you think congressmen ought to be paid based on how the Dow does?”

Now that ya bring that up…being paid based on their approval rating of those they work for(voters) is a pretty good idea!!!!!

Hillbilly Deluxe

November 12th, 2010
1:39 pm

Noted Atlanta radio personality, Ludlow Porch, once said that Congressmen should be taken off salary and put on commission. :lol:

not Laffer ing

November 12th, 2010
1:40 pm

Peadawg@1:35 pm

It may affect unemployment numbers at the very bottom (minimum wage)(minimum UI benefit) but I assure you for the middle class caught up in this continuing offshore and H1b crisis it is not the case.

Can’t get Medicaid/food stamps if UI benefit is too high.

David

November 12th, 2010
1:40 pm

Laffer’s proposals – boy, what laughers! He should go on The Daily Show or Colbert.

Doggone/GA

November 12th, 2010
1:42 pm

“why work when the gov’t will pay for everything?

Which – naturally – explains ALL of those people who show up at job fairs and that file papers, in the THOUSANDS, for available job openings. They’re just foolin’ us into thinking they want a job. Actually, there very happy not working and living on the dole…right?

Jay

November 12th, 2010
1:42 pm

So Peadawg, walk me through this:

Say we eliminate all those “handouts” you mention: What jobs would these people then take?

AngryRedMarsWoman

November 12th, 2010
1:45 pm

“Laffer is correct except that the availability of labor is not too low. Not in a time of high unemployment.”

Maybe he meant that the availability of the “correct kind of labor” is too low? I realize that there are a lot of “good” people out of work. But there are also a lot of inflexible, uneducated, “give me a button to push and how much vacation time do I get” folks who lack either the ability or the desire to be fluid in a time of uncertain employment opportunities. I know there can be other variables, but after sitting through countless RIF meetings at my company in the past few years I can tell you that generally the folks let go are the ones who have done the least to make themselves valuable to their employer. I know, I know “they don’t own me”…but they don’t owe you anything either.

Jay

November 12th, 2010
1:48 pm

I just updated the post with a video featuring another example of Laffer’s brilliance.

AngryRedMarsWoman

November 12th, 2010
1:49 pm

“Now that ya bring that up…being paid based on their approval rating of those they work for(voters) is a pretty good idea!!!!!”

Not sure I agree with that either. With the phenomenon of “everybody’s elected official sucks but mine”…..no, I don’t think I trust most folks to properly assess their own politicians. Maybe if you had say the folks from Georgia rate the Senators from Utah and base it on that? LOL But even then you run into the problem of politicians doing what it takes to make people “happy” in the short-term…and isn’t that what got us where we are now, in the crapper?

Doggone/GA

November 12th, 2010
1:51 pm

“Not sure I agree with that either”

How about being paid by how many bills they vote for that get signed by the President?

not Laffer ing

November 12th, 2010
1:52 pm

AngryRedMarsWoman@1:45 pm

“Laffer is correct except that the availability of labor is not too low. Not in a time of high unemployment.”

Maybe he meant that the availability of the “correct kind of labor” is too low? I realize that there are a lot of “good” people out of work. But there are also a lot of inflexible, uneducated, “give me a button to push and how much vacation time do I get” folks who lack either the ability or the desire to be fluid in a time of uncertain employment opportunities. I know there can be other variables, but after sitting through countless RIF meetings at my company in the past few years I can tell you that generally the folks let go are the ones who have done the least to make themselves valuable to their employer. I know, I know “they don’t own me”…but they don’t owe you anything either.

I do agree that employee inflexibility is a problem, but then again is the attitude (in the IT world at least) that we can lay off all these people and bring in H1b’s to fill their slots (as in anybody can do THIS job)

AngryRedMarsWoman

November 12th, 2010
1:53 pm

Jay November 12th, 2010 1:48 pm
“I just updated the post with a video featuring another example of Laffer’s brilliance.”

shudder….Laffer just gives me the willies on so many levels it is not even funny. Dude is wrong even when he talks about historical fact. And he is just so creepy looking that it kills me. I got a chill watching that…stop the madness.

AngryRedMarsWoman

November 12th, 2010
1:58 pm

“I do agree that employee inflexibility is a problem, but then again is the attitude (in the IT world at least) that we can lay off all these people and bring in H1b’s to fill their slots (as in anybody can do THIS job)”

Agreed. And I do not want to give the impression that this is all about the quality of employment candidates. Businesses are to blame as well. You have to be willing to pay for quality to get quality. In my experience, a lot of the labor coming in on visas is not of very high quality — lower priced? yes…capable of performing the basic requirements? ehh, kinda. But there are high quality American workers who can do it faster and better. When you measure productivity by looking only at output divided by cost and ignore quality…well…. And as consumers we own part of that too because we refuse to demand the quality.

AngryRedMarsWoman

November 12th, 2010
2:00 pm

“How about being paid by how many bills they vote for that get signed by the President?”

That depends…who is the President signing the bills? sorry, LOL

carlosgvv

November 12th, 2010
2:00 pm

Employment is low because Companies are working their existing workers long and hard and are not worrying they will quit. Many workers have to work unpaid overtime just to keep their jobs caught up. As usual, corporate greed is the word. Now that Republicans have won the House, you may be sure this will continue for some time to come.

md

November 12th, 2010
2:03 pm

“Employment is low because the incentives for workers to work are too small.”

I think you have to look at this from a different angle. For many out there, it is cheaper to not work. If one has child care or other considerations as such, by the time one factors in the cost of going to work, it truly makes no sense to do so.

joe

November 12th, 2010
2:08 pm

A quick fix to our debt would be to swap Hawaii to China in exchange for eliminating our debt. Except for good weather, beaches, Dog the Bounty Hunter and the criminals/drug addicts he nabs, not much going on out there. Besides, the Caribbean is closer…Just a thought…

md

November 12th, 2010
2:09 pm

“How in the hell can a politician be judged on stock market performance? ”

Some policies do have consequences………should be tied to something……..hold the misfits accountable monetarily like they do to others and let’s see what happens……….

scrappy

November 12th, 2010
2:10 pm

“Employment is low because Companies are working their existing workers long and hard and are not worrying if they will quit.”

Exactly!
Doesn’t this sound familiar, as in, why unions were invented. Funny how over time the cycle repeats, as is the case in many things in life. Greed brought on unions, unions got to powerful and destroyed themselves, leading to fewer if any unions, which results in more corporate greed making a comeback, which leads to needs for more unions (or regulations).

Jay

November 12th, 2010
2:12 pm

Oh, you’re a sly one, Joe. I see what you’re up to.

Once Hawaii becomes Chinese territory, Barack Obama becomes a Chinese citizen and thus ineligible to be president.

You thought we wouldn’t see through that?

AngryRedMarsWoman

November 12th, 2010
2:13 pm

“For many out there, it is cheaper to not work. If one has child care or other considerations as such, by the time one factors in the cost of going to work, it truly makes no sense to do so.”

The voice of reason. I can’t tell you how many married couples with children that I know who I just want to shake and say “have you ever done the math?” It is pretty much assumed that both parents have to work, but in many cases it does not make real financial sense. Once you factor in the second car, eating out or eating convenience food, childcare, work clothing, and frankly the wear and tear on everyone’s health and sanity one of those parents is making little to nothing. It sounds better to have a family income of $80k, but in most cases it would be better if the parent making $30k stayed home.

not Laffer ing

November 12th, 2010
2:14 pm

AngryRedMarsWoman@1:58 pm

And as consumers we own part of that too because we refuse to demand the quality.

I agree completely. As an aside when we are shopping for Christmas items this year please keep in mind the US workers that produce similar items. The biggest retailer sells many items made offshore while other stores pride themselves on selling more USA made products.

Kannapolis NC was one of Cannon Mills manufacturing hubs. In the late 90’s someone from a large retailer suggested that they could sell their products cheaper if they were made in China. Cannon Mills refused. The retailer changed suppliers to one manufacturing in China. The result is Cannon Mills in 2003 declared bankruptcy and shuttered 13 mills and layed off many thousands of employees. In addition Kannapolis NC is no longer much of a place to go.

md

November 12th, 2010
2:14 pm

scrappy,

All well and good in theory, but what happens to costs when it is dictated that there be more of it??

We are already at a disadvantage globally in the labor market – not counting the EU, as they have the same problem – it will correct itself over time, but it won’t be painless.

joe

November 12th, 2010
2:16 pm

No, Bookman, you’re thinking is bassackwards, he’s already “technically” ineligible…ha ha ha. But I digress, what do we have a lot of in the USA? Land. So, why not transfer some of that to eliminate our debt. If we can’t fix the system, break it and start over. I’m simply thinking outside the proverbial box…so give me a little credit.

Bubba Bob

November 12th, 2010
2:19 pm

Jay,

How do you pay for “handouts” if there is no money? It’s a double-edged sword to be sure but the USA is broke with almost $14T in debt and $111T in unfunded liabilities. We are passed any easy solutions.

md

November 12th, 2010
2:19 pm

Well shoot, let’s go back to the spoils of war method, give them Iraq and Afghanistan and call it even…..3 problems solved with one fell swoop……….

Doggone/GA

November 12th, 2010
2:20 pm

“That depends…who is the President signing the bills? sorry, LOL”

Doesn’t really matter, does it? If they were paid by the bills they vote yes on that get signed, think of the incentive to compromise!

I vote therefore I am

November 12th, 2010
2:20 pm

I vote to give them Alaska, it’s colder and we will throw in Sarah for free.

Jay

November 12th, 2010
2:22 pm

i agree with that Bubba, we need to start cutting.

Do you agree that we also will need tax hikes to help address that problem?

The Mandarins

November 12th, 2010
2:23 pm

We take Alaska, we need oil and lots of land to build factories. Plus Sarah cute ;-)

TaxPayer

November 12th, 2010
2:25 pm

The key point to take away from all things Laffer is that he has been instructed by the GOP to come up with a theory or theories to make their philosophies appear plausible. The poor guy has got to be crazy by now if he were not already.

lewis

November 12th, 2010
2:26 pm

“the word “housing,” as in the bursting of the housing bubble, is never mentioned. Nor are the words “derivative” or “mortgage” or “Wall Street” or “foreclosure”.

Those aren’t mentioned because they aren’t the root cause of the problem. They are secondary indicators that a problem exists. The CONSUMER absolutely caused the credit meltdown because they simply stopped paying for the homes that they’d purchased. Mortgage prices, derivative prices, Wall. St… etc. etc. those things were all impacted later. The CONSUMER was and still is, the root problem.

Del

November 12th, 2010
2:26 pm

Two attacks on Arthur Laffer within a few days. Sarah Palin is getting some serious slack. I wonder if the left fears that Laffer might be thinking about a run for the Republican presidential nomination in 012.

Left wing management

November 12th, 2010
2:26 pm

Jay “In other words, it seems to me that Laffer’s proposal would incentivize the very government interference in the economy that he claims to abhor. But hey, what do I know? He’s the one with the PhD from Stanford”

ROFLMAO.

Absolutely love how you opened the day with a post on our inadequate education system – and to follow it with this, on the marvelous contributions to the public debate being made by one of our most esteemed doctorate-holders from one of our finest educational institutions. Now THAT was a stroke of genius.

In short, a real Laffer.

scrappy

November 12th, 2010
2:26 pm

“…but what happens to costs when it is dictated that there be more of it??

More costs you mean…by having to hire more employees (rather than working current ones to death)? I suggest it comes from the top down. The percentage of money that ’stratgic management’ get now as compared to when our economy was growing is quite high. (no I don’t have actually percentages, nor the time to look them up)

Doggone/GA

November 12th, 2010
2:28 pm

“The CONSUMER was and still is, the root problem.”

Nope. The consumer problems are a symptom, not the cause. The ROOT CAUSE was, and is, lenders lending money to unsafe borrowers…then bundling the mortgages and selling them quick to other investors.

It’s easy to be careless when you KNOW you’ll get your money back regardless.

paleo-neo-Carlinist

November 12th, 2010
2:29 pm

speaking of “handouts” here’s an interesting story. I live in one of the hip (gentrified) intown neighborhoods, but I sometimes shop for groceries in less gentrified areas. depending on taste/budget, etc., you can get a loaf of mass-produced (enriched flour) bread for anywhere from .75 to $1.50 at the local Kroger or Publix. so yesterday I stopped by a Wakefield Foods to pick up a loaf of bread and could not find anything (even the really cheap generic stuff) for less than $1.75. and the folks who shop there are almost ALL using Food Stamps. doesn’t sense, does it? I mean, to the consumer, it’s a loaf of bread, and if they’re not paying for it, they really don’t care about price. but the retailers (grocery stores) know this, so they tack an extra quarter or .50 onto the price and you tell me who is getting the “handout”? the same is true of convenience stores that accept food stamps or WIC chits.

lewis

November 12th, 2010
2:30 pm

““Employment is low because the incentives for workers to work are too small.”

Let me explain this to you, Jay. I worked in NY for 5 and a half years as a banker. In 2007, my effective tax rate was 52% of my gross pay. Let me say that again: MY TAX RATE WAS 52% OF MY GROSS PAY. I left Wall. St. to take a lower paying job that only required me to work about 50-55 hours a week. However, I am in such a lower tax bracket, that my net pay was not impacted substantially. My story very clearly illustrates why people work more, less, or not at all, based on incentives. You can bet that with lower taxes, I’d be back at it, working 100 hours again, but I’d only do it if I can actually keep the lion’s share of what I make.

AngryRedMarsWoman

November 12th, 2010
2:31 pm

“Doesn’t really matter, does it? If they were paid by the bills they vote yes on that get signed, think of the incentive to compromise!”

Or else they just vote yes on everything to hedge their bets so they get paid for everything that the president signs. Spend one term in office making a killing on “yes” votes and retire…

md

November 12th, 2010
2:32 pm

“The CONSUMER was and still is, the root problem.”

That only works for the “I have my hand up it’s my fault” crowd. The others…..not so much.

Normal

November 12th, 2010
2:32 pm

Jay

November 12th, 2010
1:15 pm

Just butting in, but I’d like to see Congress just get paid room and board….and let their state taxpayers foot the bill.

lewis

November 12th, 2010
2:33 pm

Doggone/GA

November 12th, 2010
2:28 pm

“The ROOT CAUSE was, and is, lenders lending money to unsafe borrowers…then bundling the mortgages and selling them quick to other investors.”

Lenders are forced to lend money to unsafe borrowers because of the Community Reinvestment Act that requires all banks to provide retail and commercial financing in mostly minority low-income neighborhoods. When the government is telling banks who they HAVE to lend to, then that also means you can’t criticize those banks if the loans go bad.

Hillbilly Deluxe

November 12th, 2010
2:35 pm

100 hours a week is 14.29 hours a day, 7 days a week. It everybody’s choice but when would you have time to spend any of the money you’re making?

Normal

November 12th, 2010
2:36 pm

Lewis,
the only reason my neighbor quit paying his mortgage was because he lost his job. Damn him for having his job go to China.

lewis

November 12th, 2010
2:36 pm

Doggone says “Nope. The consumer problems are a symptom, not the cause”

Your logic implies that the mortgage market blew up BEFORE people stopped paying thier mortgages? How in the world can you think that? The mortage market, the commercial credit crunch, the meltdown of Lehman brothers… None of those things happened until the consumer stopped making their mortgage payments. You don’t understand cause and effect…

md

November 12th, 2010
2:36 pm

Of all the folks on the planet, the consumer is the only one that really knows what he/she can and can’t afford………………..they know what is coming in and going out………period.

lewis

November 12th, 2010
2:37 pm

Hillbilly- When you’re getting paid 7 figures to work 100 hours a week, its easy to justify the hours. But then after you work all those hours and the gov’t takes 52 cents of every dollar that you earned, then you quickly decide that its NOT worth it.

Left wing management

November 12th, 2010
2:39 pm

Lewis: “MY TAX RATE WAS 52% OF MY GROSS PAY”

Since you’re sharing, would you care to disclose what sort of salary you’re talking about here, or at least bracket?

” I left Wall. St. to take a lower paying job that only required me to work about 50-55 hours a week” // Only in America. (Sigh)

“You can bet that with lower taxes, I’d be back at it, working 100 hours again, but I’d only do it if I can actually keep the lion’s share of what I make.” // Hmm, so you mean you weren’t just doing it out of pure workaholism, pure love of the street? You really were in it for the bucks, in other words?

md

November 12th, 2010
2:39 pm

“the only reason my neighbor quit paying his mortgage was because he lost his job.”

Well, the rule of thumb is to buy what one can afford on one salary or less with at least 6 months of reserve in the bank. I don’t think many played the game with that in mind………..

Jay

November 12th, 2010
2:39 pm

Lewis:

I do not believe it. Not for a minute.

The top federal tax rate is 35 percent on income above $373,000.

The next lowest bracket is 33 percent, on income between $171,000 and $373,000.

The next lowest is 28 percent, on income between $82,000 and $171,000.

The math says there is no way possible for you to be in a much lower tax bracket and still have roughly the same net pay.

EJ Moosa

November 12th, 2010
2:39 pm

The uniformed like to blame the housing markets for all their woes. What many seem to forget is that the price of fuel, which we all use, and is embedded in all we buy, rose from under $2 a gallon to over $4, beginning in 2005.

Also, the Bush wage increases were passed and implemented, increasing minimum wage by over 42%.

So at the same time fuel prices rose astronomically, so did labor expenses for many businesses.

Both businesses and consumers changed their behaviors because of the rising costs.

Unfortunately for people like Bookman, they do not grasp that taxes have the same sort of effect. Taxes are looked at as free revenue from someone other than themselves. It isn’t so. They come from somewhere. There are consequences.

Those taxed will also change their behaviors. You end up with less tax revenue.

You’ve seen people change their behaviors. It is better to be honest and acknowledge it than to continue to lie to yourself that THIS is the solution to your problems.

JF McNamara

November 12th, 2010
2:41 pm

I missed those original Laffer curve articles Jay. Nice Job. I’ve been trying to explain this concept to Wingfield and his brood since he began blogging on AJC, but that’s a lost cause.

BTW…As rude as Laffer was in that interview to Schiff, I’m glad he got his comeuppance.

lewis

November 12th, 2010
2:41 pm

“You really were in it for the bucks, in other words?” Why else would anyone work late every night and saturdays and sundays. Part of the reason that Wall Street gets hit deeper when it comes to taxes has to do with the fact that a large % of the pay is bonus, not base salary. With bonus dollars, the firm doesn’t pay your SS taxes, which inflates your overall tax rate.

Adam

November 12th, 2010
2:41 pm

From “Who Cares?”: Looks like Laffer has been to the same seminar on delusional thinking as Obama and Pelosi.

Uh, no. Someone entirely misses the point when they find Laffer’s ideas and Pelosi and Obama ideas as anywhere close to similar.

md

November 12th, 2010
2:41 pm

“You really were in it for the bucks, in other words?”

Should be of no concern to anyone as to why???? May have wanted to retire early vs work his whole life. Should be his choice…….not ours.

marky mark

November 12th, 2010
2:41 pm

“Because you know, that approach has worked so beautifully in private industry, where corporate officials have manipulated earnings and managed their companies for short-term numbers rather than long-term health in order to maximize their own paychecks and bonuses. Imagine what members of Congress could accomplish with a similar mindset.”

In my opinion, I think they already have that mindset….legislation for re-election….any statesmen/ladies left out there?

lewis

November 12th, 2010
2:44 pm

Jay- Pick up the phone and call any Vice President in the Investment Bank at Goldman Sachs or Morgan Stanley. Ask them how what their take home pay is as a % of their gross pay.

Make sure they exclude what they pay for healthcare costs and also any 401k contributions. When you find someone who’s real tax rate is 35% as you outlined above, please let me know. You won’t find any. Also, see my comment above about social security taxes on bonus payments. Bonus payments usually comprise 60-80% of an IB’s total gross pay.

Hillbilly Deluxe

November 12th, 2010
2:45 pm

lewis

Well, one thing is for sure, when you and I leave this world, we’ll take the same amount of money with us.

On the Housing Melt-Down:

A local bank, here, is on the “danger list”. They reportedly (according to media reports) have 10 times the acceptable number of bad loans. The lion’s share of those loans aren’t for individual buyers, they’re for financing McMansion subdivisions. While I don’t think the Community Reinvestment Act is totally blameless, I doubt it had much to do with the mess the bank is in.

Adam

November 12th, 2010
2:45 pm

EJ Moosa: Taxes have an effect, but taxes are not the whole story and should not be jumped upon as the only and complete solution from either angle. If you make a graph out of the tax brackets and see what is retained or refunded to individuals based on income, you will see just how grossly different it is when compared to the same graph from 1999, or a graph based on extending tax cuts up to 250k. For fun, you might try making a graph based on other limits, like 1 million or 500K.

Southern Comfort

November 12th, 2010
2:46 pm

52% tax rate???

Sounds like you should have found an accountant instead of being cheap and trying to use Turbo Tax. :)

Jay

November 12th, 2010
2:47 pm

EJ, that’s baloney.

Here are the inflation rates in the time frames you describe:

2005: 3.39%

2006: 3.24%

2007: 2.89%

Those are very low rates of inflation historically.

ATF

November 12th, 2010
2:47 pm

Normal: “Just butting in, but I’d like to see Congress just get paid room and board….and let their state taxpayers foot the bill.”

Ohhhhh, I like that. Of course, given our legislature, they would get whatever they want. But, I would like that cost paid by the state and not the feds. And, lets add that the state has to fund the cost of staff for committees – just split it out amoung however many states have a person sitting on a committee. The more committees a legislator sits on – the more power he has – the more his state has to pay for him to exercise all that power.

You heard about some Pubs wanting to keep the ear-marks – like Isakson.

lewis

November 12th, 2010
2:47 pm

Lets also remember that people at investment banks pay MORE for their healthcare than do lower-wage employees. At JPMorgan Chase for example, an invesment banker making over $250k per year pays 60% higher healthcare costs for the SAME POLICY as the bank tellers who earn less than $50k per year. They don’t talk about this, but is it fair that some people pay such a higher rate for the SAME insurance coverage?

Southern Comfort

November 12th, 2010
2:48 pm

Well, one thing is for sure, when you and I leave this world, we’ll take the same amount of money with us.

You should get in touch with St. Peter. I hear they have some good rates on CD’s. ;)

EJ Moosa

November 12th, 2010
2:49 pm

@Adam.

I never said it was the only and complete solution. But it is the only solution that Congress can address efficiently.

And tax refunds have nothing to do with any of this. Refunds are only an indication that you had too much tax withheld during that tax year.

Adam

November 12th, 2010
2:50 pm

lewis: it might be fair if you take it from the other angle, which is that the standard rate is being applied to the 250K person, and it’s being discounted for anyone under a certain income level. Then they’re just trying to make it affordable for people.

Nice Guy

November 12th, 2010
2:50 pm

Hillbilly – “but when would you have time to spend any of the money you’re making?”

When you retire….one rich SOB.

Adam

November 12th, 2010
2:50 pm

EJ: I only mentioned refunds because they do fit in to just how much tax one ACTUALLY pays. I think that factor is important to note.

Matti

November 12th, 2010
2:51 pm

any statesmen/ladies left out there?

Not that have the cash to get elected. Besides, it’s already too late. The Plutocrats began this endeavor decades ago, and now it’s coming to fruition for them. We’re less than 20 years away from complete 21st-century feudalism. The brief moral victory that the common folks felt when Obama was elected was just a pacifier. It’s a ruse they LET us have to distract us from the truth.

Left wing management

November 12th, 2010
2:51 pm

md 2:41: “Should be of no concern to anyone as to why???? May have wanted to retire early vs work his whole life. Should be his choice…….not ours.”

You’re basically right. I’m being a little snide. Still, I find it interesting to know something about what motivates people who are pursuing these high-earning professions, especially considering out entire economy rides on their coattails.

Lewis: “Why else would anyone work late every night and saturdays and sundays.” // Lots of reasons. Ask an actor why they spend hours upon hours learning lines to appear in a play – hardly for the big bucks.

“Part of the reason that Wall Street gets hit deeper when it comes to taxes has to do with the fact that a large % of the pay is bonus, not base salary.” // You’re right – I meant to ask what’s the sort of gross income we’re talking about. I realize the base salary is almost trivial in some cases.

“With bonus dollars, the firm doesn’t pay your SS taxes, which inflates your overall tax rate.” // Yeah, I’m quite familiar with the phenomenon as a self-employed worker. Still, I hardly see why I should cry for Wall St. bankers being hit for an additional 7.5% for SS.

marky mark

November 12th, 2010
2:51 pm

jay, dont forget the NY City tax….thats a real !@#!@#!….my sister is a professional actress, and when she was young (the 80’s) in her day job, she told me the combo of fed/city/state taxes was eating her alive….

Jay

November 12th, 2010
2:51 pm

Lewis, if you were making the money you claim, then there would have been NO SSI taxes taken out of your bonuses because you would have been over the 100k limit on assessing those taxes.

And if you were operating at the level you claim, you would know better than to try to peddle that absurd CRA nonsense.

marky mark

November 12th, 2010
2:53 pm

Matti, one of the reasons I have always wanted term limits is that no one will spend gazillions to get elected if they dont have a job for life…(more or less)..

md

November 12th, 2010
2:54 pm

“Well, one thing is for sure, when you and I leave this world, we’ll take the same amount of money with us.”

Now that depends HD, some of those Egyptian mummies sure took a lot with them……….and I know a few bitter old fellas that plan to be cremated with theirs so the feds can’t get their hands on it………

Hillbilly Deluxe

November 12th, 2010
2:54 pm

Nice Guy

Assuming you live to retire.

Jay

November 12th, 2010
2:54 pm

If Lewis wants to admit that he made a LIFESTYLE change, leaving Manhattan for a less pressure-filled life where a dollar stretched a lot farther, and that lower taxes were a nice part of that change, that’s conceivable and feasible. Happens all the time.

Hillbilly Deluxe

November 12th, 2010
2:55 pm

md @ 2:54

That’s true but if you’re walking on streets paved with gold, is a Federal Reserve note going to matter? ;-)

EJ Moosa

November 12th, 2010
2:55 pm

Jay,

What do inflation rates have to do with changing behaviors? People talk about the price of gas every day, even if they are not filling up each day.

Perhaps you purchase goods that are identical to what the government reports inflation with on an annual basis, but the rest of us do not.

And if you run a small business with minimum wage employees, your labor costs rose 42%, not just over 3% per year.

You should search your archives for the stories your paper ran during that time frame if your memory is that short.

AmVet

November 12th, 2010
2:55 pm

Also, the Bush wage increases were passed and implemented, increasing minimum wage by over 42%.

Wow, those thieves! Getting a whopping $7.25 per hour!

No wonder American business is n the doldrums!!

And EJ, that 42% figure you used is also baloney.

The minimum wage from 1997 – 2006 was $5.15/hour.

The increase was 29%, not 42%

But the kicker is how the water carriers for the corporatocracy, conveninetly fail to mention that had the minimum wage even kept up with inflation since the 1970s, it would now stand at over $10.00 per hour…

Typical :conservative” move – vilify the weak and glorify the wicked…

Nice Guy

November 12th, 2010
2:55 pm

lewis –

Your real world experience and knowledge is telling a truthful story that Jay and his Bookmanites don’t want to hear. Notice how Doggone disappeared after your post?

Please, continue enlightening this crowd. This is entertaining.