Taxes: Turns out it IS a laffing matter…or…you can only squeeze the golden goose so hard before it pops…

So the question in front of us is TAXES.

What should they be? How much is too high? How much is too low?

Enter the Laffer Curve. If you haven’t heard of it (Google it) then i am about to boil it down for you. It doesn’t matter whether you are a Democrat or Republican. The Laffer Curve matters.

The Laffer Curve is a simple formula. Its basic point is this:

If the government taxes income at 0%, then its revenue (because it took nothing in) will equal 0%.

If the government taxes income at 100%, then its revenue (because by taking it all it has choked out the source) will equal 0%.

At some point upon this scale, taxes effect their source enough to diminish it.

Somewhere between 0% and 100% lies the point that provides maximum revenue.

BOILING IT DOWN

Its a Golden Goose.

Squeeze it a little and out pops a few golden eggs. Squeeze a little harder and the eggs pop out more frequently. Squeeze too hard and the goose gets sick and pops out less eggs. Squeeze as hard as you can and the goose dies.

The question is how hard to squeeze. There is a bunch of argument as to what that is. The basic curve graph puts it at 50% but that leaves out a lot of complicated data that can make that change.

So…just to make it simple…lets say that maximum revenue is a 50% rate.

Current rates for folks who make the most money in the US are 35%.
FICA taxes are basically 8%

This means that currently our highest wage earners are taxed at a 43% tax rate.

*Note that the way these are figured mathematically is not as simple as “take your income and multiply it by 43% and pay the bill”. I am just keeping the math clean.

So if we take as a given that maximum revenue is 50% (it most likely is not…some research say its in the 60% range…some says in the 25% range) then this means that currently if we were to go after the wealthiest folk tax money we would be limited to somewhere in the area of 10% increase before we start to kill the golden goose.

BOILING IT DOWN

The current TOTAL ANNUAL INCOME TAX COLLECTED is around 1.5 trillion dollars – that means every year we bring around this amount.

A ten percent increase in how much the rich pay is about you can get without killing the goose.

Thats means 150 billion dollars per year is all thats left to squeeze out of the 35% bracket.

NOTE – the math insanely simplified. I know this. THere are other revenues the government collects. I know this. The point is that when you do the math…even if i am wrong by 150 billion…there still isn’t much money there in relation to the total federal budget.

Economy: Hayek or Keynes…in the end its all money…

So of course in these difficult economic times we have seen the rise of the “economist talking head” on the news shows across our land. In economic crisis these folks line up in one of the two camps and give their grand opinions about what we must do to get ourselves out of the crisis. These fellows generally fall into one of two camps: They are either Keynes are Hayek(or sometimes Friedman). Likewise our two political parties fall into line as well. Democrats are on the Keynes side and Republicans are on the Hayek side. It is very dense stuff and very confusing.

However the goal here is to “boil it down” so I am going to attempt to give a very simple way of looking at it and understanding the choices that lay before us.

When President Obama took office he was faced with a failing economy and the need to “do something to get it going again”. The Democrats advocated a huge spending increase. The Republicans advocated tax cuts of various types.

The Keynes approach to a crisis says – When the economy is suffering the government can increase its spending and incur a deficit for the short term in order to provide demand and keep the economy afloat until it recovers. In essence this plans allows the government to inject money into the economy thru government programs.

The Hayek/Friedman approach is to cut taxes in order to put more money into the hands of the population. Incur a deficit is not great but acceptable. In essence this plan allows the government to inject money into the market place thru taking less of it in the first place.

To make it simple…in the end its all money.

If the government decides to spend a trillion dollars in stimulus it has put a trillion dollars into the economy that would not have normally been there.

If the government decides to take a trillion dollars less in taxes it has put a trillion dollars into the economy that would not have normally been there.

The only difference is who is in control.

The Republican approach puts its faith in the people having their own money to spend as they wish.

The Democratic approach puts its faith in the ability of government to spend the money in the best way for the economy.

MAKE NO MISTAKE – THERE ARE BENEFITS AND DRAWBACKS TO BOTH APPROACHES.

…but if you just want to boil it down…in the end its all money.

Cards on the table…

So…before I start posting more significant things let me get it out there where I am coming from.

I am a Conservative Republican
I am from the South.
I am a Baptist…though in the south I would be labeled a Liberal one…though in reality I am a Moderate Evangelical.
I love college football (LSU)
I love comic books.
I love movies.

So there ya go.

Boiling it down?

So what’s this all about?

Simple…many topics we discuss across the spectrum become hard to understand because of there complexity. When you begin “boil it down” you evaporate the unneeded and get to the heart of the matter. That is the focus of this blog. my passions are politics and religion…with the occasional forays into movies and comic books. The goal here will always be how to take big issues and get them to their simplest parts. So hang on and here we go!