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Han

(Doug Miller) wrote in
:

In article , Han
wrote:
Just Wondering wrote in
s.com:

On 8/3/2011 9:21 AM, Han wrote:
Jack wrote in
:

On 8/2/2011 11:13 PM, Lew Hodgett wrote:

Cut taxes so that additional debt is created.

Except since at least JFK, cutting taxes has ALWAYS resulted in
increased revenues.

Fudged statistics, I'm sure. At least it defies logic that by
cutting income you'll get more money in.

No it doesn't. If ABC Company and DEF company both make widgets at
a cost of $6 each and sell them at $10 each, they'll have the same
income.
But if ABC Company cuts its selling price to $9 each, it cuts its
income by a dollar for each widget it sells, so it will make less
money, right? Wrong. It stimulates the market - more people can
buy widgets when they cost less, so more total widgets can be sold.
Plus, some people that would have bought from DEF now buy from ABC
to save a buck. As a result, by reducing its price and thus its
incremental profit margin, ABC gets more money. It's more
complicated, but reducing incremental tax rates has the same overall
effect -- it stimulates growth in the private sector, which
ultimately results in increased revenue.

Widgets aren't like taxes. What you are saying goes for widgets
because of the elasticity of demand. You can increase demand by
lowering prices, thus with a smaller margin, increase net profit. If
you lower income taxes, people have more disposable income, but
spending that extra income (if they do it at all - now they may be
paying off debt) does NOT increase income tax revenue.

Well, you have *part* of this right, but you haven't taken it to its
logical conclusion. What happens to that extra income when they spend
it? It doesn't just evaporate. They're spending it on *something*.
Suppose they decide to buy a TV, and eat out one more time a week. One
family doing that doesn't make any difference to the economy -- but a
hundred thousand families doing that means a hundred thousand more TVs
sold, and about five million more restaurant meals a year. That
creates jobs for waiters, cooks, and anyone involved in the production
and retail of TV sets. It means more jobs for truck drivers hauling
TVs, food, and dishwashing soap. The waiters, cooks, retail clerks,
and truck drivers buy food, they buy cars, they buy houses... it
expands exponentially.

Surely you don't suppose that all those newly employed waiters, cooks,
clerks, and truck drivers pay no taxes, do you?

That's how cutting tax rates leads to an increase in tax revenues.

No it doesn't. That was the fallacious thinking behind the trickledown
stuff of Reagan. Yes, you increase consumption, and maybe even generate
a few jobs. But those people with new jobs don't pay but a small
percentage of their wages in taxes, so it can never, ever make up for the
lost revenue.

--
Best regards
Han
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