Sullivan May Vote No On Tax Cuts

[Conan71]

Rep. Sullivan is mulling the idea of voting against the tax cut bill saying this legislation will add $800 billion to our debt.

"U.S. Rep. John Sullivan said Tuesday he is "leaning no" on a bipartisan bill to extend tax cuts for all Americans, because of the billions such a measure would add to the federal debt"

Read more from this Tulsa World article at http://www.tulsaworld.com/news/article.aspx?subjectid=16&articleid=20101215_16_A1_CUTLIN300485 

Wait, I thought the Republican line was that lower tax rates result in higher gross revenues for the treasury and the Democrat line was tax cuts result in more debt and therefore must be raised.  

What gives?

[nathanm]

Apparently Sullivan figured out what many Republicans are missing: We're too far down the Laffer curve for reduced taxes to result in increased receipts.

[Red Arrow]

Apparently Sullivan figured out what many Republicans are missing: We're too far down the Laffer curve for reduced taxes to result in increased receipts.

Or worse,  he's turning into a Democrat.

[Gaspar]

Or worse,  he's turning into a Democrat.

That's what the booze will do to ya.

[heironymouspasparagus]

A little glimmer of reality in the Oklahoma political scene.  I knew I liked Sullivan for a reason.  He understands and is telling the truth.


But he will vote for the extension, just like most everyone else.

[Conan71]

The biggest risk on extending the tax cuts is whether or not the tax savings will go into personal consumption, or in the case of a small business re-investment or hiring or will it go into savings or passive investment.  There's some very sound logic in lower taxes resulting in more revenue, but only so long as that money recirculates and doesn't sit on the sidelines much as what is happening now.  On a positive note though there was an article this morning saying business owners are optimistic about expansion and hiring this next year.  Not sure if it's exhuberance over the tax cut deal, the GOP sweep of the HOR, or simply time for the economy to come out of it's stupor. 

Prices are still low enough on raw materials and perhaps labor costs will have dropped for people just happy to have work so that expansion is still a bargain or at least a lot cheaper than it was in 2008.

Laffer on Laffer:

"The basic idea behind the relationship between tax rates and tax revenues is that changes in tax rates have two effects on revenues: the arithmetic effect and the economic effect. The arithmetic effect is simply that if tax rates are lowered, tax revenues (per dollar of tax base) will be lowered by the amount of the decrease in the rate. The reverse is true for an increase in tax rates. The economic effect, however, recognizes the positive impact that lower tax rates have on work, output, and employment--and thereby the tax base--by providing incentives to increase these activities. Raising tax rates has the opposite economic effect by penalizing participation in the taxed activities. The arithmetic effect always works in the opposite direction from the economic effect. Therefore, when the economic and the arithmetic effects of tax-rate changes are combined, the consequences of the change in tax rates on total tax revenues are no longer quite so obvious.

Figure 1 is a graphic illustration of the concept of the Laffer Curve--not the exact levels of taxation corresponding to specific levels of revenues. At a tax rate of 0 percent, the government would collect no tax revenues, no matter how large the tax base. Likewise, at a tax rate of 100 percent, the government would also collect no tax revenues because no one would willingly work for an after-tax wage of zero (i.e., there would be no tax base). Between these two extremes there are two tax rates that will collect the same amount of revenue: a high tax rate on a small tax base and a low tax rate on a large tax base.
   


The Laffer Curve itself does not say whether a tax cut will raise or lower revenues. Revenue responses to a tax rate change will depend upon the tax system in place, the time period being considered, the ease of movement into underground activities, the level of tax rates already in place, the prevalence of legal and accounting-driven tax loopholes, and the proclivities of the productive factors. If the existing tax rate is too high--in the "prohibitive range" shown above--then a tax-rate cut would result in increased tax revenues. The economic effect of the tax cut would outweigh the arithmetic effect of the tax cut.

Moving from total tax revenues to budgets, there is one expenditure effect in addition to the two effects that tax-rate changes have on revenues. Because tax cuts create an incentive to increase output, employment, and production, they also help balance the budget by reducing means-tested government expenditures. A faster-growing economy means lower unemployment and higher incomes, resulting in reduced unemployment benefits and other social welfare programs.

Over the past 100 years, there have been three major periods of tax-rate cuts in the U.S.: the Harding-Coolidge cuts of the mid-1920s; the Kennedy cuts of the mid-1960s; and the Reagan cuts of the early 1980s. Each of these periods of tax cuts was remarkably successful as measured by virtually any public policy metric.

Prior to discussing and measuring these three major periods of U.S. tax cuts, three critical points should be made regarding the size, timing, and location of tax cuts."

http://www.heritage.org/research/reports/2004/06/the-laffer-curve-past-present-and-future

[Gaspar]

A little glimmer of reality in the Oklahoma political scene.  I knew I liked Sullivan for a reason.  He understands and is telling the truth.


But he will vote for the extension, just like most everyone else.

The option he is actually considering is allowing the tax cuts to expire and the bill to fail, then introducing a new tax cut/spending cut bill without the unemployment component when the Republicans take control in January.  This idea is gaining momentum, however there is not enough time.

[heironymouspasparagus]

I was afraid it was too good to be true.

Oh, well...let's see if he votes for it anyway.

[guido911]

Liberals on taxing the rich: