Sunday, February 03, 2013

Local Paper Discovers Laffer Curve

My local paper is always for more government spending, and higher taxes on 'the rich.' Recently we voted in a Democrat governor and both houses of our state legislature, so we are getting higher taxes as expected. What wasn't expected was higher taxes on newspapers and the business they contract with, so now we have new Tea Party converts. From the StarTribune:
We urge Dayton to reconsider and the Legislature to reject a sales tax on business-to-business services, a tax idea the Star Tribune has long opposed. While expanding the consumption sales tax to a larger share of the economy and reducing its overall rate, as Dayton proposes, is sound tax policy, taxing businesses' service inputs is anything but. ... Consider the impact on one particular industry sector -- one this Editorial Board serves and understands well -- advertising, information and communications. Providers of those services together employ nearly 68,000 Minnesotans. Many of them serve clients outside Minnesota and compete with rivals around the country and the globe.
They assert this has been their position all along, but reading the Strib I don't remember any such argument, though it's a nice attempt to try to present themselves as having a principled stance. Their basic argument is that this will actually reduce revenue because Minnesota businesses, including the Star-Tribune, will shrink as they raise their prices. But they don't state that so explicitly, rather, they allude to it via mentioning competitiveness, and then perfunctorily, that this isn't fair.

 I suppose these liberals think we should just tax rich people for the extra amount, ignoring that rich people can alter their liabilities by moving headquarters, the structure of their various corporations, and lots of other ways. I think the Laffer curve is one of the more powerful ideas in macroeconomics, and also one of the most ridiculed. At the margin, there always appears to be more revenue out there by raising taxes. It reminds me of a famous essay by George Stigler in The Intellectual and the Marketplace arguing that all supply and demand curves were inelastic, which clearly would imply massively suboptimal pricing, but that's the general argument out there.


Patrick Sullivan said...

'A Sketch of the History of Truth in Teaching', from that same book might be more applicable.

Anonymous said...

When the hidden agenda is to destroy an economy, they will ignore the curve. They are not that stupid. American and European economies are being destroyed on purpose by Asian financed politicians. They know what they are doing. They want to send the rich and their money to Asia.

Good article.