Lower Taxes, Higher Revenue|5 Minute Video

Should tax rates be greater? It’s the million dollar concern! Up? Down? No change? Where worldwide should taxes go? In election years, the concern of tax rates fills the airwaves. In non-election years, the concern of tax rates, again, fills the airwaves. What’s the response? UCLA Professor of Economics Tim Groseclose describes his research on the subject. Essentially, there’s a certain point at which higher tax rates really reduce the amount of earnings the federal government gathers. What’s that point? When are tax rates expensive? Discover an important lesson in economics, and public law.

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Script:

Let’s go over an essential idea from economics, the Laffer Curve.

This idea is named after the male who developed it, Arthur Laffer, a major American economic expert who has actually taught at the University of Chicago, University of Southern California, and somewhere else.

The Laffer Curve illustrates the two crucial things we require to understand about taxes: just how much cash the government can raise from taxes and at what level of taxation the government might start getting less, not more, revenue.

The Laffer Curve is illustrated here by a two-dimensional chart. The horizontal line is the tax rate that the government chooses, and the vertical line is the profits that the government receives from that tax rate.

Since no times any number is no, if the tax rate is zero, then the government gets absolutely no revenue. Accordingly, zero-zero is our first point on the curve. Now expect the government picks a really little tax rate, state 1 percent. The federal government will then begin to receive some revenue from citizens. This means that another point on the curve should be something like this. Now suppose the federal government charges a 2 percent tax rate, then everyone would concur that it will get a lot more earnings– which implies that another point on the graph must be something like this. And if the federal government keeps raising the rate, then revenue will continue to go up. a minimum of when we’re in the low-tax-rate part of the graph.

This indicates that if we complete the curve, it has an upward slope– at least when we’re in the low-tax-rate-part of the chart.

Now suppose the federal government charges a 100% tax rate. If this takes place, then no one would work. That is, why would anybody work when the federal government is going to take all the money that they make? And if no one works, the national income would be absolutely no. This indicates that federal government revenue would be 100% of absolutely no, or zero. This means that another point on the curve should be here.

Now let’s finish the curve. When we do, we see that the curve should have a hump. That is, it might look like this, or this, or this, but it has to have a hump. This is simply because the income line needs to go up in the low tax-rate part of the chart and has to start decreasing to reach the point we drew at the 100% tax rate.

If the curve slopes downward it implies something remarkable– something that few of those who press for greater and greater taxes desire to confess. It indicates that when tax rates are high, if you make them greater, you’ll in fact bring in less earnings to the federal government.

During the Great Depression, when Congress passed the Hawley-Smoot tariff costs, although the expense raised taxes on imported goods, the revenue that came from those taxes really decreased. After President Reagan and Congress considerably reduced the tax rates on the rich, the tax income that came from the rich in fact increased.

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source

Generally, there’s a certain point at which higher tax rates really minimize the amount of income the government collects. Since no times any number is no, if the tax rate is no, then the federal government gets no income. Now suppose the federal government charges a 2 percent tax rate, then everybody would agree that it will get even more profits– which implies that another point on the graph must be something like this. Throughout the Great Depression, when Congress passed the Hawley-Smoot tariff bill, although the expense raised taxes on imported goods, the revenue that came from those taxes actually reduced. After President Reagan and Congress significantly minimized the tax rates on the rich, the tax earnings that came from the rich in fact increased.