Laffer Idiocy

Conservatives who keep telling me that a tax cut will increase revenue due to the immense boost to the economy are driving me crazy.  Here's an actual quote from my most crazed right wing correspondent:

If we pay less taxes we have more money, we buy a Cars [sic], when we buy a cars, Car dealers hire, Car makers hire, the people that are hired are now taking less from the Government and are PAYING taxes, the guy that sold me the car has more money, he is paying more taxes, he buys a TV from Best Buy, the Best buy salesman has more money, he pays more taxes,,the manager of Best Buy hires, the people he hires are taking less from the Government and are PAYING taxes,,,

It goes on and on and on,,,and the NET RESULT is less people on unemployment and MORE PEOPLE PAYING TAXES!

Except when you look at actual life, what really happens and has happened when we cut taxes from rates that aren't that high historically now, is that the dynamic he describes happens to a small degree, but not enough to make up for the lower tax rates- the government gets less money than it would have gotten if tax rates had remained higher. So you have to cut government spending or run deficits.

Conservatives tried exactly this in the 2000s- it was an abject failure. Why do we keep revisiting a policy that has never worked in real life? It would be like a Left winger trying to convince the country of the wonders of communism- he could throw out a paragraph from Marx or Lenin, which also sounds great, but we'd all know that when they tried it, it didn't work.

Lowering marginal tax rates when they're in the 30s% leads to less revenue. It has other advantages, of course, but it will unquestionably lead to less money for the government. Try to think about it this way: let's say we do what conservatives want and lower the top tax rate from 35% to 25%. They say this will increase revenue. But then why not go down to 20%? OK, how about 10%? What about 1%? 0.00001%? At some point you get to a tax rate that actually does not increase revenue, right? So somewhere there's a number that is the "right" one to maximize tax revenue for the government. How do we figure out what that number is?

The only way to figure it out is to look at history. When we went from 39 to 35% in 2001-03, revenue cratered.  Then it eventually increased as the Bubble Economy did its magic, but still not on the trend line it had been on.  And THEN, when the economy tanked due to the Great Recession, revenue cratered again. History shows us that the optimal number for government revenue is considerably higher than our current rates.  And we can also look at the 1980s- the Reagan tax cuts caused a flattening of revenue, which only returned to the trend when taxes were increased again in the mid-1980s.  Bush I raised taxes too, and revenue kept right on going up.

We don't have to put taxes at the optimal number of course- it's still totally fine to have lower taxes and smaller government if that's what we want. But it's stupid to say that lowering tax rates leads to increased revenue.