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What happened to all of the doom and gloom economic threads?
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Busybody
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One would think
Many ARE AWARE of this
And
Would take it into consideration
ONE WOULD BE WRONG
STUCK
ON
STEW
PID!
Class Warfare Tax Policy Causes Portugal to Crash on the Laffer Curve, but Will Obama Learn from this Mistake?
December 31, 2012 by Dan Mitchell
Back in mid-2010, I wrote that Portugal was going to exacerbate its fiscal problems by raising taxes.
Needless to say, I was right. Not that this required any special insight. After all, no nation has ever taxed its way to prosperity.
We’re now at the end of 2012 and Portugal is still saddled with a weak economy. And the higher taxes haven’t resulted in less red ink. Indeed, according to the Economist Intelligence Unit, government debt has jumped from 93 percent of GDP in 2010 to 124 percent of GDP this year.
Why did higher taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other nations.
Higher taxes undermine incentives for productive behavior, thus reducing an economy’s potential for growth. This means less economic output, which also means a smaller tax base. This Laffer Curve effect doesn’t necessarily mean less revenue, but it certainly means that tax increases rarely raise as much money as initially projected.
Higher taxes usually are a substitute for the real solution of spending restraint (i.e., Mitchell’s Golden Rule). Politicians oftentimes refuse to reduce the burden of government spending because of an expectation of additional tax revenue. Heck, in many cases, higher taxes trigger an increase in the size and scope of the public sector.
So did Portugal learn any lessons from this failed experiment in Obamanomics?
Hardly. Indeed, the government plans to double down on this approach – even though it’s increasingly apparent that higher tax burdens won’t translate into much – if any – additional tax revenue. Here are some excerpts from a report in the Financial Times.
Lisbon plans to lift income tax revenue by more than 30 per cent, raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income. …the steep tax increases facing many families have made the outlook for 2013 – the third consecutive year of austerity, recession and rising unemployment – the grimmest yet. Total tax revenue has fallen considerably below target this year, forcing the government to implement additional austerity measures… The coalition will be relying on increased state revenue to account for about 80 per cent of the fiscal adjustment required in 2013 – a reversal of the original bailout plan, in which consolidation was to be achieved mainly through spending cuts.
Amazing. The government imposes huge tax hikes, which don’t generate any positive results. Yet even though “tax revenue has fallen considerably below target,” confirming that there are significant Laffer Curve issues, the government chooses to repeat the snake-oil fiscal therapy of higher taxes.
Anybody want to guess what’s going to happen? The answer, of course, is that this will further dampen incentives to generate income and comply with the government’s fiscal demands.
The latest increases have stretched the tax system to the limit, says Carlos Loureiro, a tax partner at Deloitte. “The current model is exhausted. We need to do something different,” he says. “Any further increase in tax rates is unlikely to result in increased revenue.” Income from value added tax, the government’s biggest source of tax revenue representing about 36 per cent of the total, has been falling since 2008, despite a sharp increase in the rate – the main rate is now 23 per cent. Both the government and the European Commission have acknowledged the risks of depending on increased tax revenue, which is more growth sensitive, to meet fiscal targets and contingency spending cuts amounting to 0.5 per cent of national output have prepared in case of another tax shortfall.
I almost want to laugh at the part of the excerpt which notes that tax revenue “has been falling…despite a sharp increase in the rate.”
Maybe it’s time for these fiscal pyromaniacs to realize that revenues might be falling because rates are higher. In other words, Portugal not only isn’t at the ideal point on the Laffer Curve (collecting the amount of revenue needed to finance legitimate activities of government), it may even be past the revenue-maximizing part of the curve.
To be fair, there are lots of factors that determine economic performance, so higher tax burdens are just one possible explanation for why the tax base is shrinking or stagnant.
The one thing we can state with certainty, though, is that Portugal’s fiscal problem is too much government spending. The failure to address this problem then leads to very unpleasant symptoms, such as lots of red ink and self-destructive class-warfare tax policy.
If all that sounds familiar, that’s because it’s also a description of what President Obama is proposing for the United States.
Ummm…shouldn’t they be targeting politicians?
P.S. I don’t want to imply that Portugal is a total basket case. True, I’m not optimistic about the country’s future, but at least some lawmakers now acknowledge that Keynesian spending was a big mistake. And there are even signs that Portuguese officials are beginning to realize that lower tax rates should be part of the solution. But good policy may be impossible since so many people now have a moocher mentality.
P.P.S. At the risk of bearing bad news to close the year, research from both the Bank for International Settlements and the Organization for Economic Cooperation and Development shows the United States actually faces a bigger long-run fiscal challenge than Portugal.
Many ARE AWARE of this
And
Would take it into consideration
ONE WOULD BE WRONG
STUCK
ON
STEW
PID!
Class Warfare Tax Policy Causes Portugal to Crash on the Laffer Curve, but Will Obama Learn from this Mistake?
December 31, 2012 by Dan Mitchell
Back in mid-2010, I wrote that Portugal was going to exacerbate its fiscal problems by raising taxes.
Needless to say, I was right. Not that this required any special insight. After all, no nation has ever taxed its way to prosperity.
We’re now at the end of 2012 and Portugal is still saddled with a weak economy. And the higher taxes haven’t resulted in less red ink. Indeed, according to the Economist Intelligence Unit, government debt has jumped from 93 percent of GDP in 2010 to 124 percent of GDP this year.
Why did higher taxes backfire in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other nations.
Higher taxes undermine incentives for productive behavior, thus reducing an economy’s potential for growth. This means less economic output, which also means a smaller tax base. This Laffer Curve effect doesn’t necessarily mean less revenue, but it certainly means that tax increases rarely raise as much money as initially projected.
Higher taxes usually are a substitute for the real solution of spending restraint (i.e., Mitchell’s Golden Rule). Politicians oftentimes refuse to reduce the burden of government spending because of an expectation of additional tax revenue. Heck, in many cases, higher taxes trigger an increase in the size and scope of the public sector.
So did Portugal learn any lessons from this failed experiment in Obamanomics?
Hardly. Indeed, the government plans to double down on this approach – even though it’s increasingly apparent that higher tax burdens won’t translate into much – if any – additional tax revenue. Here are some excerpts from a report in the Financial Times.
Lisbon plans to lift income tax revenue by more than 30 per cent, raising the effective average rate by more than a third from 9.8 to 13.2 per cent. Anyone receiving more than the minimum wage of €485 a month, including pensioners, will also pay an extraordinary tax of 3.5 per cent on their income. …the steep tax increases facing many families have made the outlook for 2013 – the third consecutive year of austerity, recession and rising unemployment – the grimmest yet. Total tax revenue has fallen considerably below target this year, forcing the government to implement additional austerity measures… The coalition will be relying on increased state revenue to account for about 80 per cent of the fiscal adjustment required in 2013 – a reversal of the original bailout plan, in which consolidation was to be achieved mainly through spending cuts.
Amazing. The government imposes huge tax hikes, which don’t generate any positive results. Yet even though “tax revenue has fallen considerably below target,” confirming that there are significant Laffer Curve issues, the government chooses to repeat the snake-oil fiscal therapy of higher taxes.
Anybody want to guess what’s going to happen? The answer, of course, is that this will further dampen incentives to generate income and comply with the government’s fiscal demands.
The latest increases have stretched the tax system to the limit, says Carlos Loureiro, a tax partner at Deloitte. “The current model is exhausted. We need to do something different,” he says. “Any further increase in tax rates is unlikely to result in increased revenue.” Income from value added tax, the government’s biggest source of tax revenue representing about 36 per cent of the total, has been falling since 2008, despite a sharp increase in the rate – the main rate is now 23 per cent. Both the government and the European Commission have acknowledged the risks of depending on increased tax revenue, which is more growth sensitive, to meet fiscal targets and contingency spending cuts amounting to 0.5 per cent of national output have prepared in case of another tax shortfall.
I almost want to laugh at the part of the excerpt which notes that tax revenue “has been falling…despite a sharp increase in the rate.”
Maybe it’s time for these fiscal pyromaniacs to realize that revenues might be falling because rates are higher. In other words, Portugal not only isn’t at the ideal point on the Laffer Curve (collecting the amount of revenue needed to finance legitimate activities of government), it may even be past the revenue-maximizing part of the curve.
To be fair, there are lots of factors that determine economic performance, so higher tax burdens are just one possible explanation for why the tax base is shrinking or stagnant.
The one thing we can state with certainty, though, is that Portugal’s fiscal problem is too much government spending. The failure to address this problem then leads to very unpleasant symptoms, such as lots of red ink and self-destructive class-warfare tax policy.
If all that sounds familiar, that’s because it’s also a description of what President Obama is proposing for the United States.
Ummm…shouldn’t they be targeting politicians?
P.S. I don’t want to imply that Portugal is a total basket case. True, I’m not optimistic about the country’s future, but at least some lawmakers now acknowledge that Keynesian spending was a big mistake. And there are even signs that Portuguese officials are beginning to realize that lower tax rates should be part of the solution. But good policy may be impossible since so many people now have a moocher mentality.
P.P.S. At the risk of bearing bad news to close the year, research from both the Bank for International Settlements and the Organization for Economic Cooperation and Development shows the United States actually faces a bigger long-run fiscal challenge than Portugal.
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mercury14
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LadyVer
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Something is the same. I'd wish you a Happy New Year but this is the doom and gloom. I think that Jack Luis made a good point. Carry on.
Busybody
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Something is the same. I'd wish you a Happy New Year but this is the doom and gloom. I think that Jack Luis made a good point. Carry on.
Hey yo, VER
your BF feel asleep
after hot sex
http://assets.passedoutphotos.com/hashed_silo_content/ba3/5f0/08a/resized/passedoutphotos-com-0cccf8.jpg
LadyVer
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That's about the shape he'd be in when I got through with him. Nice pic. How'd you find it?
LadyVer
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its a SELF PIC
I took
Its what I look like after I read your crap
I'm impressed. Nice to know you really like my comments. You don't look too shabby for a guy who grew up watching Leave It To Beaver. OTH, you could ig me so you wouldn't have to see my "crap". just sayin....
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IrezumiKiss
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Congressional Pay Raise
kohenari:
A lot of people have been complaining about President Obama’s recent executive order, which will raise salaries of members of Congress by a pretty small amount next year. Technically, it’s probably better not to think of it as a pay raise but rather an end to a pay freeze for federal employees that has been in effect since 2010. (Members of Congress actually haven’t seen a raise since 2009.) And so it isn’t simply a pay raise for Congress; it also impacts all federal employees and that was seemingly the main motivation for the executive order.
Was it a not-so-subtle gambit in the fiscal cliff negotiations? Perhaps. Did it fail to make any difference? Perhaps.
This is, of course, the least productive Congress since the 1940s so I’d be happier if they actually had to start paying us instead of the other way around. But one way to deal with such historically bad legislating is to vote them out of office next time you have an opportunity rather than to keep voting for people who claim obstructionism as their primary legislative goal.
HT: Anonymous Question Asker
http://kohenari.net/post/39337960815/pay-raise
Good explanation. Lots of newspapers have been reporting this news as “Obama approves pay raise for congress!!!” when, in reality, it’s the end of a three-year pay freeze for federal employees. Tons of middle-class families will be getting a boost from this. It’d be nice if the pay-unfreezing had included a stipulation that Congress wasn’t included, but either way, it’s a cost-of-living increase for millions of federal employees.
kohenari:
A lot of people have been complaining about President Obama’s recent executive order, which will raise salaries of members of Congress by a pretty small amount next year. Technically, it’s probably better not to think of it as a pay raise but rather an end to a pay freeze for federal employees that has been in effect since 2010. (Members of Congress actually haven’t seen a raise since 2009.) And so it isn’t simply a pay raise for Congress; it also impacts all federal employees and that was seemingly the main motivation for the executive order.
Was it a not-so-subtle gambit in the fiscal cliff negotiations? Perhaps. Did it fail to make any difference? Perhaps.
This is, of course, the least productive Congress since the 1940s so I’d be happier if they actually had to start paying us instead of the other way around. But one way to deal with such historically bad legislating is to vote them out of office next time you have an opportunity rather than to keep voting for people who claim obstructionism as their primary legislative goal.
HT: Anonymous Question Asker
http://kohenari.net/post/39337960815/pay-raise
Good explanation. Lots of newspapers have been reporting this news as “Obama approves pay raise for congress!!!” when, in reality, it’s the end of a three-year pay freeze for federal employees. Tons of middle-class families will be getting a boost from this. It’d be nice if the pay-unfreezing had included a stipulation that Congress wasn’t included, but either way, it’s a cost-of-living increase for millions of federal employees.
LadyVer
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Actually I think the top of your head makes a good point. Carry on.
I take it you mean I would make a good target for a gun range. Carry on with your doom and gloom, Vetteman.
IrezumiKiss
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You don't owe Merc any money or whatever from being wrong, do you?
Nope.
Just thought he was completely off his rocker at the thought that the Prez and Congress would work through the recess to get a deal done.
Still, they kicked the really important conversations some two months down the road. Small successes, I guess.
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LadyVer
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LadyVer
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Good info.
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LadyVer
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It was a joke. I was saying that you saying that Luis made a point was a pinheaded idea. Copish?
Oh yeah, one of your backhanded jokes..Capish, don Vetteman. Glad you clarified I wasn't a target for your gun skills. Capish?
LadyVer
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The House just reversed it.
So the feeze continues? Although I won't be crying if the legislators don't get a raise. I can't keep up with all the news. C'est la vie...
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