Quote from piezoe:
No one knows where the peak of the Laffer curve lies. Epic's point was that we are no where near the peak. He is correct of course.
No one has yet demonstrated convincingly that lowering tax rates increases revenues. All of the competent studies show the opposite. And there are quite a few. This is consistent with being on the rising arm of the Laffer curve.
What has been shown convincingly is that increasing government spending raises revenues some months later (quite a bit later), but spending increases, in excess of revenue increases, results in deficits which are paid for via that portion of inflation that results from monetization, or in some equally undesirable way, or preferably via return on investment, depending on how money is spent. What the government spends on becomes a key issue.
Deficits don't have to, but they generally have resulted in increased inflation some months later (quite a bit later).
The U.S. has been living on increasing credit. However we may be reaching the point where businesses and households are reluctant to take on more debt, and there is currently debate on whether the government should take on more debt.
When businesses and households leverage down, the government leverages up to take up the slack, otherwise recessions result or are worsened.
Presently about one fourth of U.S. GDP is attributable to government spending. If the government were to suddenly reduce spending significantly it is certain to tip the country back into recession or depression and increase unemployment.
The best of the bad options available is for the government to go on spending as it is, or even increase spending, but change spending priorities away from unproductive spending toward long range investment. Because of economic distortion presently existing in the U.S. economy, modest increases in tax rates at the upper end will be helpful, whereas tax increases in the lower brackets will be harmful.
Eventual reduction in living standards is unavoidable whenever, for long periods, non-productive spending exceeds productivity.
Distortions result from imbalances between wealth and productivity. The U.S. economy is currently suffering from these distortions. These can be reduced over time with enlightened government policy and wise management of the economy, but politically this will likely be very difficult to do. There is presently a small vocal minority of U.S. citizens that have become so disillusioned with the U.S. plutocracy that they have become champions of irrationality bordering on anarchy. They call attention to economic distortions and an overly intrusive government , which is useful, but are disruptive of the political process which is counterproductive.
