Wednesday, January 9, 2013

01/09/2013 the Clontz study

The Romer study inspired me to do my own, using tax rate, tax revenue, and United States population data from 1940-2011.

I took the top marginal tax rate for every year from 1940 forward, then divided total revenues by population to get the per capita revenue for each year.

Then I took the per capita revenues and top tax rates for 5 year, 10 year, 20 year, and 30 year periods. I lumped them all together and sorted by the tax rate.

The following chart reflects the actual historical Laffer curve for the United States:

I've never seen anyone do this before, so I had to do it myself.

Interestingly, the maximum revenue clusters between 30 and 40 percent, with drop offs on either extreme.

The average of 30 and 40 is, of course, 35, which ALSO corresponds with my optimal 35% for short term capital gains.

And, by smoothing the data a bit the maximum point of the curve is indeed 35.4% (i.e. 35%).

The Bush tax rates, across the entire spectrum, appear to have been deliberately optimized to bring in maximum government revenue.

This bodes ill for our fiscal troubles, now that Obama has abandoned the optimal revenue rates.

This is no time for right or left wing ideologues.  With a 16 trillion dollar debt we need optimal tax rates, or it will be that much more difficult to get out of this mess.

Romney, it turns out, was wrong.  His proposal to lower the rates below 35% would have brought in less revenue.  Unfortunately Obama was also wrong.  His action to raise rates above 35% will bring in less revenue, AND damage the economy in the process.

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