Breaking down the budget
The Obama Administrations 2010 budget includes in its header on every page the phrase, “A NEW ERA OF RESPONSIBILITY.” What they consider responsible is clearly up for much debate. I won’t go through each line of the budget, but there were a few lines that stood out to me that should be discussed.
On the last page of the budget summary (found here on the Whitehouse website) is a line item titled “Debt issued by Treasury.” This line item includes the cumulative debt outstanding that has been issued by the Treasury. That is, when the United States Government needs to borrow money it issues bonds via the Treasury. Anybody can buy these bonds and by doing so are lending the United States money. In 2008 this figure stood at just below $10 trillion. This amount grows to over $14 trillion in 2010 and over $19 trillion in 2015. The debt officially doubles the 2008 figure in 2016 with a figure of just under $20 trillion. By 2019 the Obama Administration estimates that the United States debt will be above $23 trillion. What is scary is that the Administration has an incentive to underestimate these figures, so these may be on the light side. To give you an idea of just how much this is, the United States GDP for 2008 was just above $14 trillion and total tax revenues for the federal government were under $3 trillion. This means that the United States Government is incredibly leveraged (has a high amount of debt relative to its revenues). What is scarier is that the United States Government itself expects that debt to grow at an outrageous rate. From 2009 to 2014 (a five year period), the Obama Administration is anticipating that the outstanding debt will grow by an average annual rate of 7.33% and a median annual rate of 6.04%. To pay off this debt the government will either have to raise taxes or print more money.
In an effort to pay for all of this spending the Obama Administration has enacted many new taxes, not just increased income taxes. Those new taxes, as shown on the Obama 2010 Budget, include reinstating Superfund taxes, taxing carried interest as ordinary income, repealing the LIFO accounting practice, requiring information reporting for rent payments, implementing international enforcement, reform deferral, and other tax reform policies. For those of you that have knowledge of accounting and finance these may have some importance to you, as well they should.
One set of new taxes that I found particularly interesting are the numerous new taxes and removal of tax credits for oil and gas companies. In aggregate, the Obama Administration plans to tax oil and gas companies an additional $353 billion from 2010 to 2019. This after Obama stated on the campaign trail, “I will set a clear goal as president: in ten years we will finally end our dependence on oil in the Middle East,” (source). He plans to end our dependence on oil from the Middle East within ten years by taxing domestic oil producers an extra $31 billion.
Another line item that stood out to me was the $15 billion in tax revenue that the government will bring in as a result of changes that are “dedicated to climate policy.” For those of you that wonder why the government tells us every week that we are all in danger of certain death by global warming now you know one of the many reasons. The debate on global warming is for another time, but I did find it interesting that the Obama Administrations plans on bringing in that amount of money annually.
One item that I found humorous in a dark sort of way is the line item titled, “Disaster costs.” The Obama Administration believes that disaster costs (earth quakes, hurricanes, etc.) will increase from $4 billion in 2009 to $30 billion in 2019. So, in their eyes there will be 7.5 times the number of “disasters” in 2019 than in 2009. Bunker down, everyone.
Perhaps the most outlandish part of all of this is the Administration’s estimates of how the United States economy will perform. In order to justify their absurd levels of spending (I didn’t go into this much because it would take up volumes), the Administration has set some ridiculous GDP goals. Between 2009 and 2014 the Administration suggests that the United States economy will grow, yes grow, at an average annual rate of 5.25% (remember that our debt grew at 7.33% per year over that time period). For comparison’s sake, as comparison is very necessary here, the United States economy has grown at an average annual rate of 3.47% since 1929. Don’t want to include the Great Depression? Since World War II, the United States economy has grown at an average annual rate of 3.06%. To keep beating a dead horse, 2.78% average annual growth rate over the last twenty years, 2.55% over the last ten years, and 2.50% over the last five years. In fact, over the past twenty years the United States economy has NEVER grown at an annual rate above 4.50%. To find the last year that the economy did grow at the rate the Obama Administration is suggesting it will you have to go back to 1984 under President Reagan. The Obama Administration, however, is telling us that the economy will grow at an average annual rate of 5.25% over the next five years, then 4.45% ever year after that. So, for those of you that are worried about losing your job, don’t worry any longer – we are about to experience the biggest economic boom in recent history!
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Regarding GDP growth per annum:
In 2007 the GDP grew 4.77% (Source: http://www.econstats.com/gdp/gdp__a10.htm, United States Bureau of Economic Analysis).
Also, compare the GDP growth of Obama’s 2010 budget to Bush’s 2009 budget (pg 164)
http://www.whitehouse.gov/omb/budget/fy2009/pdf/budget/tables.pdf
Obama’s figures are definitely more conservative.
Regarding taxation:
Taxes during the Reagan-era of “small, limited government” were still much higher; 50% for the highest wage-earners.
Regarding disaster costs:
It’s probably accounting for the fact that chances are, in the next 10 years, a devastating earthquake will hit California, something that hasn’t happened since 1994.
Regarding taxing emissions:
This will spur the use of more sustainable technology. It isn’t all about global warming, this is more about driving down the costs of capturing renewable and unlimited sources of energy. We must lessen our dependence on oil, period. George W Bush himself said, “We need to cure addiction to oil.” in his 2006 state of the union address; but his solution of E85 and clean-coal technology (via integrated gasification) were never feasible without large government subsidies or skyrocketing oil prices. If emissions are taxed and redistributed to clean-energy corporations (even oil companies or T-Boone see a market developing in alternative energies), that’s a step in the direction toward sustainability of both our planet and our economy. When the spigot runs dry or the Saudis decide to close the valve, how can we suddenly shift gears to alternate energy if we haven’t laid any foundation?
Regarding the debt:
One of the biggest siphon of federal dollars, providing little to no return on investment, was that spent on the War in Iraq. The nation’s defense budget will still grow this year, but in a direction better suited to protect U.S. citizens.
The debt is a long-term problem, but the interest payments on the debt are only 4.6% of the budget. Maybe i’d be worried about the debt more if inflation were higher, but the figures came out today, and the price of goods declined 0.4% over the past 12 months. I’d find your argument worthy of merit if we suffered from rampant inflation during a period of no supply shock. Right now, there are no real-world consequences out there to the debt, other than the fact it’s taking up a VERY small percentage of the GDP away from the private sector. That can, of course, be made up by issuing new debt indefinitely. I’ve tried to ask someone how the United States could possibly “go bankrupt” and no one has ever had a clue how to explain it. I think a lot of people love playing the role of fatalist in an effort to ultimately lash out and say “I told ya so.”
Alright, I’m going to try to take this one step at a time.
Regarding GDP growth per annum:
First, you are incorrect about the GDP growing 4.77% in 2007. Econostats, in this circumstance, is referring to nominal GDP, meaning that inflation is not taken into account. The statistics I used, also from the U.S. Bureau of Economic Analysis, are tied to 2000 dollars to derive a real GDP that accounts for inflation. Because the GDP presented in the budget utilizes real dollars (i.e. it does not balloon prices as a result of inflation), I too used real GDP as a comparison (this is based on an assumption since nowhere in the budget does the Obama Administration footnote anything regarding inflation as it is related to the GDP though we should note that later in the budget nominal GDP is referenced and is significantly higher than the figures believed to be real GDP earlier in the document). To clear it up, though nominally the GDP did grow at 4.77% from 2006 to 2007, its real growth was 2.03%.
Regarding Bush’s Budget:
Tyler, I never have and never will claim to be a fan of GW Bush. This is not necessarily an attack on the Obama Administration as much as it is on the ludicrous doings of the United States Government as a whole. There has not been one president in the last hundred years that I have completely agreed with, only different shades of poor performances. That being said, you are right that Bush’s final budget also called for a high GDP – a 4.93% annual average over five years. However, in his first budget (http://www.gpoaccess.gov/usbudget/fy02/pdf/spec.pdf), before he started spending like a drunken sailor, he set forth GDP predictions that yielded a 3.17% average increase per annum, which is far more reasonable despite still being a bit bloated.
Regarding taxation:
You are correct in stating that despite lowering taxes across the board, Reagan still had a tax system with a top tax bracket of 50%, much higher than we have today. Again, I don’t agree with this system of taxation, but your statistics are accurate. This, however, does nothing to quell the fact that the Obama Administration intends to increase taxation in areas beyond the income tax.
Regarding disaster costs:
I’m sure you are right. I wish they would provide some more color (the footnote is very dubious). I didn’t think this line item was overly important (though $30 billion on disasters is a . . . well, disaster), I just found it to be uniquely humorous that our government is predicting increasingly catastrophic disasters.
Regarding taxing emissions:
I 50% agree with you here, Tyler. I completely agree that renewable energy is the way of the future and that it’ll be a good day when it has replaced oil. However, what I disagree with is that the government should have any role in this marketplace. If alternative forms of energy truly are more efficient, clean, safe, etc. then they will be brought to the market as a result of old fashioned greed. The people and companies that bring these technologies to the market will make billions of dollars, and those that refuse to advance will be left in the dust to rot with their old-fashioned oil. To presume that we need the government to subsidize this is crazy. Nobody subsidized Apple when they revolutionized the MP3 player or the cell-phone, they did it out of their own greed. The same will be true of the energy industry as long as they are left alone. The government subsidizing the energy industry will do no good, it will only do bad.
Now, with regard to the climate change line item: it is your stance that this money is used by the government to subsidize new energy for other means than to prevent climate change. While this may be true, I am pointing out that the government uses a fear tactic by telling everyone that the world is warming at unprecedented rates and that animals and humans will die as a result in an attempt to gain more power and money. If the government said they want to tax the people billions of dollars per year and put thousands of people in manufacturing jobs out of work as a result in an effort to limit our dependence on Saudi Arabia I don’t think they would have as many supporters. Climate change works much better.
Regarding the debt:
I completely agree that the Iraq War was completely ludicrous and should not have taken place. I actually think the same about Afghanistan, Somalia, the Balkans, etc., but they took place and there isn’t much that can be done now other than lobby for military defense, not offense.
With regard to the debt, you are correct in pointing out that interest payments are only 4.6% of the budget. However, this is an accounting trick cleverly utilized by politicians. Almost all of the debt issued by the Treasury is zero-coupon debt. What this means is that there are no payments on the debt, neither principle nor interest, until the debt come due. For example, when you pay a mortgage you make monthly payments and a good portion of that payment is interest. However, Treasury notes do not bear interest, they simply sell at a discount and no payment is made on that debt until it comes due. For example, I may buy a one-year Treasury security for $95 and after a year I will get $100 back. This implies an interest rate of 5.26%, but there is no real interest, only a discount on the purchase of the security. As a result, not much interest hits the income statement of the United States Government. Companies and people are unlikely to utilize this type of borrowing because they can write off interest on their taxes. Our government, however, is not taxed so they can use this accounting trick. When those notes do come to maturity the Government simply borrows more money to pay the old notes off or else it prints money.
Again, you are right that inflation has not been rampant, but we must be careful on what we use to analyze inflation. Falling prices in this environment are more likely to be a result of dramatically decreased demand than as a result of a lower money supply relative to growth. However, our money supply is growing very rapidly and inflation is a definite concern. This is why gold is currently so expensive even though consumer goods have not yet become inflated.
With regard to your question, “how the United States could possibly ‘go bankrupt,’” you are right to believe that technically it cannot. It can print money indefinitely to pay its obligations. Technically it could pay off all of its debt today. However, a nation can experience the effects of “going bankrupt,” much like Iceland recently did or the UK did in 1992, when their credit-worthiness has been diminished and nobody will lend to them. This, in essence, is bankruptcy in that you can no longer borrow money. I, along with many others, fear that this is the path the United States is headed down. Recently China hinted that they will slow down their purchases of U.S. debt securities and have called for an international currency hinting at their lack of faith in the U.S. dollar (http://www.reuters.com/article/marketsNews/idUSN2461991920090324 and http://www.bloomberg.com/apps/news?pid=20601080&sid=alQdCZFyS.0M&refer=asia).
While China may have a lack of faith in the dollar at this moment (where the global currency argument has been, in my opinion, hugely overblown and politicized), the rest of the world has a lack of faith in China’s business ethics, human rights, and quality control.
It is never about taxation, is it. It is about expenditures by a government that owns not a thing and creates not a thing, and only steals from citizens to create what ever it decides to by majority/mob rule if politicians do not decide to spent it on their singular motive.
In relation to the economy remember that inflation and deflation have a very hard time operating at the same time. One is always dominate and the other only can slow the other down.
Inlfation turned to disinflation as deflation is building steam to take full swing. I believe it is our next step and coming strong. The Pres. and all politicians that voted for this spending has left inlfation standing wide open. Only some of the money is being used now. The vast majority of sits waiting. Yes, some is sitting at the Federal Reserve and the banks are drawing interest off it. Why? Because you and I via government gave them the money. They could not use it right now, so they put it back in the Federal Reserve with interest. Our congress passed that neat bill.
Believe you most of it is being planned to be spent next year and with deflation pretty much over. Inflation will zoon. Like hyper-inflation in my opinion for all the imports(credit or inflationary spending) in excess of exports, plus all the spending now and add on all the programs not funded including SS that is growing in leaps and bounds that needed more printed money for. How can inflation not explode in short order, imploding the dollar. New Currency?
The bottom line is not taxation–it is spending and government has no money. Except what it forces out of me and I have been told there is an estimated 67 million now that do not pay taxes by protesting the tax system. I am trying to check that out. Now that is civil disobedience if true and the rebel I am. I would join them.
Saying that the tax rates during the Reagan years were 50% doesn’t really paint the whole picture. When Reagan took office, the top marginal tax rate was at 70%. Reagan spurred economic growth by cutting the marginal tax rate from 70% to 50%, and then to 28% by 1988.
So, while 50% may seem high to all of us now, remember that, in context, 50% was a 20% cut from the years of 70%. There’s no way that Reagan could have come in and in one fell swoop taken the top marginal tax rate from 70% to 28% – though that would have spurred growth even more had he been able to do that.
Remember that taxes in the United States for the top income earners hovered around 90% from around the time of WWII (it was at its highest in 1945 at 94%), until 1964. During the 1960 presidential campaign, a young man by the name of John F. Kennedy campaigned saying that with nearly 95% of every dollar being earned by the top income earners in America, we were stifling economic growth. It wasn’t until after his death in 1963 that one of the things he campaigned to fix was rectified, and the top marginal tax rate was lowered from 94% to 70%. I think it’s stunning to note that it was a DEMOCRAT who first had the great sense to lower taxes on the “evil” rich people in order to spur economic growth. Even more stunning to note that JFK’s younger brother Edward “Ted” Kennedy is one of today’s most stalwart opponents of tax cuts for the “wealthy”, even though his older brother knew the devastation wrought on the US economy by oppressive taxes.
Supply-siders like Arthur Laffer (famous for the Laffer Curve) who held great influence with Ronald Reagan lead the charge in the 80s to lower taxes even more. And lower taxes they did: from 70% when Reagan took office to 28% by 1988.
If you look at a graph of GDP over time, and you split the graph into two parts – Part 1 being the beginning of recorded GDP to 1964 and Part 2 being 1964 to present day – you will notice something amazing: there are two completely different trend lines in GDP. The trend line from beginning of time to 1964 has a mildly upward slope. The trend line from 1964 to present day has a noticeably steeper upward slope as compared to the first trend line. So, what happened? We cut taxes and people started producing.
Actually, if you look really closely, the slope of the trend line from the end of the recession of the early Reagan years until present day is even greater than 1964 to present day.
It is clear that tax cuts spur economic growth. So, I don’t understand why pointing to the early Reagan years and saying, “Look! The conservative’s beloved Reagan had higher taxes than Obama is trying to enact!” has any bearing on the conversation. We’re talking about different times, and a completely different context.
Reagan came into office when people could still remember paying 95% of their marginal income to the government. Reagan came into office when people WERE paying 70% of their marginal income to the government. A 20% reduction in income taxes is DRAMATIC!
At the time, people didn’t quite understand (nor did they have faith) that cutting taxes might actually INCREASE government revenue, as the Laffer Curve would suggest. In fact, some people today don’t understand that concept, so back when people were used to paying such high taxes, they must have feared that the government would go bankrupt. Amazing how tax receipts actually increased with decreases in taxes, huh? Strange how that works. Incentives actually work.
The fact that cutting taxes to 50% outperformed 70% marginal tax rates does not justify raising taxes now. I’m assuming the logic behind the argument that we should raise taxes now is that growth under the Reagan years was phenomenal, so we should just go back to those tax rates. You have to look at the changes over time, and the economic activity that was spurred by enacting dramatic cuts in taxes over time. The context in which those tax rates were enacted is VERY important.
We all like the growth of our economy over the past almost 30 years – we have ALL benefited from it. Why would we want to enact policies that pre-date these past almost 30 years of growth? Why would we want to go back to the meager growth rates we had before dramatic tax reductions.
It just doesn’t make any sense to me.
Reagan lowered income tax on the wealthy his entire presidency, but then raised payroll taxes affecting everyone rich and poor by 1983 to respond to the wrecked budgets. Between his election in 1980 and his leaving in 1989, the overall tax revenue (federal, state, and local) as a percentage of GDP stayed nearly the same; 27.6% in 1980 and 28% in 1989. It remained at 28% as Bush Sr closed out his presidency in 1993.
When Clinton took office, he marginally raised taxes on the wealthy while cutting middle class taxes. As a result, the federal tax revenue as a percentage of GDP rose steadily throughout this presidency. The economy also witnessed sustained growth.
Perhaps Reagan was right in cutting taxes on the wealthy by a substantial amount. But maybe it was his massive ramping up of military and government spending that was the result in the business cycle throughout his second term. Regardless, he ran up deficits as a percentage of GDP that had not been seen since WWII. The overspending (with arguable impact on quality of life) during the Cold War would be a burden Bush and Clinton would have to overcome.
When Bush took office in 2001 and cut taxes, federal revenues worsened as a % of the GDP, only to make a partial recovery between 2005 to 2007. That recovery has run its course. Federal revenues must be bolstered and resources must be reallocated from the wealthy. It’s only socialism after a certain line has been crossed; where incomes are suddenly equalized. Raising the tax rate on the upper class (something which Bush Sr did) is a logical decision. They can afford to pay more. They won’t have to make sacrifices. Excuse me for getting nostalgic, but back in the days, the barons had a passion for technology to fuel wealth creation. Now it seems like they live for the golden parachute. And any step toward technology is shot down by the right as “too expensive.” Well I guess we could all live in Coleman tents our whole life too because building a house is too damned expensive. The technology to improve our environment, quality of life, and thus society is there and aching to be used! Why not handsomely reward those who worked their whole life to build that better solar panel, or that more efficient wind turbine, or that more efficient gas turbine or air conditioner for that matter? These people should be rewarded. Less emissions means less aggregate toxicity in our systems will realize us to have less stressful, less cancer-ridden lives. Our salve is within reach! Can’t the Nintendo or flat screen be put on layaway?
The Laffer Curve has got to be the biggest lie in modern macroeconomic theory. Its parabolic shape is exaggerated with no regards for nuance. Of course it’s correct at its 0% and 100% extremes and that’s how the scam has been perpetrated, but somewhere in the middle of the curve lies an equation that we all must take the time to solve. We cut taxes, we lowered our government revenues, so how could it have been the government that’s to blame for the crisis? Bush certainly didn’t overspend domestically, where fruits from taxation would’ve actually been realized. Our education system was starved with an unfunded mandate while a culture of disrespect for authority and selfishness, without feeling the injustice of those unfairly disadvantaged, is increasingly haunting our young people. And who’s responsible? We all are. Our standards got lower. We try to push the blame on a segment of society whom we don’t even know or understand. When that fails, we blame the big bad government like an animal who can’t stop reopening its wound.
Bickering about policy has its place, but why can’t those whose side has been proven ineffectual at least grow up and experiment with moving a little bit left?
This isn’t even my fight but I feel the need to get involved.
Tyler, you are taking things way out of their context. Reagan taxes raising 28% of the GDP consistently only shows that the taxes remained constant as a percentage of GDP, it says nothing for the amount of tax revenue. The GDP grew tremendously under Reagan, therefore the tax revenues grew tremendously as well. As for Clinton, taxes rose as a percentage of GDP because he taxed faster than the GDP could increase! That being said, Clinton was the most fiscally conservative democrat since before the Great Depression and actually offered much lower taxation than any other democrat. In fact, through his presidency as a whole he averaged lower top-bracket income taxation than Reagan and lowered the capital gains tax to 10%. Clinton did a great job of keeping taxes relatively low because he knew that’s how economies grow.
“It’s only socialism after a certain line has been crossed; where incomes are suddenly equalized.” Tyler, by that logic there has never been a socialistic society in the history of man. Would you presume that Stalin’s cronies had equal incomes to those people working in the labor camps or on the farms? Come on. We both know that socialism does not mean equal income. A socialistic society is one with nationalized and socialized resources. As it stands today, the United States is, for all intents and purposes, socialist in numerous ways.
“Raising the tax rate on the upper class (something which Bush Sr did) is a logical decision. They can afford to pay more. They won’t have to make sacrifices.” Wrong again, Tyler – they will make sacrifices. The rich typically employ the poor to some degree. When the rich are taxed more they invest less. When there is less investment less people have jobs. As a result, the rich only have to make the sacrifice of not making as much money, the poor have to make the sacrifice of not having a job. And who would you guess they then steal from via taxation when they don’t have a job? The rich. Soon enough everybody if worse off than they would have otherwise been. It’s like Margaret Thatcher says in the video on the homepage of this website, liberals would rather the poor be poorer, so long as the rich are less rich.
“. . . Any step toward technology is shot down by the right as ‘too expensive.’” WHAT? You have got to be kidding me, T. You are insinuating that the business owners in this nation do not want to invest in technology. The ONLY technologies that will not be widely adopted are those that are inefficient. That is, if an electric car costs me $50,000 and I only have to pay $3 to go 200 miles and a similar gas-powered car costs me $15,000 and costs me $30 to go 200 miles then I will have to drive over 250,000 miles to make it worth buying the electric car. Utilizing the time value of money I will never make it worthwhile. Even if I add in a $5 pollution fee per 200 miles I’d have to drive over 210,000 miles, again making it impossible. This would qualify as an inefficient technology and no rational, sophisticated business owner would invest in it. However, if the technology is efficient and will make the business owner more money then of course he/she will invest in it. Do you use a computer at your office? Do you have air conditioning? Did you buy a car with power locks? Of course businesses invest in technology!
“Why not handsomely reward those who worked their whole life to build that better solar panel, or that more efficient wind turbine, or that more efficient gas turbine or air conditioner for that matter? These people should be rewarded.” I’ve spent my whole life trying to invent a product that is far superior to all Microsoft products and Apple Products. I haven’t yet invented one that is superior, but I’ve worked hard. I deserve to be paid the combined market caps of Microsoft and Apple. Same logic, Tyler.
Dan knows a lot more than I do about the Laffer Curve because he actually worked on a project with Laffer so I’ll let him comment on that.
Keep the comments comin’, Tyler. I really do like them no matter how much I argue with them.
One final thought: who ever decided that higher taxation as a percentage of GDP is a good thing?
I don’t know what Laffer would say if he were on a TV show (as he often is these days), of if you were to ask him on the record, but I will tell you this from my recollection of many conversations I had with him about economics, and, specifically, the Laffer Curve.
Tyler, I agree with you that the Laffer Curve is most likely absolutely 100% correct when we’re talking about the points at 100% tax and 0% tax. At the very least, we can stipulate to such a condition. (Given your statement, I’m going to assume you’d stipulate to such a supposition.)
Because we have a bound, continuous function for tax collections as a function of tax percentage, and because we know its two end points are at 0, we know that we must, by the laws of mathematics, have at least one maximum point. There could be two identical points, but from an economic growth perspective, if we’ve got two or more maximum points, the maximum point associated with the lowest tax rate should be chosen, because it keeps more money with the individual, and yields identical money for the government (i.e. this yields a greater total GDP).
I hope you would at least agree to this point.
What Laffer has said is that the Laffer Curve is more illustrative than it is a precise curve. The curve, as drawn, might lead one to believe that the maximum point on the curve is 50%, because the curve is drawn symmetrical about 50%. He does not believe that 50% is the correct number. He may have told me what he thought the right number is, but I don’t remember.
The point is: no one knows where that maximum point is. Could it be that we are now somewhere below that maximum point? Sure, that could absolutely be true. Could it be that we are somewhere above the maximum point? Sure, that could be true too.
While we may not know where that maximum point is, we know that there must be some maximum point. There are a couple of debatable points here: 1) Are we above or below the maximum point? 2) Should we strive to find that maximum point?
I can’t tell you whether we are above or blow that point; however, my answer to #2 is, “No, we should not.” I am told that Art Laffer believes that we should find that maximum point. I would have to respectfully disagree with the good Dr. Laffer if he still holds that opinion.
Anyway, at the end of the day, everyone recognizes that it is impossible for the Laffer Curve to be proven 100% accurate with empirical evidence because in order to do this, you’d have to play with the tax rates constantly to see how people respond. The problem with this, of course, is that the market would take into account that tax rates were going to be extraordinarily volatile, and would then behave differently than if the tax rates were more stable. Thus, an attempt to prove the curve (prove in this sense meaning to find the exact maximum point) with empirical evidence would seem futile.
I’ll reiterate what Jeremy said, Tyler: I do enjoy your comments.