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What's more important Laffer Curve or Income Inequality?

is4junk          4 December 2015 04:52 PM

I have had surreal conversations about taxes. Are they to fund government or solve social problems? One way to look at it would be - are you willing to run a deficit in order to fix income inequality via taxation? Secondary question: do you believe in absolute or relative wealth (or poverty)?

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Silent Cal 28 December 2015 08:47 AM

No one has yet given the most basic answer: maximize utility.

There are two effects at work here that are pretty much undisputed in mainstream economics:

1) Redistribution distorts economic incentives, lowering total production. This produces the Laffer Curve.

2) Individual wealth is subject to diminishing happiness/utility returns.

Taken together, these lead to an optimal level of redistribution that's greater than zero but somewhere short of the peak of the Laffer Curve.

There are various other effects we might consider, but probably none as widely accepted as these two. For one example, there are worries on both left and right about the effects various policies will have on politics.

Deficit spending is essentially orthogonal to the issue, entangled only by politics. Budget balancing is indeed associated with the fiscal right in the US, but as long as taxes are as high as spending, it's possible to have a balanced budget with any level of GDP-relative spending.


VoiceOfRa 4 December 2015 06:36 PM

Why is Income Inequality a problem again?


adventureworm 27 January 2016 04:29 AM

Which is more important, Newton's third law or going to Mars?


ChristianKl 5 December 2015 04:51 AM

According to research on the Laffer Curve Wikipedia suggests that the revenue maximizing tax is at 70%. We likely shouldn't have a tax on that level and nobody in the mainstream calls for tax levels that high.

If you look at real economic growth that's powered by innovation. China invests public money in it's infrastructure and can therefore build better trains than the US with lacks public spending in that sector. We live in Peter Thiels great stagnation.

The one sector that doesn't suffer from it is tech. How does income inequality relate to the prospects of a company like Apple? Apple doesn't sell $20,000 notebooks to rich people. It rather wants to sell cheaper notebooks to more people. An economic policy that allows more people to be rich enough to afford Apple's products. Apple profits from an economic policy that grows the middle class.

What happens when a rich person buys an expensive yacht? The money goes to a company that produces a custom project for a limited amount of people. The company won't standardize technology to produce it as cheaply as possible. Rolex doesn't work on producing watch technology that produces watches that provide much more use to their owners than the old watches. Rolex is not setup to systemize their internal processes to produce watches as cheaply as possible the way most real technology companies try to conduct their business.

The business strategy of a luxury company that wants to be a premium brand that can only be afforded by rich people is not about producing innovation that grows the economy.

Who are rich people who use their capital in a way that brings society forward? Bill Gates who made his fortune with Windows probably spents his money more effectively for the good of society than if the government would tax it away from him.
On the other end Ubuntu's Mark Shuttleworth also uses his fortune in a way that brings society forward.

When libertarian Peter Thiel get's asked about what he thinks about taxes, he says that provided the government does something with them they aren't the core of the problem. The problem is that he isn't free to do with his land what he wants to do. The problem is that he can't do in the medical sector what he wants to do due to regulation.

When rich people buy Tesla's that allows Tesla to fund their technology development but most luxury products are different. Houses and Yachts spending frequently doesn't lead to real new technology.

The core frmae shouldn't be rich vs. poor but "where do our societal resources go?"
Do they actually go where they lead to growth?

If we think of healthcare as being about developing new drugs where most of the costs are the drug development and not the costs of the pill, universal healthcare makes a lot of sense.
On the other hand if we look at medical testing we can see that Theranos business model of selling directly to consumers makes a lot of sense. It creates price pressure on lowering the testing prices in a way that universal healthcare or insurance based healthcare doesn't.

Diversity of system of funding are good.