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Thread: California's Laffer Curve

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    Chris's Avatar Senior Member
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    California's Laffer Curve

    The Laffer Curve strikes again!

    California's Laffer Curve

    Economist Arthur Laffer is justly famous for the Laffer Curve, which shows that if tax rates go high enough, tax revenues will fall....

    ...When the feds raise tax rates, you can’t avoid them by moving to another state within the United States. But when a state government raises tax rates, residents of that state have 49 other states plus the District of Columbia as potential places to move to.

    ...State governments, like the federal government, probably don’t care much about most people; they don't have an incentive to care. But there is at least one thing they must care about: getting tax revenue. So if enough people respond to higher state tax rates by cutting back on work and investment or by moving, the state government won’t raise nearly as much tax revenue as it expected.

    This has happened in California. Joshua Rauh, an economist at Stanford University and a senior fellow with the Hoover Institution, has co-authored an important study of the effects on revenues of a major increase in marginal tax rates in California. In 2012, Californians voted to increase the top marginal tax rate from the then-high 9.3 percent to rates ranging from 10.3 percent to 12.3 percent. Add in the pre-existing 1-percentage-point extra tax on people making over $1 million a year, and you get rates ranging from 10.3 percent to 13.3 percent.

    Rauh and co-author Ryan Shyu of Stanford’s Graduate School of Business find that of the extra revenue the state government would have raised if high-income people had gone on with business as usual, 55.6 percent was lost over the first three years of the higher taxes. That was due to people leaving the state and to the high-income “stayers” making less income than otherwise in response to the higher tax rates. The effects were even larger in the last of the three years the economists studied. That makes sense because the longer the taxes were in force, the more time people had to adjust.

    The Laffer Curve in California is alive and well. Which is more than can be said for California.
    Tradition is not the worship of ashes, but the preservation of fire. ― Gustav Mahler

  2. The Following 4 Users Say Thank You to Chris For This Useful Post:

    donttread (10-29-2022),Newpublius (10-29-2022),Peter1469 (10-29-2022),RMNIXON (10-29-2022)

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    It is odd that people still debate the efficacy of the Laffer Curve.
    ΜOΛΩΝ ΛΑΒΕ


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    I have been trying to lecture progressive fools for years that tax rates and actual revenue are not the same thing. When Governments big and small claim some tax increase will raise this amount of money to spend your BS meter should max out because it rarely happens and additional public debt results.
    My Revenge will be Success! - Donald J Trump

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    Quote Originally Posted by Chris View Post
    The Laffer Curve strikes again!

    California's Laffer Curve
    When the rates go over half, all in, people start balking.

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    Chris (10-31-2022)

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