banking services chronicle july 2020 pdf

 banking services chronicle july 2020 pdf

banking services chronicle july 2020 pdf  Published this article page no   Is political discussion about tax policy meant to achieve a rational tax system Or is it just to garner votes Is there science that gets lost in the debate Tax policy discussions are meant to do what Arrive at a rational policy or garner votes. I think it is the latter. What is lost in all the debate over tax increases versus tax cuts is science. Contrary to what most people may think there is some scientific study of taxation. <b>Applying The Laffer Curve To Tax Policy<b> Invented by Arthur Laffer the Laffer curve shows the relationship between tax rates and tax revenue collected. It demonstrates a simple principle that very few people understand but one that is crucial to proper governance. It is the idea that as you raise taxes you reach some point where actual revenues collected begin to drop. This is perfectly logical and you can understand it at the extremes. If the government took 95% of your income in taxes after the first $10000 would you work much after that Do they get any more taxes if you dont work more No. More money will actually be collected if they take a lower percentage right Now add to this the fact that every dollar the government takes cant be invested into new businesses or the expansion of existing businesses. New business investment means new income and therefore more taxes. This isnt hypothetical  you cant invest what has been taken away from you. A friend of mine put off hiring employees and expanding his business for a long time because of a state business tax that would dramatically increase his taxes if he hired help. That was a truly perverse tax policy but any raising of taxes has to at some point cause a lowering of profits to the point where less is actually collected in taxes. There obviously has to be a point of diminishing returns. Where is it The science isnt that exact yet but the principle is clear. The top of the curve seems to be somewhere around 15% to 25% as a total tax burden federal state and local. What this means is that if tax rates go higher than that 15% to 25% the curve goes down the government actually collects less money. This isnt a republican or democratic issue. When Kennedy lowered tax rates and when Reagan did so from a high of 70% tax revenues soared. The fact that under Reagan the government spent even faster than the rising revenues is another issue but the lesson was clear the Laffer Curve is an accurate description of tax rates and tax revenue. In other words even if a political party or a society wants all sorts of social welfare programs they have to realize that there is an ideal rate of taxation to get the most money to pay for these programs. Tax more heavily and you get less not more. This is the reality whether people like it or not. <b>The Politics Of Tax Policy<b> Quite often people dont like this reality and politics trumps science. For example wealthy people are often taxed at rates that have them spending more time looking for loopholes than ways to make more taxable income. This lowers production and so lowers the potential taxes collected. If your friends dont get it when you explain this point out that 20% of a million is more than 50% of three hundred thousand so production matters  not just higher tax rates. What happens if we recognize this Will a politician explain that the government can collect more taxes from the wealthy if the rates are lowered When they try they lose votes. Long term there is real hope because the principle is actually easy to understand. Short term it is politically difficult to say you want to lower taxes on the wealthy to a scientifically determined rate of greatest efficiency. Many people want to believe that the rich can be taxed enough to pay for anything we want. The reality is that if most of the income of the wealthy was taken it would fund government for only a few weeks. There are more middle class than wealthy people and more total income there so that is where most taxes have to come from. Voters dont know this or dont like this and politicians tell them what they want to hear. Hence the tax policy charade. banking services chronicle july 2020 pdf

 banking services chronicle july 2020 pdf