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Discussion: (49 comments)

  1. Max Planck

    The Laffer Curve is discredited nonsense. Keep it up Jim. None of the REAL economists are following you anyway.

    1. MacDaddyWatch

      Who discredited it? You? An unemployed CFA?


      1. Max Planck

        A Level 1 CFA knows more than Jimmy P. does about economics.


        1. MacDaddyWatch

          A Level 1 CFA provides zero-value added to the investment process. John Bogle ate your lunch decades ago. His passive/indexed management made you obsolete and put you worthless CFA’s on the the unemployment lines.

          1. Max Planck

            Not true, but prattle on. You go buy those index funds and hold them.

      2. MacDaddyWatch

        For starters, it looks like Max Einstein’s own comments automatically disqualifies him from the “real” universe of accomplished and recognized economists based simply on the extraordinary amount of time he spends right here…following Jim’s every word.

        Nobody knows or cares who you are Max…yep, I know its frustrating. Nobody knows who you are. Is that why you don’t use your real name?

        1. Max Planck

          “Nobody knows or cares who you are Max…yep, I know its frustrating. Nobody knows who you are. Is that why you don’t use your real name?”

          Your parents must have hated on you to give you YOUR name.

      3. Don’t you love how idiots say, “that’s not true and every serious economist knows it” as we read about high income earners doing what they are saying is untrue?

        Reagan said it best…”it’s not that our liberal friends are naive, it’s that they know so much that isn’t so.”

        1. Todd Mason

          Don’t you love the way the wingnuts assume that Mickelson actually will apply for a Russian passport when his agent clearly called him the next day and told him STFU. Mickelson made $61 mill in 2011 playing golf and, more importantly, hawking prescription arthritis medicine. Phil may not need the little people but Pfizer sure does. Expressed as an hourly wage, I suspect that 40 percent of Phil’s endorsement earnings are handsome enough to keep him here in the US. What do you think?

          1. The point the writer is making is that how fair is it? I don’t think its fair at all that someone has to pay 63% of her/his income to the government which uses the money to pay interest on the debt, for entitlement programs that fund medical and SS benefits for seniors, many of them solidly in the middle class and most of them having received far more in benefits than they paid in. Phil should move to TX, FL or AZ.

          2. I think the US does not have a territorial taxation system so the whole point of your comment is moot. The only way he avoids federal taxes is to stop working and/or stop investing. He can, however, reduce his state tax burden by establishing a residence in a lower tax jurisdiction, which would save him about 13%.

    2. Anthony Lappas


      Check the last California census and the income level of those that left. Not only valid but getting reaffirmed on a daily basis.

    3. Roger Ramjet


      Every post you put up further convinces me you’re actually Paul Krugman.

      The Laffer curve was nothing revolutionary nor ground breaking. It is a simple Diminishing Point of Return model. Tax someone more, get less in receipts.

      Unless you want to argue that people will keep working no matter how much of their labor you confiscate, you too must be willing to agree with the Laffer Curve principle.

      Oh, wait. You’re a Keynesian. Never mind.

      1. Max Planck

        “Every post you put up further convinces me you’re actually Paul Krugman”

        I do thank you for the compliment.

        “The Laffer curve was nothing revolutionary nor ground breaking. It is a simple Diminishing Point of Return model. Tax someone more, get less in receipts.”

        Up to a point. When the theory is used as a model for policy choices that turn out to be bordering on deranged, I prefer to just ignore it. What should be as simple – in theory- as balancing a checkbook, has been turned into a touchstone for economic lunacy.

        1. Let’s not over-rate lunacy here. Bachman’s “zero!” answer to the ideal tax rate was lunacy, but so is some of the excess on the liberal side.

          What’s truly lunacy is all this guessing. We HAVE the historical data. It’s not that hard to process, and extremely clear in its conclusion.

          If we let the rate float on a measured inflation adjusted per capita revenue peak each year, we’d automatically stay at the peak, or very close to it.

          1. Roger Ramjet

            Exactly. This should be an effort to find the economic “diminishing point of return” where either raising or lowering taxes will actually decrease the amount of tax receipts that the government gains. We have YEARS of empirical evidence that a low tax rate on capital gains is better for the economy. In 2003, Bush (who is a mostly Keynesian) cut the dividend and capital gains rates to 15 percent each, and the economy responded. In two years, stocks rose 20 percent. In three years, $15 trillion of new wealth was created. The U.S. economy added 8 million new jobs from mid-2003 to early 2007, and the median household increased its wealth by $20,000 in real terms. But the real jolt for tax-cutting opponents was that the 03 Bush tax cuts generated a massive increase in federal tax receipts. From 2004 to 2007, federal tax revenues increased by $785 billion, the largest four-year increase in American history.

            Progressives don’t usually argue with these facts because they’re irrefutable, choosing instead to obfuscate the argument by making a fairness issue out of what should be an economic one.

      2. Actually, Krugman gets bad rap on the Laffer curve. He sees the point of diminishing returns at a 65% top progressive income tax bracket.

        That’s actually correct IF there are no other taxes. The presence of State and Local taxes contracts the Laffer curve. You can see the contraction posted here:

        Basically, the mathmatic limit on taxes is an average total burden of 35%. If states have 15%, that only leaves 20% left to the Federal government (that’s the same 20% the Wall Street Journal advocates).

        A 20% AVERAGE tax burden contracts Krugman’s 65% max / 35% average academic curve to a real world 35% max / 20% average Federal curve.

        Krugman’s problem is that he leaves out that fine point about the Federal government only being a piece of the pie.

        As for Keynes, even supply siders are Keynesian. While Liberals tend to raise taxes in booms and raise spending in busts, Conservatives argue to lower spending in booms and lower taxes in busts. But BOTH of these approaches are technically Keynesian.

        If we were on the left of the Laffer curve the Liberals would probably be right. Since we’re on the right of the Laffer curve the Conservatives are right. But they DID get it wrong in 1988 when they lowered the top Federal bracket to 28%. While that’s good for the economy, it DOES bring in less taxes, and there were too many obligations to sustain it — which is why Bush Sr. was forced to break his pledge. Ideally they should have cut spending, but that’s a different matter.


  2. Max Planck? Get a brain. And a real name. Oh, sorry. Get a REAL name.

  3. “If you add up all the federal and you look at the disability and the unemployment and the Social Security and the state, my tax rate’s 62, 63 percent,” Mickelson said.

    Disability and Unemployment are NOT taxes… they are expenses he pays out of his income, and then he’s taxed on what is left over. Granted, they are expenses enforced upon him by a governmental entity, so they kinda feel like taxes, but they are not.

    Still, even if you properly characterize the expenses, his tax rate is surely quite high. But the reason is because of the Self Employment tax, which is the 6.2% a regular employee’s employer pays in on his behalf. For us self-employeds, we have to cover the 6.2% all employees pay PLUS the 6.2% that would have been paid by our employer on our behalf. So, Phil’s problem is not so much with the marginal tax rate, but rather with the structure of the tax program.

    Besides, it’s all so complicated… if you run your own business, it’s really impossible to say “My tax rate is such-and-such.” The best you can say is, “It’s a helluva lot.” Even so, I doubt you’ll be hearing about Phil’s plans to move out of the US any time soon.

    1. Disability and Unemployment ARE taxes – involuntary payments levied by the government for which non-payment is punishable by law are taxes.

      The 6.2% tax you refer to stops at about 100k (the equivalent of FICA for the self-employed and then there is Medicare on top of that.) So Phil probably isn’t too worried about $15k of taxes given his income.

      It is pretty easy to figure one’s marginal tax rate regardless of income, especially when in the top tax bracket as follows: 39% federal rate + 3ish% obamacare tax + 12% california state marginal tax rate. Phil probably is counting the self employment taxes – but again, that ends at about 100k. So Phils marginal tax rate is in the mid 50s, which is pretty ridiculous.

      While he probably won’t leave the US, he could easily move to Nevada or Texas and take that rate down by 25% – which he should have done a long time ago.

  4. Todd Mason

    Hey, if Phil doesn’t want to pay taxes on hawking prescription drugs on TV he can go to Canada. Well, that won’t work. Japan? No. UK? Nu uh. Australia…….

  5. The peak of the Laffer curve is a rather straightforward calculation, actually. You can use capital gains rates against the S&P index to run a full simulation, as I did here:

    For capital gains rates, the limit is at 35%.

    Interestingly, that is also the limit for the top bracket of Federal income taxes, which is graphed here:

    The problem is that money isn’t taxed once. It’s taxed every time it moves. The higher the rate, the less people the money can move through and the less jobs that will exist. Money isn’t an object, but the medium people use to measure work. Once the money falls too low, people can no longer add value to it with a job.

    With a 16 trillion dollar debt, the government should really set it at the maximum revenue point and call it a day. But the new Federal rates will create a 14% drop in Federal revenue and a 20% drop in state revenues.


  6. Sorry, Max Planck, you really are an idiot. If there’s less incentive to produce, less gets produced (which was Mickelson’s point). The redistributionists can keep chasing the smaller goods and services base as it keeps dropping and everyone keeps getting less. Groovy.

    1. Max Planck

      “Sorry, Max Planck, you really are an idiot. If there’s less incentive to produce, less gets produced (which was Mickelson’s point).”

      Bullshit. As historian Paul Johnson noted about Karl Marx, his theories should have been perfect and elegant:

      We’ve been through this before. We’ve endured FAR higher taxes along with strong economic performance before.

      I’m not in favor of high taxes for their own sake, but the fact is we blew out our budget like a whore with a credit card, and it’s payback time. It’s as simple as that. That’s why there are no real “Conservatives” today.

      1. Roger Ramjet

        This is compete bullshit. You really need to stop…

        The Eisenhower tax rates argument is completely lame. Those rates applied to a much smaller fraction of taxpayers and kicked in at much higher income levels relative to today. Additionally, because of the myriad of deductions available at the time, no one paid those rates. Tax rates v. GDP over the Eisenhower years was very much like the historical average of 20%. This is the mistake that every Liberal makes when they salivate over confiscating another’s wealth for their own use.

        1. taxexpert

          More paid a higher effective tax rate than acknowledged, though the slipperiness of the tax base was a problem then as now. So the fact is that most wealthy don’t pay the really high tax rates that they claim today, either. Take into account the zero taxation on most of their estates along with the step up in basis (and they fact that they can monetize those estates to live off them free of tax in their lifetimes) and you really have low low tax rates for people who live off capital. Which is one of the reasons why Romney was embarassed to let us see his tax returns–he actually paid less than 15% tax most of the time.

  7. The Laffer Curve has not been discredited; the economists you listen to are simply in in denial–Laffer Curve deniers if you will.

    The basic assertion of the Laffer Curve is that the tax yield is $0 at a zero rate and 100% and that somewhere in between the tax yield peaks. The legitimate debate is the shape of the curve.

    It is a simplification because it does not the aggregate (or average) tax matters as much as the marginal rate. SS, disability etc. are hidden taxes because they are not freely contracted, are biased to transfer wealth (not operate as pure insurance) and when they become means tested will convert the programs they support into welfare.

    Speaking as a CFA charterholder, we never guarantee a result. We do claim a certain body of knowledge, commitment to striving for a higher ethical standard than many in the industry and a commitment to only express opinions where there is a reasonable and supportable basis for those opinions.

    If only most participants in the political and economic debates held themselves to those standards.

    1. taxexpert

      The basic assertion of the Laffer Curve–that there is a single peak (ie, that it is a bell-shaped curve) is without foundation in empirical evidence. It is more ideology than theory.

  8. Higher tax rates in one local give incentives to ‘vote with your feet’ and move to areas with lower tax rates. The evidence is all around you. One example: why do most professional athletes reside in FL ?

  9. Max Planck

    “Speaking as a CFA charterholder, we never guarantee a result. We do claim a certain body of knowledge, commitment to striving for a higher ethical standard than many in the industry and a commitment to only express opinions where there is a reasonable and supportable basis for those opinions. ”

    Blow it out your ass, sonny. If I’ve learned one thing in my business, no designation or series of letters after your name guarantees personal integrity, and that goes for ALL professions.

    In the meantime, the empirical evidence of it’s failure is all around you. You’re like the Stalinist die-hards: even after they were told of his butchery, they still believed.

    1. Max,

      Actually, the empirical evidence is there for you in the President’s own report. All you have to do is plot inflation adjusted per capita revenues, as I’ve shown in my previous post. The result is quite startling.

      Might take you a few minutes, but if you put forth the effort you’ll find the empirical evidence as clear as day.


  10. The Laffer curve is not discredited, but the thing that most limits its usefulness is the fact that it is dynamic, ever changing, and a very complex function of a lot of economic variables that we don’t always know. Therefore, the Laffer curve of today might differ greatly from the Laffer curve in the 1980s. Since we can’t know it’s precise mathematical construct at a given time, nor predict its future behavior with much accuracy, it’s really more of an abstraction than a practical tool.

    1. Max Planck

      “The Laffer curve is not discredited, but the thing that most limits its usefulness is the fact that it is dynamic, ever changing, and a very complex function of a lot of economic variables that we don’t always know.”

      Which is enough to discredit it. Every model, seen in a vacuum, “works,” until something happens to disturb it and given our recent economic history we should just acknowledge that and move on. Long Term Capital Management’s fate is a good example of this.

      1. Not at all. The problem with the Laffer curve is that it is the limit for TOTAL taxation. For any PARTICULAR tax in a multi-tax environment it varies.

        Most academic studies place the limit on maximum progressive tax rates at 65% and average tax rates at 35%. Those are actually the same thing, since a 5% to 65% progressive tax averages about 35%.

        My own studies show that even taxing a robot would become counter productive after 35%.

        The complication for FEDERAL tax rates is only a matter of application — hence the need for dynamic scoring. But even these can be measured. Historically the combined limit for Federal, State, and Local governments in the US is 35%. After 35% it grows smaller when measured by inflation adjusted per capita GNP.

        Right now State spending is at 15% GNP and Federal spending at 25%.

        If that’s only a short term effect of the recession, fine. But if it become endemic then we fall on the wrong end of the Laffer curve, and 40% GNP is smaller in real dollars than 35% GNP — because the GNP at 35% itself will be higher.

        Now, I DO have differences with Laffer, since Laffer showed tax revenue falling to 0% potential at 100% taxation, while my studies show it would only fall to 48% potential at 100% taxation (which is why the Soviet Union was able to function… at a slower level… but NOT at 0% revenue).

        The current changes to healthcare may indeed effect the application of the Laffer peak to Federal rates, but that would make them lower than their historical peak at 35% top marginal rates, not higher. The most recent move was in the wrong direction, and can be empirically demonstrated, as I did in the links I gave you earlier.


        1. Max Planck

          Sir- with all due respect, they’re still “studies” and that doesn’t take the place of real life. You’re looking at a set of theoreticals, which, while they may even have SOME truth in history, do little to predict the future. As it is, the mere percentages tell you little, because our tax code has never consisted of marginal rates double spaced on a single page. There are countless permutations in the rates real people pay based on all of these variables, which is especially true since those who earn the most are likely to itemize the most.

          I appreciate the quest for knowledge and understanding as much as anyone, but the problem is academics often shut out the all of the noise going on at street level.

          How often have we seen this in our own lifetimes?

          I’ll take a look at your data later.

          1. Agreed on the limitations of studies. They often create a trap because their assumptions are not discounted when translated into a real world setting.

            This is the problem that Paul Krugman has when he speculates that the peak of the Laffer curve for FEDERAL rates is a top bracket at 65%. That would be absolutely correct IF there were no other taxes. The presence of State taxes drops the Federal optimal share from 35% GNP to 20% (leaving 15% for the states). With a cap of 20% GNP, the top marginal rate cannot be higher than 35% (and perhaps lower now that the AMA surcharges are in effect).

            You can see the relationship between State and Federal revenues here:


            In any case, what they SHOULD do is freeze all of the taxes but one — and allow that final tax to float in such a way that it self adjusts based on inflation adjusted per capita revenue history. Thus, if 35% began to underperform, the float model would automatically drift to 34% or 36%, whichever was greater. But the taxes would no longer be based on “models” or “studies” (nor the more disastrous option of demogogic guesses); and instead they would be automatically optimised on a self adjusting basis of whatever generates the greatest revenue.

            (That is, at least until we pay off the debt — when we can tinker with even lower rates if we wish).


        2. taxexpert

          This is just hypothesis–you cannot show that this is true based on empirical evidence from the way tax rate changes have worked in the past and you cannot accurately predict what will happen in the future. The claim that “dynamic scoring” can solve the problem just adds another undisciplined factor into the equation that can be adjusted to give the result that you want.

          1. Tax Expert

            You are lumping too many assumptions onto each other.

            First, I can show, and have shown…


            … that tax rate changes in the past have been astonishingly close to an idealized Laffer curve. The slopes over the course of 70 years are an extremely tight match.

            That said, I DO agree that one cannot perfectly predict what will happen in the future, but for my own reasons:

            1) Federal tax rates are only ONE among many taxes, and the Laffer curve itself holds for all taxes, rather than one in isolation. Therefore a change in one tax will adjust the maximum point of any other tax.

            2) I do not claim that dynamic scoring will “solve” the problem, but that it will be better than simply guessing and hoping that all tax rate raises correspond to tax revenue raises (which they do not after a point), or that all tax rate reductions are “paid for” by economic growth (which they do not after a point).

            As you can see in my own proposal, I’m not advocating a dynamic scoring, but rather a dynamic adjustment to the tax rate itself.

            First, you freeze all taxes but one — preferably at the lowest optimal estimate (flat 20% for Federal corporate and capital gains), and then allow a single tax to float based on yearly (cumulative) measures of inflation adjusted per capita revenues.

            That is, if 35% begins to underperform, the tax revenue records would shift the optimum peak in the ACTUAL RECORD to either 34% or 36%, and you would continue to track.

            In other words, the tax RATE would float based on ACTUAL inflation adjusted per capita revenues. You wouldn’t just stay with 35% if it no longer worked, and changes in the economic baseline could in theory cause changes in the ideal peak — but you wouldn’t be GUESSING any more. You’d simply be MEASURING and adjust as necessary based on measurements that are rather straightforward and transparent.

            We have a 16 trillion dollar debt. We should stop playing around and just agree to a) collect as much as possible and b) spend as little as possible.

            And I’m saying that as a Keynesian (as Keynes himself would have advocated — with paying off the debt in booms and only running deficits in busts).


          2. Max Planck

            I think the floating rate idea is one worth exploring. I’m not sure how the mechanics would work in PRACTICE, but if you look at what we’ve been through in the past decade, yes, having ONE tax template iced for a ten year period is lunacy. We’ll be chasing our tails for years trying to play catch up.

            One last note here on Mickelson. We are all presuming that that when Mr. Mickelson wins a tournament or gets an endorsement, that the remuneration is made out to him PERSONALLY. I think Mr. Mickelson is probably incorporated, and as such, would be subject to the highest corporate rate of 35%, which as we know, can be whittled down with very little effort.

            That’s why Mickelson’s comment made him seem clueless to me- I don’t think the man has ANY idea how his taxes are being done, and frankly, at $48 million a year in earnings, I’m not sure I would give a damn either. He was probably just responding to a headline he saw.

  11. Phil needs to get himself a tax accountant. Doesn’t he know that state income taxes can be deducted from his federal tax? Property taxes are local. Sales taxes affect everyone. Has anyone checked his figures? 63%? You’ve got to be kidding me.

    1. Not a cfa but state taxes are deducted from gross income, not taxes. BIG difference.

      1. Max Planck

        No one ever said otherwise.

  12. To Max Planck: NWOR

    Let me make a wide speculation. Michelson will cease to be a California resident for tax purposes. He will chose to play in tournaments based on the value of those tournaments as a golfer and the tax consequences. States tax entertainers and athletes whenever they play or perform int those states.

    Phil already has a tax accountant; his returns are far too complex for anyone other than a highly skilled tax accountant to file–another tax. He probably already files tax returns in and pays taxes in most states in which he plays a tournament. The reactions was basically is there no end to this? Have the politicians have no shame?

    Furthering the “wild speculation”, while he will become a non-resident, he will publicly and voluntarily increase his charitable donations to San Diego and California NGOs.

    Both “wild speculations” are rational responses.

    This will be my last post on this site because while AEI is a credible institution, the pure hate, vile and ignorance of too many of the posts precludes any interest in them.

    1. Max Planck

      Sir, I don’t speculate on another man’s taxes, especially since I haven’t seen his return, and there’s enough in the tax code to make it thoroughly plausible that Mr. Mickelson doesn’t pay anywhere NEAR the levels he thinks he does, and he probably responded to some headline he saw in the Wall Street Journal and flew off the handle. He has since apologized to those people who have to work three jobs just to support themselves.

      As far as your believing the AEI is a “credible institution,” as opposed to a paid mouthpiece for the corporate interests who pay it’s way, let’s just say I’m glad I’m more “street smart” than “book smart.”

      You are remarkably naive.

    2. taxexpert

      since about 60-70% of taxpayers claim the standard deduction, tax returns for most taxpayers that aren’t in the very high income brackets are actually quite simple. The reasons tax returns are clomplex for someone like Michelson is that he has to file in various states, that he has lots of different types of income (endorsements–both in the US and abroad, I assume; winnings, capital investments, etc.). If filing weren’t complex it would mean it would be easy for him to manipulate his earnings (sourcing, etc.) and pay less tax. Most complexity in the Code has been necessitated by the efforts of the rich and big businesses to scam the system.

  13. left america in 2008 because im not paying half my money to the government. when somebody decides what a fair amount is and what i actually get for it , i may come back,
    but im quite happy getting some of my money back, taxes paid in interest ,from the chinese by teaching english and running a business in china.
    good luck with stagnation,

    1. Todd Mason

      Hope your business isn’t property speculation because the Chinese will take 70 percent off the top in hot markets. Good luck with Big Brother.

      1. Max Planck

        ROFL!! Guess we now have an advocate for state controlled capitalism. (and fudged economic “reports.”)

  14. Valerie Keefe

    It’s worth noting that Phil Mickelson is 43… the 40s are a period of dramatic decline in marginal productivity for professional golfers. Also Social Security taxes have nothing to do with Mickelson’s marginal rate, unless he’s in danger of dipping below six figures in earnings.

    There’s some impressive cherry-picking going on, choosing an early-onset arthritis sufferer whose mid-eight-figure income is largely dependent on work instead of investment, and is on the cusp of moving into semi-retirement. Phil Mickelson is definitely an atypical data point, but that seems to be what the author wanted.

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