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The week's question
In March 2025, in the thread "Re: OT, out", Umm asked the members: "Do you think it is because America is made up of magical soil that makes businesses based in America magically profitable?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Author: albaby1 ✶❂🐝 GOLD
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Number: of 86252 
Subject: Re: JediPunishment France
Date: 09/29/26 5:21 PM
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I asked you the marginal rate question to get you to admit that just increasing taxes to infinity is a bad idea, implying that there is a theoretical maximum the economy can take before growth contracts. That's the point.

It's not the point. That's different than the Laffer curve, which I think you are confusing with other economic principles.

Increasing taxes by any material amount will result in reduced economic growth. That is not in serious dispute. Similarly, reducing taxes by any material amount results in stimulus - it increases economic growth. That also is not in serious dispute.

The Laffer curve is about the effect on this growth on government revenue. It posits that there can be a point where the stimulative effect of the tax rate change can be large enough to offset the direct reduction in collections caused by the lower rates. That you can reduce tax rates without causing a fiscal problem due to the expected decline in revenue, because the stimulus effect is large enough that it offsets the otherwise direct consequence that a reduction in rates will cause a reduction in revenues relative to the scenario where you didn't reduce rates.

That does not actually happen in the real world. Reducing tax rates causes a stimulus effect, but it is never large enough to outweigh the reduction in revenues caused by the lower rates. Revenues will always be lower than where they would have been if you hadn't lowered the rates. In other words, as I said upthread, "cutting tax rates will not increase revenues." Revenues may increase due to other things (always inflation, usually economic growth unrelated to the tax cut) - but cutting tax rates will not increase revenues. The effect of cutting the tax rates is always a reduction in revenue due to that rate reduction, though the effect may be swamped by inflation or other things.

That's why we're in the fiscal mess we're in. The GOP slashed taxes but argued that the indirect effect of economic stimulus would be large enough to offset the direct loss of revenue due to the lower rates. And that didn't happen. Unsurprisingly, the effect of the tax cut was to cause a reduction in revenue relative to baseline. The economy grew, but not by enough more to make up for the reduced rates.

Had rates remained unchanged, we would have had higher government receipts than we did. And we wouldn't have the fiscal problems we have today. There is no free lunch - if you cut tax rates, you'll end up with less revenue than if you hadn't cut them. The Laffer curve doesn't apply to the real economy.

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