1: The Laffer Curve, said David Weaver, only identifies the potential for diminishing returns as tax rates rise; it doesn't specify where that point is on the rate scale. | 2. Steve Harrison questioned what the policy implications might be if extension of the tax breaks fails to produce the desired economic benefits. | 3. Jim Betterman warned of other legislative issues that must be monitored over the next two years.

 


Economic Impact

Harrison asked his colleagues what effect the Tax Relief Act would have on the economy. “If it doesn’t have enough effect,” said Harrison wryly, “our government experts probably should figure out what is going to be attacked next and who is going to do the attacking.”

The aforementioned expert accepted the challenge. “I think we’ve got a recipe for gridlock right now,” said Mike Esser. Tea Party-backed Republicans have come in with a mandate to cut spending, Esser explained, but the Senate is still controlled by the Democrats. “The next two years are basically going to be a Kabuki dance leading up to the presidential election of 2012,” added Esser.

Bob Hodgdon observed several freshman conservatives had been put on the House Appropriations Committee, Kansas’ Kevin Yoder among them. He asked what power the House would have to cease expensive programs.

As Mike Esser explained, Republicans can move bills through the committee and even through the House, “but the Senate now becomes the choke point.”

Steve Harrison wondered whether the urgency of the national debt would eventually push both Republicans and Democrats to want to raise additional revenue. This raised the larger question of whether raising tax rates dependably increases revenue.

In response, David Weaver cited the Laffer Curve. Named for economist Arthur Laffer, the curve demonstrates the relationship between government revenue raised by taxation and all possible rates of taxation. As Weaver pointed out, the curve attempted to indicate the “point of diminishing returns,” that is, the rate at which taxation actually suppresses investment and decreases revenue collection.

“The question,” said Weaver, “is where are we on the curve? We don’t know.”

Mike Esser envisioned the political process as a war between the base on the left and the base on the right. The estate tax becomes a spoil of war, Esser elaborated. “Because the left just despises it.” If Democrats in Congress “can tear down and raise estate tax rates, their base would love it. That base would come out and vote for them forever. It’s just a matter of base-tending.”

It remains to be seen during the next two years whose base is most aroused and which party tends it best.

 

 

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