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Wednesday, November 10, 2010

The Fail Files (Vol. I)

The expected ripostes have begun to trickle in from our inaugural post-- especially from my favorite aggregation site,  I anticipate quite a number of challenges to the self-evident notion that 1-1=0 from the Korporate Kabbalist crowd.  So I thought I'd actually give a name to the series of posts I expect to file answering them, "The Fail Files"--reflecting the laughable durabilty of such a stupid notion as the Laffer Curve.

"You have slain my corporate master!  Prepare to die!"

Okay, so here's the first two questions I choose to answer*

1.  Q:  "But won't our corporate masters simply pass their taxes on to us in the form of higher prices?"

     A:  Not statistically likely.  There is an extremely weak correlation between increases in corporate income tax and inflation as measured by the Consumer Price Index--less than 3%, in fact.  Which is within the typical margin of error for a coin flip.  See details here.

2.  Q:  "What about the relationship between tax cuts and growth in GDP?  That's what I want to focus on."

     A:  Corporate phantasists are just plain WRONG about this one, too.  If anything, the evidence suggests that corporate tax cuts HURT GDP.  See the workbook here.

The plain facts are against the ‘Laffer Louts’.  Even were they to insist that the cuts must be prolonged to take effect, the simple truth is that for any period up to the length of a presidential term, prolonged cuts never achieve anything better than an extremely weak correlation between GDP growth and total tax cuts:  3.6%.

Indeed, and especially in the short term, corporate tax INcreases more strongly correlate to GROWTH in GDP—up to 41% POSITIVE correlation (i.e., increases in corporate tax correlate to increases in GDP).

Indulging the neoliberal phantasists even further, generously assuming that there is a lag time anywhere short of a presidential term between the tax regime of a given year and its impact, the Corporateers never get better than a laughably weak 20% correlation between corporate tax cuts and growth in GDP—and most are even less in their favor.  Again, in the short term, most scenarios involving assumptions about lag times and prolonged duration for the cuts actually show a positive correlation between corporate tax INcreases and growth in GDP.

Long-story short:  Unless you feel like taking the slow train to Doomsville, and are willing to gamble your children’s future on some Wall Street pipedream, ask your representatives and senators to do the right thing:  MAKE THE CORPS PULL THEIR OWN WEIGHT.

* I don't intend to make this my life's mission, so I will only answer to the extent I deem it worthy of my time or fun.  I think the original post made it pretty clear that unemployment and tax cuts are, if anything, NEGATIVELY correlated.


  1. Love it - right you are. Standard Primate pack behaviour; give the Alpha more bananas, he doesn't redistrbute them, he EATS them...
    Bill S.,

  2. If I remember right, the laffer curve is dependent solely on the assumption that those with power and money avoid their taxes respective to how large the tax rate is.

    The problem here is that these tax loopholes etc lead to the self-fulfilling prophesy which is the laffer curve: those with power and money give themselves loopholes to hold onto their power and money.

  3. @William: Bananas is right--Alpha eats them and shits all over everyone else. Preach on!

    @Chaorder: You've got their number all right: This is about the uber-rich feathering their own nests, not furthering the interest of the nation. It's time we called Paul Ryan and that lot on their pseudo-populist bullshit--cutting tax on the rich does NOT benefit the working man.