From: mccall@mksol.dseg.ti.com (fred j mccall 575-3539)
Subject: Re: The end of the Reagan Era
Organization: Texas Instruments Inc
Distribution: usa,tx
Date: Sat, 7 Nov 1992 14:17:02 GMT

In <1992Nov6.171351.13253@oakhill.sps.mot.com> pjm@anegada.sps.mot.com (Patrick J. McGuinness) writes:

>(fred j mccall 575-3539) writes:
>>
>>Let me get this straight.  Training workers so they are more
>>productive and better at their jobs hurts productivity?  I don't THINK
>>so.  What assumptions were they using to arrive at these conclusions,
>>with regard to economic growth impacts with and without the plan,
>>etc.? 

>Regulations add costs to businesses, in hiring, they get factored
>into capital goods. example:
>Regulations in L.A. concerning paint and varnish fumes, for environmental
>reasons, virtually wiped out the furniture business there. It moved
>elsewhere, like a lot of other CA businesses. Some of it went to Mexico.
>As for training, that's not the only regulation involved, but
>maybe we should force you to spend half your working time in a class.
>Would you get the same amount done? 

Gee, and if I spent ALL my working time in class, I wouldn't get
anything done at all.  However, if I spend 5% of my time in training,
I will get MORE done over the long run because the remaining 95% of my
time will be more productive.

According to your logic above, we should never waste the time training
anyone to do anything, since that takes away from work time.  Of
course, in that case, no one will ever know how to do the job in the
first place, but that's just a detail, right?

>>>2. The Laffer curve. The tax increases on the higher incomes and on
>>>business will backfire to some extent because people in that bracket will
>>>move to non-taxable income, change their economic behavior.
>>>The already high tax and regulatory burden will, if increased, lead to
>>>a number of further job losses. This in turn will - hey presto -
>>>reduce taxable income. The effect occurred in the boating industry.
>>>As a consequence of the luxury tax on yaghts, passed in 1990, over
>>>10,000 jobs were lost in that industry alone. The net effect on
>>>Federal tax revenues was negative.
>>
>>Hell, nobody even knows what the shape of the Laffer curve is, *IF* we
>>assume that it exists, which is far from solidly proven.
>This is not true.

>> What
>>evidence there is points to there not being any major detrimental
>>affects until marginal taxation hits around 70%.

>Please cite your sources.  You're talking through your hat.
>I can give evidence that directly contradicts this.

So give it.

>>Now, I'm not sure I buy that, either,
>You shouldn't. It's false.

Prove it.

[Note that that's not "provide an annecdotal counter-example".  PROVE
it.  Given that there's not even any solid proof that the LAFFER CURVE
exists, I don't think you can PROVE this one, either.]

>>but your 'explanation' isn't backed by accept theory
>>OR by facts.
>It has been shown amply empiricially and otherwise.

Nonsense.

>>>Similarly, Clinton may go after foreign companies, and force them to "pay
>>>their share". However, foreign investment has created hundreds of thousands
>>>of jobs in this country in recent years. If this tax drives them
>>>back to their own countries, the gains in higher taxes could be wiped
>>>out by job losses (leading to tax revenue losses there).
>>
>>There is the possibility of some impact from this; however, it will
>>likely still be more profitable to produce things locally and pay the
>>tax than it would be to operate elsewhere and ship the stuff in.  This
>>is the same reason that American multinationals operate in (and pay
>>taxes in) various foreign nations.

>*At the margin*, it will induce foreign companies to go elsewhere.
>I think we agree on that.  (I am not implying that every company
>will simply pack up and leave.)

Perhaps and perhaps not.  It depends on the amount the tax would cost
them when compared to the amount it would cost them to manufacture
elsewhere and bring the product in.  Note that this decision will also
be affected by things like 'domestic content' laws, import tariffs,
etc. 

>>
>>Not if you're assuming the Laffer curve positively exists and is
>>shaped such that a 5% increase in marginal tax rates to 36% is going
>>to have all these adverse effects, they weren't.  The assumptions in
>>that case were extreme supply-side fringe, and you just left the
>>territory of 'non-partisan commission'.

>You are building a strawman .... I guess I shouldn't have used the "Laffer
>curve" term, since it seems to have set off a knee-jerk reaction.

Not at all.  You asserted its existence as one of the reasons they
came to the conclusions they did.  However, there's no substantive
evidence that it exists, and certainly no one knows what it is shaped
like. 

>*All* they did was factor in taxpayer responses to tax rate changes
>and regulatory changes.  This is hardly "partisan", they are just using
>empirical evidence that is out there and factoring it in to their analysis.

I'd like a copy of this, including all their methodology and such.  I
don't believe this for an instant.  What I suspect happened was that
they got a bunch of monetarist supply-siders together (and thereby
already biased the result -- but they had to eliminate all those
liberals and Keynesians, after all).  That is hardly what could be
called 'non-partisan'.

>This is in contrast to the "static" analysis that the Congress normally
>orders up for their tax changes. Congress does this so the impact of
>higher taxes doesn't look as bad. BUT ... it is totally economic fairyland,
>and even the one's making the numbers know that.  To defend themselves, they
>say what you've said "well, we don't know the exact effect,
>so we will pretend they don't exist".
>This is only partially true; they can make better estimates if they wanted.

They don't even KNOW the approximate effect.  All this sort of thing
is GUESSES.  Educated guesses, perhaps, but educated as coming from a
particular bias (and hence leading to biased -- as in not non-partisan
-- results).

>>>The point is that Clinton's plans will fail to raise the predicted revenue
>>>in part *because* of its negative impact on the economy.
>>>The two are tied together.
>>>(The other "in part" is just he used unfoundedly optimistic numbers.)
>>
>>But still less optimistic than have classically been used by the
>>'conservative supply-side' Administrations.

>You'll have to clue me in here ... please cite something to support
>your statement. Like numbers, please.

Go to the library and get ANY OMB report when they submit a budget to
Congress.  They deliberately assume unrealistically small deficits
because they assume things like economic growth of 5% or some such
(when the best the economy typically does is about 3% -- and it hasn't
managed that recently).

>In all of the tax changes made, in 1981, and 1990, for example,
>neo-classical ('supply-side' if you will) estimates were more
>on target then the fairyland static analysis.

You seem to be confusing some terms here.  I'm not sure how you oppose
'suppy-side' economics and 'static analysis', since one is a 'school'
of economic theory and the other is a tool.  Also, I think you'd have
to refer to 'supply-side' as neo-neo-classical economics, unless your
aim is really to equate it to pre-Keynesian systems.

-- 
"Insisting on perfect safety is for people who don't have the balls to live
 in the real world."   -- Mary Shafer, NASA Ames Dryden
------------------------------------------------------------------------------
Fred.McCall@dseg.ti.com - I don't speak for others and they don't speak for me.