He is talking about trickle down economics, proven not to work in this context. Big reason the US is in so much more debt at the federal level (lower taxes anyone).
Actually I'm talking about supply side economics. Trickle down is an economic theory that prepays the bourgois to invest into an economy -- as opposed to saving or investing in other`s economies -- in order to stimulate growth. [/quote]
Economists have put numbers to the Laffer Curve, peak GDP growth is somewhere around 35% taxation (not peak tax rate but overall rate). Peak revenue is at 70% taxation. We are already (just) on the low side of the 35%, any reduction in taxes will reduce growth. Back when these concepts were first floated no one could predict the curve other than zero revenue at 0% taxes and 100% taxes, we (well some) know better today.
This is not completely correct, and way to general. Some economists theorize 70% however that only works if 100% of revenues are put toward public good. To meet that condition, there needs to be zero gov`t waste, gov`t workers need to cost the same as the private sector, and governments would be only doing things the private sector cannot.
Ask an economist to explain how dropping the US top marginal tax rate from 70 to 30% increased gov`t revenues from $600B to $1000B in the 80s. They can, but it will have a million conditions. [/quote]
In the end GDP growth is a complex thing. One of the things trickle down economics theorizes--that cutting taxes will give more money to the high middle, wealthy and to businesses that will then spend all that money back in the economy... problem, not all that money is spent and some of the money that is spent is spent outside the country (not all contributes directly to GDP and economic growth).
It's supposed to encourage money that is invested outside the economy to be redirected inside. For instance, a company who invests in a call center in India, or a factory in Mexico might put that in Moncton if tax rates were lower. A personal investor might put his money in the Canadian stock market rather than the US stock market if he was taxed at a lower rate (you are seeing this exactly play out on the US stock markets today). [/quote]
Technically almost every dollar the government spends (even completely wastes) contributes to GDP. That is why 35% is seen as the peak for GDP growth. Sort of a sweet spot between revenue for spending and money left in the economy for the private sector.
Interest (a huge number for Ontario) is not included in GDP. I'm pretty sure (not positive) that gov't pensions and welfare spending are considered transfers and not included in GDP -- I'll get back to you on that. [/quote]
Another simple (very simple) angle, if say we had 90% tax (we do not BTW) the tax is stifling the economy, lets say the resulting the economy is 100x, the revenue will be 90x. If we dropped the taxes to some lower rate, say 50% the economy will grow. The new economy is say 200x, so revenue is now 100x (lower taxes, larger revenue).
But if we have a marginal personal tax rate of ~33% and a corporate tax rate of ~25% and we cut them, the results are not increased GDP growth, it is slower growth (Laffer Curve).
You can only conclude that is you have a thousand variables pinned down. If you only reduce taxes on the investor class or business you get much better results -- there are a lot fewr of them contributing to the tax base, and they have the money to invest. That's a fundamental problem with trickle down -- you have to give the folks with the money some incentive to invest it with you -- giving a tax break to the gal with a big house and 5 cars is hard to sell to the proletariat.
Now I say trickle down, the proper term is supply side BUT that would imply something less bonkers...
This is all great academic discussions, most of what we just said is impossible to apply to Ontario.
What your neighbour wants is to improve his standard of living. He can get that from efficiently delivered gov't services -- like health care, policing, civil defense, and fair regulatory bodies. Most other goods and services he gets from a free market.
That becomes harder when the gov't delivers services inefficiently. If the gov't charges him $10 in tax to get something he can buy for $8, he loses. When the gov't interferes with regulations that inflate his cost, he loses. When the gov't competes with the free market he loses.
