The Real Laffer Curve vs. Voodoo Economics

There are really two Laffer curves. There’s the real one, which actually is a curve, and there is a version of it frequently used by conservatives living in the imaginary world which so many current conservatives inhabit. Pretty much nobody likes to pay taxes and most of us would love to see taxes lower, but those in the reality based world also generally realize that currently our taxes are fairly low by historic standards. We also realize that, as much as we’d rather not pay them, taxes are a necessary evil. Many other conservatives don’t get beyond the point of wishing we don’t have to pay taxes and developing a set of principles of Voodoo Economics.

To conservatives who are divorced for reality, there is a simple solution to the problem of not wanting to pay taxes while simultaneously wanting to fund necessary government services. They claim that the Laffer Curve proves that we can cut taxes and the government will bring in more revenue.

This is certainly true under some circumstances. At some point high taxes will reduce motivation to create wealth, resulting in less money being earned to be taxed. High taxes can also increase the likelihood that money will be spent in various ways to shelter money for taxes. There have actually been times in which lowering taxes will bring in more revenue. The Laffer Curve shows that this is the case with high levels of taxation, but not all levels.

We are not currently in a situation where we can lower taxes and bring in more tax revenue. Bruce Bartlett, a former Reaganite who sees many of the problems in the current conservative movement, refers to this paper from The National Bureau of Economic Research. From their abstract:

We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring ”constant Frisch elasticity” (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.

As Bartlett points out, this is not an argument that we should raise taxes, but “only an argument against a common right-wing argument against raising taxes; i.e., that no net additional revenue would be collected if tax rates are raised because of a Laffer curve effect.”

One of the problems with the mind set of many on the right is that they would see the issue as purely one of raising taxes, have a knee-jerk opposition, and then cite the Laffer Curve even though it does not support their case. The real issue is not a yes or no question as to whether we should raise taxes but whether we are receiving value for our money. In other words, I wouldn’t want to pay higher taxes for the war in Iraq (not that fighting it on credit was a good idea) but higher taxes to really do universal health care right would be worth considering.

Right Wing Uses Video Out Of Context To Attack Obama on Health Care Reform

There’s more nuttiness being pushed by the right wing today as they spliced together a bunch of videos of Obama to   falsely imply there is a contradiction. Obama is shown in the past noting that more money will be needed to pay for health care reform. Obama is also shown in his September 9 speech saying he will not sign a plan that will add money to the deficit.

While I do agree that the Obama administration has been overly optimistic about the initial cost savings from health care reform, the conservatives commenting on this leave out important facts which are missed in their selective quoting from Obama.

The plan is to avoid increasing the deficit not only from cost savings but from various ways to increase revenue. Various ideas have been discussed, including rescinding George Bush’s tax cuts for the wealthy, eliminating the subsidies paid to insurance companies under  George Bush’s Medicare D program, and even implementing John McCain’s idea of some taxes on health benefits. There is no contradiction in saying that health care reform will not increase the deficit and in saying that savings alone will not pay for health care reform.

Louisiana Establishing Rules To Challenge Teaching of Evolution

Gradual Change

Parents who object to teaching established science on religious grounds should be told to shut the frak up–not be taken seriously. I’ve previously noted the move towards teaching creationism in the schools in Louisiana. Now rules are being  writen in Louisiana to make changes in science instruction based upon objections to teaching evolution:

The state’s top school board Wednesday approved procedures for residents who object to materials that challenge the teaching of evolution in public school science classes.

The rules, which were praised by evolution critics, stem from a law approved last year by the Legislature.

Backers say the law is needed to give science teachers more freedom to challenge traditional theories, including Charles Darwin’s theory of evolution.

Critics contend the measure, called the Louisiana Science Education Act, is aimed at injecting religious themes into public schools.

Science is established through rigorous testing, not popular vote, and cannot be judged by whether scientific findings are consistent with religious beliefs. Evolution is established science which has repeatedly passed the tests of the scientific method. As Doug Mataconis comments:

…science should not, cannot, be subject to “due process” or majority will. If it is, it’s not science, it’s propaganda.

Insurance Industry Considers Domestic Violence A Pre-Existing Condition and Pregnancy A Matter of Choice

One way insurance companies maximize their profits is to exclude those from coverage with pre-existing conditions. A couple reports this week are raising concerns that women are especially being hurt by such policies. Earlier in the week it was found that some insurance companies were considering being beaten by one’s husband to be a pre-existing condition. The logic makes sense, but also demonstrates why health care reform is necessary.

To the logic used by insurance companies, if a woman is married to an abusive husband who has beaten her in the past she is at greater risk of being beaten in the future, and insurance companies want to avoid having to pay if she shows up at an Emergency Room after suffering such abuse.  There was an attempt to end this in 2006 by this was killed in committee on a ten to ten tie. All ten votes in opposition came from Republicans.

Amanda Terkel of Think Progress has followed up on this with a report on how insurance companies restrict coverage of pregnancy, including considering having children “a matter of choice” and considering a cesarean section a pre-existing condition. This is all true under the logic used by the insurance industry. After all, even though we have moved beyond the days of “once a cesarean, always a cesarean,” a woman who has had a c-section is at greater risk of needing one in the future, and insurance companies would prefer not to pay for them. As more people lose their jobs, or their employers drop group insurance, they are forced to purchase insurance on the individual market which is much less likely to cover pregnancy at all.

The private insurance industry is failing in providing coverage due to a business model based upon denying coverage whenever possible as opposed to providing care to consumers. Either the current model needs to be scrapped or there is a need for comprehensive reform of the insurance industry.