Monday, February 02, 2009

Getting More For Less

It's a truism in economics, even though liberals refuse to accept it--the government gets more revenue in the treasury by reducing high tax rates, because reducing rates improves the economic fortunes of everyone. The idea is that you get more pie by taking a smaller piece of a bigger pie than by taking a bigger piece of a smaller pie.

Though unrelated, that's what came to mind when I read this story:

An illegal U-turn or a rolling stop may cost violators less in Roseville and may mean more money to the city of Roseville.

Under a new plan, police officers in Roseville will be encouraged to write tickets for some moving violations under the city's municipal code instead of the state vehicle code.

"If we write municipal code violations we get 100 percent of the fine as opposed to a percentage of the fine," said Roseville Police Capt. Stan Lumsden. "Why send the money to the state."

Lumsden, who heads up the city's traffic division, used a U-turn violation as an example. "The whole violation amounts to $201 and the city would get $31 of that," he said. "If you did it by municipal code then the city gets the entire amount and the municipal code tickets are nowhere near as expensive as vehicle code tickets."

An interesting idea. The state has been taking money from municipalities for decades--here's one small way for them to take some from the state.


mazenko said...


I'm with you fifty percent of the time, but you can't honestly still believe the "cutting taxes increases revenue" charade of supply-side economics. There was a legitimate reason that George Bush called it "voodoo economics" - that's because it is.

I'm no economist, so let me quote conservative Harvard economist (and Bush's chief economic adviser) Gregory Mankiw: "supply-siders are charlatans and liars."

There is no verifiable evidence that tax rates have any impact - positive or negative - on the economy. All conclusions are anecdotal and ideologically theoretical. Trying to link a specific tax cut/increase to any growth/decrease in revenue or GDP ignores a myriad of factors. There is simply no linkage - the economy is far more complex than that.

A lot of conservative commentators still push the ideology, but there are no credible conservative economists (at least not in Mankiw's league) who still advocate for causality.

Darren said...

You are only correct if by "credible" you mean "agree with mazenko".

Darren said...

Interestingly enough, I just read
a post that referenced Mankiw (whom I've heard of before, btw):
Years ago, I had a dispute on the comparative rigor of astronomy and macroeconomics with Harvard economist H. Gregory Mankiw, who from 2003 to 2005 was Chair of President Bush’s Council of Economic Advisors. Mankiw admitted that the predictive power of modern macroeconomic theory was abysmal. But he argued that astronomy was no better in the late sixteenth century, when astronomers were debating whether it was Ptolemy or Copernicus who was correct.

Mankiw claimed that the decision for Copernicus over Ptolemy, for heliocentric astronomy over geocentric astronomy, was based on the personal biases of the astronomers rather than on the superior predictive power of the Copernican model of the Solar System. According to Mankiw, in the beginning, the bias of Ptolemy’s conservative supporters was naturally dominant, but later, the younger, progressive Copernicans were able to take over the astronomy departments. Mankiw concluded that we should therefore not be too hard on macroeconomists, who are at least no worse than Renaissance astronomers when they base their predictions on personal (political) biases rather than objective observation obtained from experimentally verified theory.

Still, I'll take anecdotal evidence over none at all. You *really* don't believe that tax cuts stimulate the economy? Really?

I'll bet they stimulate it more than runaway government spending does.

Now that we've gotten that out of the way, what do you think of Roseville's ticketing idea?

allen (in Michigan) said...

It's the idea that government spending is economically stimulative that'd be laughed at if there weren't so many people who are either salivating at the prospect of receiving a big, fat check they didn't do anything to earn or enjoying the misconception that there's some evidence of moral superiority in advocating for the policy of coercive wealth redistribution.

Of the two, I'm not sure which is more destructive of democracy, greed or conceit.

By the way Mike, perhaps you'd care to address the asymmetry in your post. Dismissing the economic stimulative power of tax reductions as supply-side voo-doo economics does nothing to support the case for the economically stimulative power of tax-supported government spending. Does Gregory Mankiw have a vulgar quote in support of tax increases to match his vulgar quote dismissing the value of tax cuts?

Since a tax increase is, economically, nothing more then a cost increase unrelated to supply constraints or customer valuation whatever benefit is supposed to accrue ought to accrue to society as a whole. The fifty dollar shoes you bought which were worth forty dollars less the taxes. What value are you getting for those ten dollars of taxes that offsets the requirement that you pay fifty dollars for forty-dollar shoes?

When Gregory Mankiw can explain that instead of simply dismissing those with whom he disagrees he won't have to rely on PhD to buttress his opinion.

As far as the Roseville ticketing idea goes, we'll see if the state responds. If enough other municipalities take up the idea, as they undoubtedly will, the state will have to flex its muscles to protect its take. Kind of a like a Mafia crime family.

mazenko said...

I'll concede your (and Mankiw's) point. However, I don't believe tax cuts "stimulate" the economy because there is no proof of causality. That's not to say they can't/don't/won't.

I believe there is both a ceiling and a floor whereby taxes become burdensome for the economy. Yet, the economy has grown during times of tax cuts and tax increases. The Reagan years are a good example. The economy grew during his tax cuts, as well as his five major tax increases. The constant was that spending increased each time as well. However, I wouldn't argue that either one or both are responsible for stimulating the economy. That's not the point.

A tax cut may be used by people/business to increase commerce. Or it may not - there's no guarantee. Only about 15% of the last few rebates were spent. Generally, tax relief is saved or used to pay down debt. A business use it to create jobs (but they may be overseas), return it to investors as dividends, provide it as bonuses to current workers (which are again simply saved and reinvested), use it to offset benefits expenditures, or it might simply save the money. No causality - no "stimulus."

Concede that a business may not hire with the money, and an individual may not spend it. But a state will spend money it is given and "mandated" to spend. Infrastructure spending is a guarantee the funds will be "spent" and people will work.

Importantly, stimulating the economy is not the purpose of taxes, and tax policy should be completely divested of that implication. Taxes have one purpose: to provide revenue to the state for state responsibilities (which is a much large discussion). However, as I've noted from Burke, a weakly funded state is a weak state. A weak state is preferred in that it is not tyrannical, and it won't wade into social engineering. However, military/social safety/infrastructure needs must also be met, and Americans prefer good roads, schools, police/fire safety, powerful military etc., and we know those cost money.

I find the Roseville idea "interesting" as well. It makes sense for local funds to stay local. However, municipalities generally acknowledge they are part of the state, and the state manages some issues they appreciate - such as the "state" roads that go in and out of the municipality. Thus, Roseville and the state might want to work out a more amenable agreement.

Steve USMA '85 said...

The ticketing idea is a good one only if it doesn't catch on. If every town and city did it, the state would receive no revenue from that source. At that point, the state legislature would rewrite the law so that state law trumps local. You may have a local law against U-turns, but if your police force accepts state money, U-turn tickets must be written as a state violation. Something like that or similar idea would come forward to recapture the dollars.

allen (in Michigan) said...

It's called the Laffer curve although it seems to be concerned primarily with just how big the tax rate can be at a given instant without adversely effecting tax revenue. Since I'm not that smart, I'm sure someone, somewhere has projected the Laffer curve over time, i.e. how long does the stimulative effect of a lower tax rate take to accelerate the economy sufficiently to overcome the loss of revenue due to the lower rate?

In any case, there's also a philosophical, as well as moral, component to these considerations which doesn't burden the left in the least - presenting a justification for the extraction of wealth under force of law that offsets the reduction in personal autonomy that results from the incremental impoverishment of taxation? In other words, what's the case that argues the good done, such as it may be, by tax expenditures offsets the harm?

Of course I'm being all sorts of theoretical since my explanation for the motivations that drive left wing ideologues precludes their ability to consider any negative ramifications of the policies they espouse. They'd rather be slightly uncomfortable then admit there's any downside to their vision of society.

In any case, in a democracy the burden ought to be on those who would use the force of law to appropriate unearned wealth to fund expenditures they'd never consider funding themselves to prove those expenditures a worthy use of the power of government. Since that's not possible, history having shown that the policies of the left never live up to their advertising, those policies have to appeal to baser desires then the promotion of the common good. Hence the promotion of identity politics which serve the dual purposes of appealing to greed and conceit.