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The Emperor Wears no Clothes in Theory: Theories Underlying Major US Policies are Problematic

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Taxation systems are far too complex to construct such a simple correlation between tax rates and tax revenues.    Tax rates are a multiplicity of different rates such as personal income, corporate income, sales taxes, inheritance taxes, taxes on investments and payroll taxes just to mention a few.


For example, President Reagan reduced the top personal tax rate from 70% to 28% between 1982 and 1989, during which time federal receipts grew from $618 billion to $991 billion.   On the other hand, other taxes were increased during the same period such as FICA and payroll taxes.   FICA taxes increased a whopping 88.6%.   Reagan's budgets also resulted in large deficits which would have been lower without any tax cuts.


It's also important to note that his tax cuts greatly benefitted the rich at the expense of working people   suggesting that the cuts were more ideological than economically sound.


Although there may be an interaction between tax rates and tax revenues, the precise nature of the interaction is unknown given the labyrinthian set of parameters in any given economy and the difficulty in predicting the behaviour of human beings.   As a matter of fact, the Laffer Curve was not constructed through a mathematical deductive process but through crude empirical observations.


In general tax cuts have tended to benefit the wealthy and corporations, justified on the basis of the "trickle down" theory which doesn't hold water.   The most efficient method to increase consumption is to give tax breaks to those people who need it the most because they will spend it immediately on food, clothes and rent whereas the wealthy may spend it on foreign products, travel or investments.


Free Markets are the underpinning of the U.S. economy, an unquestioned presupposition in mainstream discourse.    In theory, a free market economy is one in which all markets within it are unregulated by any parties other than those people in the market who are seeking to buy or sell their labour or products.   In particular, a free market can only exist in its pure form when the role of the state is limited to tax collection and enforcement off private ownerships and contracts.


A number of conditions must exist in order for a market to be free.   Prices must only be determined by the decisions of buyers and sellers en masse in the market.   Although perfect competition is not necessary for a market to operate freely, at least monopolistic competition must prevail.   There must be many competing producers, where no single or small number of producers can control the market price and where there are few barriers to entry to or exit from the market.


Virtually none of these conditions exist and, in fact, in some cases the extreme opposite is true.


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David Model Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

I have been a professor of political science at Seneca College in Toronto. I have published five books the last of which "Selling Out: Consuming Ourselves to Death" was released in May/08. As well, I have been featured in CounterPunch, Z (more...)
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