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税务英语文章阅读
税务英语文章阅读——Laffercurve
Ineconomics,theLaffercurve(alsoKhaldun–Laffercurve)isarepresentationoftherelationshipbetweenpossibleratesoftaxationandtheresultinglevelsofgovernmentrevenue.Itillustratestheconceptoftaxableincomeelasticity—i.e., taxableincomewillchangeinresponsetochangesintherateoftaxation.Itpostulatesthatnotaxrevenuewillberaisedattheextremetaxratesof0%and100%andthattheremustbeatleastoneratewheretaxrevenuewouldbeanon-zeromaximum.
TheLaffercurveistypicallyrepresentedasagraphwhichstartsat0%taxwithzerorevenue,risestoamaximumrateofrevenueatanintermediaterateoftaxation,andthenfallsagaintozerorevenueata100%taxrate.Theactualexistenceandshapeofthecurveisuncertainanddisputed.
OnepotentialresultoftheLaffercurveisthatincreasingtaxratesbeyondacertainpointwillbecounter-productiveforraisingfurthertaxrevenue.AhypotheticalLaffercurveforanygiveneconomycanonlybeestimatedandsuchestimatesarecontroversial.TheNewPalgraveDictionaryofEconomicsreportsthatestimatesofrevenue-maximizingtaxrateshavevariedwidely,withamid-rangeofaround70%.
AlthougheconomistArthurLafferdoesnotclaimtohaveinventedtheLaffercurveconcept,itwaspopularizedwithpolicymakersfollowinganafternoonmeetingwithFordAdministrationofficialsDickCheneyandDonaldRumsfeldin1974inwhichhereportedlysketchedthecurveonanapkintoillustratehisargument.Theterm"Laffercurve"wascoinedbyJudeWanniski,whowasalsopresentatthemeeting.Thebasicconceptwasnotnew;LafferhimselfnotesantecedentsinthewritingsofIbnKhaldunandJohnMaynardKeynes.
Laffercurve:
t*representstherateoftaxationatwhichmaximalrevenueisgenerated.ThisisthecurveasdrawnbyArthurLaffer,however,thecurveneednotbesinglepeakednorsymmetricalat50%.
Lafferexplainsthemodelintermsoftwointeractingeffectsoftaxation:
an"arithmeticeffect"andan"economiceffect".The"arithmeticeffect"assumesthattaxrevenueraisedisthetaxratemultipliedbytherevenueavailablefortaxation(ortaxbase).Ata0%taxrate,themodelassumesthatnotaxrevenueisraised.The"economiceffect"assumesthatthetaxratewillhaveanimpactonthetaxbaseitself.Attheextremeofa100%taxrate,thegovernmenttheoreticallycollectszerorevenuebecausetaxpayerschangetheirbehaviorinresponsetothetaxrate:
eithertheyhavenoincentivetoworkortheyfindawaytoavoidpayingtaxes.Thus,the"economiceffect"ofa100%taxrateistodecreasethetaxbasetozero.Ifthisisthecase,thensomewherebetween0%and100%liesataxratethatwillmaximizerevenue.Graphicalrepresentationsofthecurvesometimesappeartoputtherateataround50%,buttheoptimalratecouldtheoreticallybeanypercentagegreaterthan0%andlessthan100%.Similarly,thecurveisoftenpresentedasaparabolicshape,butthereisnoreasonthatthisisnecessarilythecase.
JudeWanniskinotedthatalleconomicactivitywouldbeunlikelytoceaseat100%taxation,butwouldswitchfromtheexchangeofmoneytobarter.Healsonotedthattherecanbespecialcircumstanceswhereeconomicactivitycancontinueforaperiodatanear100%taxationrate(forexample,inwartime).
Variouseffortshavebeenmadetoquantifytherelationshipbetweentaxrevenueandtaxrates(forexample,intheUnitedStatesbytheCongressionalBudgetOffice).Whiletheinteractionbetweentaxratesandtaxrevenueisgenerallyaccepted,theprecisenatureofthisinteractionisdebated.Inpractice,theshapeofahypotheticalLaffercurveforagiveneconomycanonlybeestimated.Therelationshipbetweentaxrateandtaxrevenueislikelytovaryfromoneeconomytoanotheranddependsontheelasticityofsupplyforlaborandvariousotherfactors.Eveninthesameeconomy,thecharacteristicsofthecurvecouldvaryovertime.Complexitiessuchasprogressivetaxationandpossibledifferencesintheincentivetoworkfordifferentincomegroupscomplicatethetaskofestimation.Thestructureofthecurvemayalsobechangedbypolicydecisions.Forexample,iftaxloopholesandoff-shoretaxsheltersaremademorereadilyavailablebylegislation,thepointatwhichrevenuebeginstodecreasewithincreasedtaxationislikelytobecomelower.
Lafferpresentedthecurveasapedagogicaldevicetoshowthat,insomecircumstances,areductionintaxrateswillactuallyincreasegovernmentrevenueandnotneedtobeoffsetbydecreasedgovernmentspendingorincreasedborrowing.Forareductionintaxratestoincreaserevenue,thecurrenttaxratewouldneedtobehigherthantherevenuemaximizingrate.In2007,Laffersaidthatthecurveshouldnotbethesolebasisforraisingorloweringtaxes.
Problems
Lafferassumesthatthegovernmentwouldcollectnoincometaxata100%taxratebecausetherewouldbenoincentivetoearnincome.ResearchhasdevelopedtheoreticalmathematicalmodelsinwhichaLaffercurvecanslopecontinuouslyupwardsallthewayto100%,thoughitisnotclearwhetherorwhentheassumptionsonwhichsuchmathematicalmodelsarebasedholdinrealeconomies.Additionally,theLaffercurvedependsontheassumptionthattaxrevenueisusedtoprovideapublicgoodthatisseparableinutilityandseparatefromlaborsupply,whichmaynotbetrueinpractice.TheLaffercurveaspresentedisalsosimplisticinthatitassumesasingletaxrateandasinglelaborsupply.Actualsystemsofpublicfinancearemorecomplex.Thereisseriousdoubtabouttherelevanceofconsideringasinglemarginaltaxrate.Inaddition,revenuemaywellbeamultivaluedfunctionoftaxrate-forinstance,anincreaseintaxratetoacertainpercentagemaynotresultinthesamerevenueasadecreaseintaxratetothesamepercentage(akindofhysteresis).
Empiricaldata
Taxrateatwhichrevenueismaximized
Apossiblenon-symmetricLafferCurvewithamaximumrevenuepointatarounda70%taxrate,basedon"HowFarAreWeFromTheSlipperySlope?
TheLafferCurveRevisited"byMathiasTrabandtandHaraldUhlig.
TheNewPalgraveDictionaryofEconomicsreportsthatacomparisonofacademicstudiesyieldsarangeofrevenuemaximizingratesthatcentersaround70%.EconomistPaulPecorinopresentedamodelin1995thatpredictedthepeakoftheLaffercurveoccurredattaxratesaround65%.A1996studybyY.HsingoftheUnitedStateseconomybetween1959and1991placedtherevenue-maximizingaveragefederaltaxratebetween32.67%and35.21%.A1981paperpublishedintheJournalofPoliticalEconomypresentedamodelintegratingempiricaldatathatindicatedthatthepointofmaximumtaxrevenueinSwedeninthe1970swouldhavebeen70%.ApaperbyTrabandtandUhligoftheNBERfrom2009presentedamodelthatpredictedthattheUSandmostEuropeaneconomieswereontheleftoftheLaffercurve(inotherwords,thatraisingtaxeswouldraisefurtherrevenue).
CongressionalBudgetOfficeanalysis
In2005,theCongressionalBudgetOffice(CBO)releasedapapercalled"AnalyzingtheEconomicandBudgetaryEffectsofa10PercentCutinIncomeTaxRates".Thispaperconsideredtheimpactofastylizedreductionof10%inthethenexistingmarginalrateoffederalincometaxintheUS(forexample,ifthosefacinga25%marginalfederalincometaxratehaditloweredto22.5%).Unlikeearlierresearch,theCBOpaperestimatesthebudgetaryimpactofpossiblemacroeconomiceffectsoftaxpolicies,thatis,itattemptstoaccountforhowreductionsinindividualincometaxratesmightaffecttheoverallfuturegrowthoftheeconomy,andthereforeinfluencefuturegovernmenttaxrevenues;andultimately,impactdeficitsorsurpluses.Inthepaper'smostgenerousestimatedgrowthscenario,only28%oftheprojectedlostrevenuefromthelowertaxratewouldberecoupedovera10-yearperiodaftera10%across-the-boardreductioninallindividualincometaxrates.Inotherwords,deficitswouldincreasebynearlythesameamountasthetaxcutinthefirstfiveyears,withlimitedfeedbackrevenuethereafter.Throughincreasedbudgetdeficits,thetaxcutsprimarilybenefitingthewealthywillbepaidfor—plusinterest—bytaxesbornerelativelyevenlybyalltaxpayers.Thepaperpointsoutthattheseprojectedshortfallsinrevenuewouldhavetobemadeupbyfederalborrowing:
thepaperestimatesthatthefederalgovernmentwouldpayanextra$200billionininterestoverthedecadecoveredbythepaper'sanalysis.
Other
LafferhaspresentedtheexamplesofRussiaandtheBalticstates,whichinstitutedaflattaxwithrateslowerthan35%andwhoseeconomiesstartedgrowingsoonafterimplementation.HehassimilarlyreferredtotheeconomicoutcomeoftheKemp-Rothtaxact,theKennedytaxcuts,the1920staxcuts,andthechangesinUScapitalgainstaxstructurein1997.SomehavealsocitedHauser'sLaw,whichpostulatesthatUSfederalrevenues,asapercentageofGDP,haveremainedstableatapproximately19.5%overtheperiod1950to2007despitechangesinmarginaltaxratesoverthesameperiod.Othershowever,havecalledHauser'sLaw"misleading"andcontendthattaxchangeshavehadlargeeffectsontaxrevenues.
Optimaltaxation
OneoftheusesoftheLaffercurveisindeterminingtherateoftaxationwhichwillraisethemaximumrevenue(inotherwords,"optimizing"revenuecollection).However,therevenuemaximizingrateshouldnotbeconfusedwiththeoptimaltaxrate,whicheconomistsusetodescribeataxwhichraisesagivenamountofrevenuewiththeleastdistortionstotheeconomy.
Relationshipwithsupply-sideeconomics
Supply-sideeconomicsisaschoolofmacroeconomicthoughtthatargues