Shockingly I found a great article in the Globe and Mail (I suppose it is not too shocking since it was an opinion piece and not journalistic news that is totally biased).
Neil Reynolds uses Iceland as the model that Canada needs to follow if it wishes to achieve economic (and therefore social) prosperity. Iceland cut corporate, investment, and income taxes over the past decade and as a result has seen tax revenues sky rocket. It makes me feel warm and fuzzy seeing supply-side economics in action! Arthur Laffer had it right a long time ago with his ascertion that lower taxes increase tax revenues. Unfortunately this profound idea is counter-intuitive and most Canadians are not capable of understanding and trusting this concept.
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Your post is sort of misleading. Iceland has just shifted the tax burden from production to consumption. They have a 23.5% sales tax.
They don't have lower taxes than us; they just have different taxes.
Rob - think before you type.
In about three minutes of online research at the Icelandic Ministry of revenue, I leasrned that the VAT is 24.5% (not 23.5%) and has been that since at least 1990.
In that same period corproate taxes dropped from 45% to 18%.
So it seems to me that it is you that doesn't know what he is talking about and that the post and article, not to mention Dr. Laffer, are correct.
The fact that the national sales tax is a point higher than I quoted somehow proves that Iceland's tax burden isn't on the consumer rather than the producer, but that their overall tax scheme isn't lower?
If you're original point was limited only to the fact that a country who's overall tax burden was much higher than ours cut their overall tax burden to roughly the same as ours, and that this one case proves the laffer curve, then fine (other than the obvious issue of basing one's opinions on one test case). But it is misleading to say (as you did) that if we cut corporate taxes as Iceland has done, we will necessarily increase tax revenue, without mentioning the enromous sales tax that Iceland has.
On a side note, your blogger name is a bit of a false choice; you're clearly both.
rob...
I believe that cranky's point is that the VAT tax was flat over the time period in discussion. There was no "shift in the tax burden from production to consumption" as you state.
Overall taxes are much lower now than in previous years and as a direct result Iceland is achieving great economic growth.
Besides, the type of tax matters. The lowest taxes should be corporate taxes and investment taxes. By lowering these taxes economic growth is encouraged. Low corporate taxes encourages business to expand and grow especially from foreign investors.
I believe that cranky's point is that the VAT tax was flat over the time period in discussion. There was no "shift in the tax burden from production to consumption" as you state.
Gotcha. I was using "shift" as in "relative to Canada".
rob...
Gotcha. I was using "shift" as in "relative to Canada".
"Gotcha"??? According to your first statement "Iceland has just shifted the tax burden from production to consumption." you were using "shift" to refer to production to consumption taxes not "relative to Canada".
In the end, the point is that they have much lower taxes than Canadians do on the taxes that matter most (i.e. corporate, income, and investment). Canada would be wise to follow suit and reduce taxes in those three areas as those three areas have the greatest impact on the overall economy.
I don't know what is so difficult to understand. In Canada, the tax burden is undoubtedly with production rather than consumption. In Iceland, they have shifted the tax burden to consumtion, relative to Canada.
And my initial point still stands; it was misleading to say that if we cut corporate taxes as Iceland has done, we will necessarily increase tax revenue, without mentioning the enormous sales tax that Iceland has.
On a side note, the Laffer curve is far too simplistic to be particularly useful in tax policy discussions.
rob...
I understand what you are saying but you are incorrect. There was NO "shift" in Iceland to consumption. The consumption tax rate is flat over the time period that the other taxes were reduced. Overall tax rates are lower. It would only be a shift if consumption tax rates increased when other tax rates decreased, which did not happen.
You are correct on one thing Iceland does have a much higher consumption tax rate than Canada.
"And my initial point still stands; it was misleading to say that if we cut corporate taxes as Iceland has done, we will necessarily increase tax revenue, without mentioning the enormous sales tax that Iceland has." - reducing taxes will lead to an increase in tax revenue. You seem to be very confused on this matter. Iceland did NOT increase consumption tax when they reduced other taxes. So overall taxes were reduced, thus leading to an increase in tax revenues.
"On a side note, the Laffer curve is far too simplistic to be particularly useful in tax policy discussions." - Too simplistic??? What difference does it make if it is simplistic? Does it have to be complex to work? If taxes are reduced there is greater incentive to work and earn more money which will all be taxed, at a lower rate, but overall revenues will increase.
Yes, way too simplistic.
For one thing, people in Iceland are not the same as people in Canada. That should be sufficient to throw out any practical use of the Laffer curve comparison.
Furthermore, there are a lot (probably infinitely so) more variables that come in to play in the economics beyond the simple variables included in the Laffer curve. Hell, there are not even constants!
You might find this a little interesting: "In the mathematical treatment of physics the distinction between constants and variables makes sense; it is essential in every instance of technological computation. In economics there are no constant relations between various magnitudes. Consequently all ascertainable data are variables, or what amounts to the same thing, historical data."
THEORY AND HISTORY -- Ludwig von Mises
Look at what Ireland has done; by cutting (and changing) their taxes and allowing their economy to run freely, they've gone from a country who barely had electricity 40 years ago to the fastest-growing nation in Europe, and one of the most progressive in the world. While Canada's a hell of a lot better off than Ireland was at the time they cut taxes, it couldn't hurt for the feds to give us some more leeway so we can build our own success.
Not just Canadians-- America benefited from it, numerous States within the US have benefited from it, yet so many people deny it, it is unbelievable!
Hum...
Iceland is now bankrupt....
Probably not feeling so warm and fuzzy right now.
Laffer on "real time with Bill Maher" said yesterday tha his Laffer curve theory is generally misunderstood by the public at large.
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