Alright... what the hell...
So here's a little thought experiment. Assume for this experiment that the government's goal of revenue is $10,000. Below is a list of all possible tax rates for a given economy, expressed as a percentage of GDP. Next to that, you will see, in order:
Req. GDP: What the GDP needs to be at any given tax rate for the government to reach its goal.
1%: This is the total growth, expressed as a %, required for a nation to reduce its tax rate by 1% to the number given, assuming the GDP before the shift was the target GDP. The same is done for a 5% and 10% decrease. So, for example, if you wanted to check the GDP growth rate required to maintain the same tax income levels resulting from a reduction in the tax rate from 50% to 40%, you would find 40% on the chart, then look to the last column (for 10%), and you're given the percentage.
The percentages and required GDPs are not assumed numbers: I ran the calculations for all of them.
Tax Req. GDP 1% 5% 10%
100% $ 10,000.00
99% $ 10,101.01 1.00%
98% $ 10,204.08 1.01%
97% $ 10,309.28 1.02%
96% $ 10,416.67 1.03%
95% $ 10,526.32 1.04% 5.00%
94% $ 10,638.30 1.05% 5.05%
93% $ 10,752.69 1.06% 5.10%
92% $ 10,869.57 1.08% 5.15%
91% $ 10,989.01 1.09% 5.21%
90% $ 11,111.11 1.10% 5.26% 10.00%
89% $ 11,235.96 1.11% 5.32% 10.10%
88% $ 11,363.64 1.12% 5.38% 10.20%
87% $ 11,494.25 1.14% 5.43% 10.31%
86% $ 11,627.91 1.15% 5.49% 10.42%
85% $ 11,764.71 1.16% 5.56% 10.53%
84% $ 11,904.76 1.18% 5.62% 10.64%
83% $ 12,048.19 1.19% 5.68% 10.75%
82% $ 12,195.12 1.20% 5.75% 10.87%
81% $ 12,345.68 1.22% 5.81% 10.99%
80% $ 12,500.00 1.23% 5.88% 11.11%
79% $ 12,658.23 1.25% 5.95% 11.24%
78% $ 12,820.51 1.27% 6.02% 11.36%
77% $ 12,987.01 1.28% 6.10% 11.49%
76% $ 13,157.89 1.30% 6.17% 11.63%
75% $ 13,333.33 1.32% 6.25% 11.76%
74% $ 13,513.51 1.33% 6.33% 11.90%
73% $ 13,698.63 1.35% 6.41% 12.05%
72% $ 13,888.89 1.37% 6.49% 12.20%
71% $ 14,084.51 1.39% 6.58% 12.35%
70% $ 14,285.71 1.41% 6.67% 12.50%
69% $ 14,492.75 1.43% 6.76% 12.66%
68% $ 14,705.88 1.45% 6.85% 12.82%
67% $ 14,925.37 1.47% 6.94% 12.99%
66% $ 15,151.52 1.49% 7.04% 13.16%
65% $ 15,384.62 1.52% 7.14% 13.33%
64% $ 15,625.00 1.54% 7.25% 13.51%
63% $ 15,873.02 1.56% 7.35% 13.70%
62% $ 16,129.03 1.59% 7.46% 13.89%
61% $ 16,393.44 1.61% 7.58% 14.08%
60% $ 16,666.67 1.64% 7.69% 14.29%
59% $ 16,949.15 1.67% 7.81% 14.49%
58% $ 17,241.38 1.69% 7.94% 14.71%
57% $ 17,543.86 1.72% 8.06% 14.93%
56% $ 17,857.14 1.75% 8.20% 15.15%
55% $ 18,181.82 1.79% 8.33% 15.38%
54% $ 18,518.52 1.82% 8.47% 15.63%
53% $ 18,867.92 1.85% 8.62% 15.87%
52% $ 19,230.77 1.89% 8.77% 16.13%
51% $ 19,607.84 1.92% 8.93% 16.39%
50% $ 20,000.00 1.96% 9.09% 16.67%
49% $ 20,408.16 2.00% 9.26% 16.95%
48% $ 20,833.33 2.04% 9.43% 17.24%
47% $ 21,276.60 2.08% 9.62% 17.54%
46% $ 21,739.13 2.13% 9.80% 17.86%
45% $ 22,222.22 2.17% 10.00% 18.18%
44% $ 22,727.27 2.22% 10.20% 18.52%
43% $ 23,255.81 2.27% 10.42% 18.87%
42% $ 23,809.52 2.33% 10.64% 19.23%
41% $ 24,390.24 2.38% 10.87% 19.61%
40% $ 25,000.00 2.44% 11.11% 20.00%
39% $ 25,641.03 2.50% 11.36% 20.41%
38% $ 26,315.79 2.56% 11.63% 20.83%
37% $ 27,027.03 2.63% 11.90% 21.28%
36% $ 27,777.78 2.70% 12.20% 21.74%
35% $ 28,571.43 2.78% 12.50% 22.22%
34% $ 29,411.76 2.86% 12.82% 22.73%
33% $ 30,303.03 2.94% 13.16% 23.26%
32% $ 31,250.00 3.03% 13.51% 23.81%
31% $ 32,258.06 3.13% 13.89% 24.39%
30% $ 33,333.33 3.23% 14.29% 25.00%
29% $ 34,482.76 3.33% 14.71% 25.64%
28% $ 35,714.29 3.45% 15.15% 26.32%
27% $ 37,037.04 3.57% 15.63% 27.03%
26% $ 38,461.54 3.70% 16.13% 27.78%
25% $ 40,000.00 3.85% 16.67% 28.57%
24% $ 41,666.67 4.00% 17.24% 29.41%
23% $ 43,478.26 4.17% 17.86% 30.30%
22% $ 45,454.55 4.35% 18.52% 31.25%
21% $ 47,619.05 4.55% 19.23% 32.26%
20% $ 50,000.00 4.76% 20.00% 33.33%
19% $ 52,631.58 5.00% 20.83% 34.48%
18% $ 55,555.56 5.26% 21.74% 35.71%
17% $ 58,823.53 5.56% 22.73% 37.04%
16% $ 62,500.00 5.88% 23.81% 38.46%
15% $ 66,666.67 6.25% 25.00% 40.00%
14% $ 71,428.57 6.67% 26.32% 41.67%
13% $ 76,923.08 7.14% 27.78% 43.48%
12% $ 83,333.33 7.69% 29.41% 45.45%
11% $ 90,909.09 8.33% 31.25% 47.62%
10% $ 100,000.00 9.09% 33.33% 50.00%
9% $ 111,111.11 10.00% 35.71% 52.63%
8% $ 125,000.00 11.11% 38.46% 55.56%
7% $ 142,857.14 12.50% 41.67% 58.82%
6% $ 166,666.67 14.29% 45.45% 62.50%
5% $ 200,000.00 16.67% 50.00% 66.67%
4% $ 250,000.00 20.00% 55.56% 71.43%
3% $ 333,333.33 25.00% 62.50% 76.92%
2% $ 500,000.00 33.33% 71.43% 83.33%
1% $ 1,000,000.00 50.00% 83.33% 90.91%
Calculations were done as such:
2nd column=target total tax revenue/tax rate
3rd-5th columns= 1-(pre-tax cut 2nd column/post-tax cut 2nd column)
The formulas can be used to calculate different intervals of cuts under the model (i.e., calculating the required growth for a feasible 3%, 7%, or other interval of tax cut) by plugging in the numbers as shown.
You'll notice this very similarly represents the theoretical Laffer Curve, in that at higher tax rates, the required GDP level to maintain the tax amount is extremely high. On the other end, though, it would be almost impossible to fathom the idea that cutting taxes from 2% to 1% would result in a doubling of GDP. So... just like with the Laffer Curve, the solution is somewhere in the middle.
So... to find out where one is on the curve in this model, you would find the cut to be made and find the percentage... if the percentage given by the chart required to maintain the equivalent tax rate is higher than what one could expect in GDP growth from that rate change, the tax cut would result in a net decrease in revenue (and thus would be on the side of the Laffer Curve favoring keeping taxes high). If, however, the percentage given by the chart for that particular cut is lower than what is expected from the tax cut, the tax cut would result in equal or greater tax revenue, and the tax cut is desirable.
Understand, this is a relatively crude model. I'm really just experimenting here, so I could very well be terribly wrong. Don't consider this any sort of authoritative answer on GDP growth requirements.
Now, this model cannot actually calculate what growth will happen. That's where you come in.
Where's the peak? What growth rates, given each tax reduction shown, are reasonable expectations? Or, alternatively, is my math wrong? Really, just a random thought experiment I was considering last night... wanted to throw it out here. I'm just curious as to if it's feasible/logical to attempt mapping this out... unless I'm missing something, it may be self-explanatory.
EDIT: One additional note: Obviously, this only considers a flat tax... I'm just guessing, but more than likely, considering multiple progressive tax rates by averaging them out, for example, would disregard the specific incentives within each tax bracket... if we're discussing, for example, a society with one 10% tax bracket and one 80% tax bracket, it would probably be more appropriate to consider each bracket as a separate tax (so the ideal solution would probably be to close the gap for revenue maximization).
Also, this obviously does not consider certain tax revenues which may be considered distinct from GDP (for example, in some extremely limited circumstances, certain import tariffs would be pure revenue generators, exempt from the Laffer Curve question entirely).
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