After observing that zero taxes give the government zero and 100% taxes
make the incentive to work zero, the
curve shown was sketched.
In a two-party system, political
combatants shout "tax the rich; redistribute the wealth"
or "all taxes do is kill jobs".
Nobody acts as a referee considering the whole curve.
Logically,
somewhere between those extremes, the government
would maximize its revenue.
Reagan
trade-marked this thinking and
because taxes at the time were excessive, "trickle-down" worked
when he reduced them.
At that time, production was limited by capital,
which by the
Savings Identity is in the hands of "the Rich".
Only those who have extra income can deploy it into capital and
taxes were transferring it into band-aid solutions to help "the Poor".
When Reagan reduced their taxes "the Rich" expanded the productivity
of factories etc. and got even richer by selling much more at somewhat
lower prices.
A third reason cutting taxes worked; the extra production
from capital investment needed lots of added workers,
and "the Rich" had to pay them a lot more to produce enough to meet
the increased demand from lower prices. That created a Middle Class.
The government swooped in and got back what it had granted to
"the Rich" by taxing it from workers.
The workers did not complain, because their take-home pay was
rising faster than ever.
Other people tolerated this because taxes still covered band-aid
solutions for "the Poor".
It worked because at that time
Production Was Short of Capital.
However in 2024, the Middle Class is being suppressed, suggesting
that we are on or approaching the declining side of the
Laffer Curve and need to adjust the deployment of capital so
that Demand can balance Production more equitably between
"the Poor" and "the Rich".
WARNING: X and Y multipliers work differently below.
Try changing tax rates below to explore what
"perturbation theory" reveals about the shape of the
Laffer Curve near actual 2024 conditions:
Inflation was 2.4%/yr,
prime interest rate was 7.5%/yr,
unemployment was 6.7% and
Supply and Demand both equaled GDP of $2241 Billion.
GDP growth rate has been near 2%/yr.
GDP equals spending (Demand Side);
=>
23% spending by Governments, the revenue for which was
>
Personal Income Tax 46.4%,
> Non-Resident Income Tax: 2.9% ($258.3Bn total)
> Corporate Income Tax: 21.0%, ($110.04Bn)
> Other: (GST, energy taxes, etc.) 29.5%. ($154.6Bn)
=>>Federal revenue (Google AI): $396Bn.
Provincial totals: $127.9Bn. We will use the numbers above.
=>
77% requiring capital: ($20,200Bn)
-----------------------------------------
The need for investment/savings drives the "tax and spend"
objection of the political right.
However, lower labor cost gives employers more
to invest when wages do not have to cover services and
infrastructure that are public.
(See "Land, Labor and Capital" below.)
-----------------------------------------
>55% of the GDP was consumption & debt
=>>Shelter accounted for 32.1% ($396Bn) and food 15.7% ($192Bn) of consumption.
=>>Household mortgages are a large portion of debt.
=>>The total value of Canada's housing assets was $4200 Bn in 2024,
so the equivalent of rent would be .396/4.2 or 9.4%/yr.
=>>~1/3 of households (~5 million) rent their homes.
=>>Household debt was 176.4% of disposable (gross-tax) income.
This ratio is similar over income levels, and the average
rate was 4.2% more than the Key Rate below.
>and 21% was investment
=>> Households saved approximately $3785 each: 3.8% of GDP, totaling $85.2 billion.
=>>Savings are what is left over after Consumption, Interest and Taxes; and
=>>by the Savings Identity, it is part of overall Investment of 21% of GDP.
>and 1% net exports.
-----------------------------------------
Land, Labor and Capital are the inputs to the following supply
side of the GDP; those parties who receive what is spent above:
The average net profit margin for capital investments was 8.54%.
(Gross across all industries 36.56%)
Thus total capital is about $20,206Bn, approximated by
non-Government 77% of equilibrium between supply and demand in 2024
divided by 8.54% return On Capital from web data.
Total asset value of Canadian businesses was $17 trillion as of 2022.
($2.5 trillion foreign-controlled.)
We will use $20 trillion working capital.
-----------------------------------------
GDP also equals income (Supply Side):
>
distributed over 31.814 million tax returns (22.5 million households).
>Corporate Income comes from Consumer spending
=>>Part of it is diverted into Savings/Investment, but much of the $20,200Bn investment is financed by debt.
>
Average Individual Gross Income: $70.4k from $Bn 2241 GDP/ 31.8 million tax returns.
>
The proposal - expand the $2100 Billion holdings of capital in
Canadian Pension Plans
so dividend/interest income will reduce the current
10 to one income disparity
to
4 to one.
The CPP fund already pays out disability pensions, and
GST pays low-income households $589 monthly plus $231 per minor.
GST only transfers funds between consumers
(demand-side)
whereas the CPP plan holds capital that works
supply-side
while paying dividends and interest and keeping ahead of inflation.
The holdings of the plan are large and
well-managed
(unlike many others) and could be used to both provide
capital for the overall economy and increase GST payouts
without taxing consumption.
The selling-point is that consumption would be boosted, benefiting
corporate profits - "trickle up" instead of down.
The down-side is that Pension Plans and this boosted CPP
in particular buy up stocks and bonds, reducing the rate
of return by driving up prices relative to dividends.
(Left and right will focus only on one side of this trade-off.)
Trickle Up is located on the LHS of the Laffer Curve, and in
Reagan's time the US economy was on the RHS.
Thus Trickle Down worked.
Now, though, labor is being displaced by AI et.al. and
consumption will drop as wages disappear,
shifting everybody toward the LHS.
The major challenge is to persuade Fiscal Conservatives to
believe that times have changed and implementing even more
Reaganomics won't work as in the past.
qwrty
dcylz
You may shift capital above, and you may add/subtract
a portion of these taxes:
The following sliders "perturb" tax rates,
increasing or decreasing them [[[
putrBox("","corpTaxAlgrthm" ,4321,"%") ]]]
relative to 2024.
In the case of corporate taxes, another slider below
lets you specify the impact [[[
putrBox("","corpMultAlgrthm" ,4321,"%")]]] on
the capital supporting production.
For 2024, corporate tax is simply 21% of total
revenue, or $110.04Bn.
For 2025, the tendency of capital to flee
elsewhere is the % shift in Corporate Tax here
times the mulitplier selected below.
After all the sliders have shifted ("perturbed")
supply and demand, the overall percentage shift will
be applied to the equilibrium between Supply and Demand.
The percentages of GDP for Consumer Spending, Investments
and Government Spending will not likely add up to 100%,
so the final step will be to normalize it to 100%.
bottHalfmidThrdtopTier
GDP Growth: 0.0% Inflation 3.0%/yr
corpTaxotherTax
Total revenue:
543.21[%543.21Bn 2024].
Some capital will shift away from already-wealthy taxpayers,
but there will be
"
more demand" - buyers have more to spend.
UBI Capital operates Supply-Side instead of "tax and spend".
The above sliders shift taxation, giving these percentage changes
to the
Supply
0%
or Demand
0%
for one percent change in the price.
The Supply and Demand elasticities below multiply the effect:
(%Quantity change / %Price change).
Note that demand falls and the slider starts at -100%, meaning
that quantity demanded falls the same percentage price rises.
You may specify up to 200%, meaning quantity changes
twice as much as price drops, and quantity is elastic.
You can also specify down to 33%, meaning quantity is
inelastic and demand continues in spite of high prices.
Similarly you can specify whether quantity supplied is
elastic (up to +200%) or inelastic (down to 33% of price change);
GDP will respond by
0%
(Supply and Demand equalize):
dmndElastysplyElasty
GDP Growth: 0.0% Inflation 3.0%/yr
keyRate
The two curves may be linearized with respect to an
origin at p and Q:
Next year, GDP will shift so that
Supply and Demand reach a new equilbrium Price that takes into
account shifts Q in Goods and Services (DmndShift% and SpplyShift%).
This price must also be in equilibrium (equal).
Such shifts will have been specified by the user's sliders
and by the historical 3%/yr growth rate of GDP (supply side).
The left hand sides of the above equations thus become equal, with a
new Q (Supply or Demand) value and a new p (Price) value.
Moving the elasticities, established by the sliders below,
to the LHS makes the RHSides become equal instead:
DmndShift%/DmandElasty = (Price - p)/p and
SpplyShift%/SpplyElasty = (Price-p)/p
The resulting Price on the LHS will be the new GDP:
GDP ≅ p*(1+PriceShift%)
For more accuracy we could have used logarithms above,
giving the curvatures shown in the graph. The result is
GDP[1] = GDP[0]*ePriceShift%,
where PriceShift% is (Price - p)/p from the
various sliders.
Prices are expressed in 2024 "constant dollars" w.r.t.
the CPI, and thus real growth in Q has been ~zero and
can be ignored in the algorithm.
Corporate Taxation:
This multiplier selects the percentage drop in Supply
for one percent rise in corporate taxes.
(You set that with the Corporate Tax slider above.)
Taxation leads businesses to move capital to other economies,
removing part of what we want to shift to UBI.
In 2024, ~20% of revenue was tax on corporations, which is
competitive.
Taxation has a strong impact and thus the
multiplier below
(%decrease in taxes to %increase in investment)
can be as high as double.
corpTaxElasty
The Big Three: Land & Resources(>$19Tn)
Traditional Econ 101 courses would say there
are three inputs to the production/Supply side
of the equilibrium between Supply and demand.
Land is the first one, and it includes
resources such as oil/gas or metallic ores.
Some people would include buildings on land.
This model examines only:
shift of capital to UBI,
taxation and
the Key Interest Rate.
Thus we will not include a
slider for Land.
The other two inputs are Labor and Capital.
Recently, part of labor is split out
as Entrepreneurship.
Below is a separate slider for you to adjust.
The Big Three: Labor & Skillsets
Economics is all about incentives, and UBI gives
low-income people the potential to stay out of the
work force. The slider below lets you guess what
percentage reduction in Supply will result from
one percent of UBI being paid to supplement wages
for jobs that "nobody wants". N.B.: think of the
potential impact of innovation; which will be
handled by Entrepreneurship below.
In general, labor refers to activities performed by
people who do not focus on developing/acquiring
capital. This would include operating capital equipment,
providing services like retail and education and
tracking resources etc.
Thus income to this group of people is allocated to
consumption rather than production. We will assume
all income to the lowest two income groups go to
the demand side above.
To compensate for over-emphasizing consumption by
the middle group we allocate all spending by the
top group to supply, using the "Entrepreneurship"
category below. laborElasty
The Big Three: Capital & Machinery
Capital means goods and services which are produced
for making the things consumers eventually buy.
Included would be machinery/buildings, intellectual
property and inventory.
We focus on UBI, Taxation and Key Rates but in
addition the slider below lets you look at the
impact of governments making direct investments
voters want but private investors do not deem
profitable.
Select the percentage of Government spending that
you will allocate to investment/Supply side.
capMachineElasty
GDP Growth: 0.0% Inflation 3.0%/yr
Make It Four: Entrepreneurship
Labor includes services like retail, education and
accounting etc. However, these activities may result
in "bright ideas" that boost the effect of capital
and labor.
We make the assumption that the top two deciles have
the majority of these ideas, and with the slider below
you may specify a %/% Multiple of wages paid to them
that accrues to the Supply side of GPI.
entrprnrshpElasty
Algorithm Log: Average initial gross income =
$aveGross.............