I suppose it is possible to lower tax revenue by raising taxes if one raised them a whole lot - like from 50% to 99% - and destroyed the whole economic order at once. But there again, it is at the extremes where the problem arises. I find it hard to believe that Belgian tax revenue would grow in the short term if taxes were lowered 5%, and I feel pretty certain that they would increase if taxes were raised 5%. In the long run, the story might be different, but it might not.

I suppose I have to concede that it’s possible with a sudden shift in the tax rate of by some huge amount - enough to cause short term damage to the whole economy - to actually lower total revenue. However, the same logic applies to lowering taxes as raising them.

I didn’t say that 0% tax was the right objective. I just said that unless people are willing to work even though they don’t get paid (what basically happens if tax is 100%), then tax revenues must at some point start to contract as tax rates rise. That may not happen until tax rates are 99%, but I doubt that. Would you be willing to work as hard as you do now for just 1% of your gross salary?

On top of that, if employers have to pay a lot of tax to employ someone, then they’ll be less willing to employ as many people - replacing them with machines for example and cutting tax revenues.

Krugman and de Long are arguing about the US economy with its low taxes. Belgium has high taxes so what they say may not apply to Belgium. You may be right that Belgium is still not so high tax that tax revenues will go down if rates go up. But let’s not just dismiss the possibility.

However, you have moved to the very extreme end of the argument. If taxes were 0%, growth would slow down too, since the government would be unable to offer any services at all, an economic calamity would ultimately ensue that would probably be larger than 100% taxation. Should we therefor conclude that raising taxes increases growth?

In the world of real, functioning economies with effective tax rates above 0% and below 100%, there may be reasons to raise or lower the tax rate, or to run a deficit, but lowering taxes with the claim that they can be recuperated on the short-run through greater growth is dishonest.

If Belgian tax were 100% do you think tax revenues would be higher than today? Perhaps they’d be zero; after all, why bother working if everything you earn is taken from you? I know I wouldn’t. Which means that supply side economics is true; what’s in doubt is at what level of tax do tax increases lead to decreases in tax revenue (or, alternatively, at what level of tax do tax cuts lead to increases in tax revenue).

Krugman is talking about the US which has much lower taxes than Belgium. Trying to argue the supply side case in the US is therefore absurd, but it isn’t in Belgium - where taxes, as you point out, are punitive.

Tobias - I might add Brad Delong to that list of others too. I’m not actually defending the existing arrangement, which, I think, really does have very serious problems. I want to see a better public debate on how taxes are collected and distributed in Europe, I just don’t want supply-side slight of hand to intervene in the debate. Believing that you can cut taxes and still raise the same amount of money is false, and it’s an argument that shouldn’t even be on the table.

Aidan - I don’t think Belgium can effectively raise income, payroll and sales taxes. I pay somewhere around 50% and my employer pays another 30% or so. Belgium does, however, have a very low capital gains tax, but for some reason raising it never seems to come up in discussions here.

There are reasons to criticise deficits and there are sometimes good reasons to run them, and there are sometimes good reasons to cut taxes and good reasons to raise them. The point, however, is that when you cut taxes, you can expect lower revenues, not higher ones.

Meet a nice fellow named Jacques Chirac, and his buddy Raffarin. Their econmic policies are pretty much the same as Bush’s, i.e. cutting taxes. Without seriously cutting spending, which is unfeasible in France, anyway.

But I guess the real problem at hand is not the usual “supply side or rather not” debate. This is about distribution, pure and simple. I don’t know a lot (to be exaggerating) about the particularities of the Belgian welfare system, so it’s difficult to judge, but in Germany, there’s some justification for the left’s dsire to have independents and others in the public system - because money was in ready supply, the contribution funded systems were often used to handle and pay for things the federal government should have paid for directly - mostly those locked into the state welfare system paid for these measures. This is especially important with respect to the costs of the German reunification which was to a large extent handled through welfare contributions - at the time that was not even the worst option given the macroeconomic problems Germany and Europe were facing in light of the massive German demand of money. It has, however, severely deteriorated the financial situaton of the welfare funds.

And of course, the labour market structure is different today from what it was like when the continental welfare states grew - with a less clear cut employee society, a move to a less payroll supported welfare state does make some sense, in my opinion. But it’s clear that the predictable losers of such a change are not happy with it…