Laffer curve

Learning from history...and economics

Now listen up, class.  This is a teachable moment.

In his recent column in the Washington Examiner, the Blogfather, Professor Glenn Reynolds, reminds us of a 1953 short entitled "The Case Against the 20% Federal Admissions Tax on Motion Picture Theatres" 

At the time this film was made, motion picture theaters were required to pay a 20% tax on gross ticket sales, and Congress was debating lowering this tax (as well as others) in a bill being considered by a Congressional committee. This film, which was made especially to be shown to members of the committee, sets forth the motion picture industry's case for reducing, if not eliminating, the tax. It presents statistics regarding the closing of theaters in general (approximately 4500 US theaters, or about 25%, from 1946 through 1952), and the number of theaters that have closed in each committee member's state. These closings have caused a steady decline of revenues. Additionally, theater owners in various midwestern cities tell how this tax has adversely affected their businesses. In the small town of Holton, Kansas, merchants state that the closed movie theater was the city's main entertainment center. Without it to draw people into the city, business has fallen greatly. In closing, a spokesman states that the industry is not asking for special favors, but wants to be treated the same as any other industry when it comes to taxes.

Who knew?  And the irony is wonderful, no?  As Reynolds writes

In the film, figures ranging from industry big shots to humble ticket collectors talk about how the tax is hurting their industry and killing jobs, and ask Congress to repeal the tax.

They even explain, in a sort of pre-Art Laffer supply-side way, that a cut in theater taxes might actually produce an increase in federal revenues as the result of greater economic growth.

No...really?  You mean sorta like this?

Laffer Curve - Govt Revenues v Tax Rates

And how ironic that the entertainment industry complained bitterly about being unfairly singled out for confiscatory taxes and demanded repeal:

When, since, have we seen such a firmly expressed appreciation of the harm that excessive taxation can do to the economy, voiced by representatives of the entertainment industries?

Today, those industries are a major source of Democratic contributions and spread-the-wealth rhetoric [think Michael Moore--tvm], even as they prosper based on this tax cut, and numerous other bits of favorable treatment scattered throughout the Internal Revenue Code. It's time for a change.

Were I a Republican senator or representative, I would be agitating to repeal the "Eisenhower tax cut" on the movie industry and restore the excise tax. I think I would also look at imposing similar taxes on sales of DVDs, pay-per-view movies, CDs, downloadable music, and related products...

....America, after all, is facing the largest national debt in relation to GDP that it has faced since the end of World War II, so a return to the measures deemed necessary then is surely justifiable now...

....And, given the entertainment industries' role as the Democrats' campaign finance ATM, it seems likely that the president might soon reconsider his rhetoric as well...

Read the whole thing.

And remember, class—this has been a 

h/t Tom

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