Defending the (Prudent Understanding of the) Laffer Curve

I’ve written dozens of articles about the Laffer Curve and most of that verbiage can be summarized in these five points. The Laffer Curve helps to illustrate that excessive tax rates result in less taxable activity. All public finance economists – even those on the left – agree there is a Laffer Curve. The Laffer […]

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The IMF, the Laffer Curve, and Supply-Side Economics

The Laffer Curve is a very straightforward concept. It graphically illustrates why politicians are wrong if they think you can double tax revenue by doubling tax rates (or that revenues will drop by 50 percent if tax rates are cut in half). Simply stated, you also have to look at what happens to taxable income. […]

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Corporate Taxes and the Laffer Curve

During the debate about the Trump tax plan, proponents made three main arguments in favor of reducing the federal corporate tax rate from 35 percent to 21 percent. A lower rate would be good for workers, consumers, and shareholders. A lower rate would boost American competitiveness. A lower rate would produce some revenue feedback for […]

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Deconstructing the Laffer Curve(s)

The Laffer Curve is a method for illustrating the relationship between tax rates, taxable income, and tax revenue. But it’s important to realize that there are actually lots of varieties. The Laffer Curve for capital gains taxes, for instance, will look different than the Laffer Curve for payroll taxes. Or corporate taxes. Or marijuana taxes. […]

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The Laffer Curve and Trump’s 21 Percent Corporate Tax Rate

Reducing the corporate tax rate from 35 percent to 21 percent was the crown jewel of Trump’s 2017 Tax Cut and Jobs Act (TCJA). It was good for workers since a lower rate means more investment, which translates to increased productivity and higher wages. And it was good for U.S. competitiveness since the United States […]

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Corporate Taxes and the Laffer Curve

In a new documentary film, Race to the Bottom, I had an opportunity to pontificate briefly about corporate tax and the Laffer Curve. At the risk of understatement, I represented a minority viewpoint in the documentary. Most of the people interviewed had a negative view of tax competition, considering it to be (as suggested by […]

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A Primer on the Laffer Curve

Last week, I gave a presentation on the Laffer Curve to a seminar organized by the New Economic School in the nation of Georgia. A major goal was to help students understand that you can’t figure out how changes in tax rates affect tax revenues without also figuring out how changes in tax rates affect […]

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OECD Data on Corporate Taxation Inadvertently Provides Strong Evidence for the Laffer Curve

Like most taxpayer-supported international bureaucracies, the Organization for Economic Cooperation and Development (OECD) has a statist orientation. The Paris-based OECD is particularly bad on fiscal policy and it is infamous for its efforts to prop up Europe’s welfare states by hindering tax competition. It even has a relatively new “BEPS” project that is explicitly designed […]

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Helping the Left and the Right Understand the Laffer Curve

As illustrated by this video tutorial, I’m a big advocate of the Laffer Curve. I very much want to help policy makers understand (especially at the Joint Committee on Taxation) that there’s not a linear relationship between tax rates and tax revenue. In other words, you don’t double tax revenue by doubling tax rates. Having […]

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Remarkable OECD Study on Corporate Tax Rates, Corporate Tax Revenue, and the Laffer Curve

Last month, I revealed that even Paul Krugman agreed with the core principle of the Laffer Curve. Today, we have another unlikely ally. Regular readers know that I’m not a big fan of the Organization for Economic Cooperation and Development. The Paris-based international bureaucracy routinely urges higher tax burdens, both in the United States and […]

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California (Hopefully) Learns a Lesson about Marijuana Taxes and the Laffer Curve

I wanted California to decriminalize marijuana because I believe in freedom. Smoking pot may not be a wise choice in many cases, but it’s not the role of government to dictate private behavior so long as people aren’t violating the rights of others. Politicians, by contrast, are interested in legalization because they see dollar signs. […]

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The International Monetary Fund Accidentally Provides Strong Evidence for the Laffer Curve

As a general rule, the International Monetary Fund is a statist organization. Which shouldn’t be too surprising since its key “shareholders” are the world’s major governments. And when you realize who controls the purse strings, it’s no surprise to learn that the bureaucracy is a persistent advocate of higher tax burdens and bigger government. Especially […]

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Winning Converts for Supply-Side Economics and the Laffer Curve, One City at a Time

Supply-side economics is simply the common-sense notion that people respond to incentives, though some folks think this elementary observation is “voodoo economics” or “trickle-down economics.” If you want a wonkish definition of supply-side economics, it is the application of micro-economic principles. In other words, what does “price  theory” tell us about how people will respond […]

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Learning from the United Kingdom about the Laffer Curve, Dynamic Scoring, and Class-Warfare Taxes

As far as I’m concerned, no sentient human being could look at what happened in the United States in the 1980s and not agree that high tax rates on upper-income taxpayers are foolish and self-destructive. Not only did the economy grow faster after Reagan lowered rates, but the IRS even collected more revenue (a lot […]

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The Continuing Revenge of the Laffer Curve

Seven years ago, I wrote about the “Butterfield Effect,” which is a term used to mock clueless journalists. A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during […]

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Laffer Curve Lessons for Leftists, Part VI

I shared yesterday an example of how a big tax increase on expensive homes led to fewer sales. Indeed, the drop was so pronounced that the government didn’t just collect less money than projected, which is a very common consequence when fiscal burdens increase, but it actually collected less money than before the tax hike […]

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Laffer Curve Lessons for Leftists, Part V

In my never-ending strategy to educate policy makers about the Laffer Curve, I generally rely on both microeconomic theory (i.e., people respond to incentives) and real-world examples. And my favorite real-world example is what happened in the 1980s when Reagan cut the top tax rate from 70 percent to 28 percent. Critics said Reagan’s reforms […]

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Evidence from Sweden Showing that Taxable Income Is the Key Variable in the Laffer Curve, not Tax Revenue

I know exactly how Ronald Reagan must have felt back in 1980 when he famously said “There you go again” to Jimmy Carter during their debate. That’s because I endlessly have to deal with critics who try to undercut the Laffer Curve by claiming that it’s based on the notion that all tax cuts “pay […]

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Hillary Clinton Wants to Lose a Fight with the Laffer Curve

Based on what she’s been saying during the campaign, Hillary Clinton is a big fan of class warfare. She has put forth a series of “soak-the-rich” tax hikes designed to finance bigger government. Her official plan includes provisions such as an increase (“surcharge”) in the top tax rate, the imposition of the so-called Buffett Rule, […]

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Sex, Government, and the Laffer Curve

Over the years, I’ve run into oddball stories about what happens when politicians and bureaucrats get involved with matters relating to sex. California bureaucrats are regulating participants in porn films, as humorously described by Mark Steyn. The World Bank is paying poor young women so they don’t take up with sugar daddies. Obamacare is so […]

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The Laffer Curve vs ISIS

Based on my writings, some people may think I’m 100 percent against higher taxes. But that’s not exactly true. In some cases, I like punitive taxation. Or, to be more precise, I sometimes take pleasure when punitive tax policy backfires on bad people. Here’s an example. An interesting article in Slate, authored by Adam Chodorow […]

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Good news: The Greed of Politicians Is once again Thwarted by the Laffer Curve

If you owned a restaurant and wanted to generate more income and boost your bottom line, would you double your prices thinking that this would double your revenue? Of course not. You would understand that a lot of your patrons would simply dine elsewhere. And if they didn’t have other restaurants available, many of them […]

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Israel, the Laffer Curve, and Market-Based Reform

Since I’m a big fan of the Laffer Curve, I’m always interested in real-world examples showing good results when governments reduce marginal tax rates on productive activity. Heck, I’m equally interested in real-world results when governments do the wrong thing and increase tax burdens on work, saving, investment, and entrepreneurship (and, sadly, these examples are […]

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Taxes, Tobacco, and the Laffer Curve

What’s the Laffer Curve? It’s the simple, common-sense observation that there’s not a linear relationship between tax rates and tax revenue. Folks in the private sector understand this principle. No restaurant owner, for instance, would double meal prices and assume that revenues would climb by 100 percent. Yet that’s basically the methodology used by the […]

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The Laffer Curve, Tax Progressivity, and Government Revenue: What’s the Higher Priority for Leftists, Raising Revenue or Punishing Success?

On the issue of so-called progressive taxation, our left-wing friends have conflicting goals. Some of them want to maximize tax revenue in order to finance ever-bigger government. But others are much more motivated by a desire to punish success. They want high tax rates on the “rich” even if the government collects less revenue. Some […]

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The Left’s Position on the Laffer Curve and Dynamic Scoring: Being Exactly Wrong Is Better than Being Inexactly Right

Since I’m a big advocate of the Laffer Curve, that means I favor dynamic scoring. This is the common-sense observation that you can’t figure out the effect of tax changes on revenue without first estimating the impact on taxable income. And I’ve shared some very persuasive data and analysis in favor of the Laffer Curve […]

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Debunking the Debunking of Dynamic Scoring and the Laffer Curve

Many statists are worried that Republicans may install new leadership at the Joint Committee on Taxation (JCT) and Congressional Budget Office (CBO). This is a big issue because these two score-keeping bureaucracies on Capitol Hill tilt to the left and have a lot of power over fiscal policy. The JCT produces revenue estimates for tax […]

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The Rahn Curve, the Laffer Curve, and Walter Williams

What’s the relationship between the Rahn Curve and the Laffer Curve? For the uninitiated, the Rahn Curve is the common-sense notion that some government is helpful for prosperous markets but too much government is harmful to economic performance. Even libertarians, for instance, will acknowledge that spending on core “public goods” such as police protection and […]

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The Laffer Curve and Limits to Class Warfare Tax Policy

I’m a big advocate of the Laffer Curve. Simply stated, it’s absurdly inaccurate to think that taxpayers and the economy are insensitive to changes in tax policy. Yet bureaucracies such as the Joint Committee on Taxation basically assume that the economy will be unaffected and that tax revenues will jump dramatically if tax rates are […]

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Another Victory for the Laffer Curve, this Time over the Lifestyle Puritans

What do cigarettes and capital gains have in common? Well, they both start with the same letter, so maybe the Cookie Monster could incorporate them into his favorite song, but I’m thinking about something else. Specifically, both cigarettes and capital gains tell us something important about tax policy, the Laffer Curve, and the limits of […]

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