Date: Tue, 07 Oct 2014 09:05:15 -0400
From: Tarus BALOG
Subject: Re: Muddylaces post and the Laffer Curve
On 10/07/2014 08:07 AM, John R Dykers wrote:
> Thank you for introducing the Laffer curve to our political discussion
> in Chatham County. For Chatlisters not familiar with the Laffer curve,
> it is Dr.. Laffer’s research showing how at some point raising taxes
> discourages economic activity and begins to decrease tax revenue.
> Conversely lowering tax rates increases economic activity and increases
> tax revenue.
This isn’t exactly accurate. The Laffer Curve postulates that with a 0% tax rate there will be zero tax revenue, obvious, and at a 100% tax rate there would also be zero revenue, not as obvious but the idea is that if you worked but had to give all of your money away as tax you wouldn’t do it. This may not be true but let’s assume it is for now.
Since for every tax rate in between some revenue will be generated, the idea is that there is a point where a particular tax rate would result in maximum tax revenues. No one can really agree on the shape of the curve, if it has a single maximum or several local maxima, but most of the studies done calculate that tax revenue is maximized at a rate of about 70% and suggest that the curve is roughly bell shaped.
Since the current maximum tax rate is considerably less than 70%, it seems that, based on the Laffer Curve, taxes should be raised to increase revenue. Also, if the Laffer Curve does turn out to be somewhat bell shaped, lowering *or* raising taxes around the maximum will *both* decrease revenue.
You seem to suggest that lowing taxes increases revenue, which really isn’t supported by the Laffer Curve unless the tax rate is already above the maximum, which currently isn’t the case – not by a long shot.
Note that, before you start trying to label me as a crazy liberal, I am not saying that lowing taxes can’t increase revenues. All I am stating is that the Laffer Curve doesn’t support that for our current system.
-T