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We are on The Laffer Curve
Science Magazine ^ | 16 Sep 2009 | S Carroll

Posted on 09/16/2009 1:27:09 PM PDT by Admiral_Zeon

The Laffer Curve is a simple idea: a government can’t raise taxes forever and expect to increase revenue along the way. Eventually you’re taking so much in taxes that people don’t have any reason to earn income. The argument is simple (and correct): if you have zero tax rate you get zero tax revenue. If you raise taxes just a bit, nobody will be discouraged from working, and you will collect some amount of revenue; therefore, the curve of revenue versus tax rate starts at zero and initially rises. But if the tax rate is 100%, nobody has any reason to work, and your total revenues will be back at zero. By the wonders of math, there must therefore be a maximum of the curve somewhere in between 0% and 100% tax rate.

An important question is, where are we on the curve? The notion of the Laffer curve has been used to justify all sorts of tax cuts, under the assumption/claim that we are to the right of the maximum, so that cutting taxes will actually increase revenues. Serious economists generally don’t believe this holds true in the U.S. right now, but the lure of the idea is undeniable: lose weight by eating more ice cream!

Via Marginal Revolution, here’s a study by Mathias Trabandt and Harald Uhlig that tries to get it right. Obviously they have models that make various assumptions, and I have no idea how realistic those assumptions are. They study the U.S. and several European countries, and find that Denmark and Sweden are just a bit on the wrong side of the curve for the specific case of capital income taxation. For the most part, however, tax rates lie to the left of the maximum. In the U.S., especially, we are significantly on the left.

(Excerpt) Read more at blogs.discovermagazine.com ...


TOPICS: Constitution/Conservatism; Government; Philosophy; Your Opinion/Questions
KEYWORDS: artlaffer; conservatism; hauserlaw; hauserslaw; laffer; laffercurve; liberalism; taxcut
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To: Admiral_Zeon

First, at least at the federal level, we have to dump the concept that taxation is about revenue. It isn’t. The federal government could just print more money - creating an implicit tax on everyone through inflation and get by perfectly well. Taxation is about control. For every dollar the government takes from you, it takes away the freedom to spend that dollar as you wish. You lose a little bit of liberty with each tax dollar taken.


41 posted on 09/17/2009 6:37:09 AM PDT by CharacterCounts (November 4, 2008 - the day America drank the Kool-Aid)
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To: Dr.Deth

Do you play Evony?


42 posted on 11/15/2009 5:06:35 PM PST by Sawdring
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