The Washington Independent
The Washington Independent

Where Does the Laffer Curve Bend?

Imagine a government that moves its top income tax rate higher and higher every year. At some point, that imaginary government would raise taxes so high that it

Thomas Dixon
News
Last updated: Jul 31, 2020 | Aug 10, 2010

Imagine a government that moves its top income tax rate higher and higher every year. At some point, that imaginary government would raise taxes so high that it would dissuade its citizens from bothering to make more money at all: Taxing income at, say, 80 percent might actually bring in less government revenue than taxing income at 79 percent.

The economist who first theorized that high taxes reduce government revenue at some level is Arthur Laffer, and the point at which higher taxes mean less government revenue is where the so-called Laffer curve “bends.” The theory of the curve underpins some Republicans’ arguments about taxes: Higher taxes discourage people from striving to earn more, so tax cuts pay for themselves, Sen. Mitch McConnell (R-Ky.) argues. (Notably, this is wrong at the United States’ level of taxation, meaning the United States is on the left-hand side of the Laffer curve.)

Nobody really knows where the Laffer curve bends — but Dylan Matthews thought to ask a number of tax policy experts, economists and politicians. It is a great post and worth reading in full. But here are some particularly good responses.

****Bruce Bartlett, columnist, Forbes.com; former adviser to Reagan and Bush I:

“I would hate to venture a specific number…. I would, however, say that I think the top rate could be quite a bit higher than it is without significantly impairing incentives or leading to excessive amounts of tax avoidance. I think 50 percent is an important threshold and I would be very reluctant to go higher even if it raised net revenue…. Anthony Atkinson, probably the leading public finance economist in England, estimates (PDF) that the top rate could go as high as 63% to 83% before it became counterproductive in terms of revenue…The European Central Bank…finds that only two European countries are on the wrong side of the Laffer Curve. All other countries could raise substantial additional revenue by raising tax rates.”

“Since our rates are much lower than those it Europe, it suggests that we have a very long way to go before the top rate became counterproductive.”

Greg Mankiw, Robert M. Beren professor of economics, Harvard University; former chairman, Council of Economic Advisors:

“My guess is that that the short-run answer and the long-run answer are quite different. For example, if you raised the top rate from 35 to, say, 60 percent, you might raise revenue in the short run. Over time, however, you would get lower economic growth, so the additional revenues would fall off and eventually decline below what they would have been at the lower rate…. I will pass on offering a specific number, as it would require more time and thought than I can offer just now, but I will opine that I think the long-run answer is actually more important for policy purposes than the short-run answer.”

Edward Lazear, Jack Steele Parker Professor of Human Resources Management and Economics, Stanford University; former chariman, Council of Economic Advisors:

“Sorry, no.”

**Senate Minority Leader Mitch McConnell (R-KY):**His office declined to answer.

Thomas Dixon | He creates the ideal marketing experience by connecting online brands with their target audiences. He recently completed a research paper on consumer conversion and took part in a community project on SEO optimization. Thomas is working on his Bachelor of Arts in Communications and plans to intern in an online marketing department soon.

Related

Rep. Paul Ryan to deliver SOTU response

Chairman of the House Budget Committee Rep. Paul Ryan (R-Wis.) will deliver the Republican response to the State of the Union Tuesday, according to Mike Allen

Rep. Paulsen allies with medical device industry to relax FDA oversight

Source: Flickr; Republicanconference (www.flickr.com/photos/republicanconference) On the heels of the Minnesota Independent story last week about U.S. Rep. Erik Paulsen’s cozy financial relationship with the medical device industry, the New York Times reported Tuesday that some health professionals are alarmed by Paulsen’s push to relax Food and Drug Administration (FDA) oversight

Rep. Paulsen touts balanced budget constitutional amendment

In a post for the conservative blog True North , U.S. Rep

Rep. Patrick McHenry: Please, Conservatives, Fill Out Your Census Forms!

The conservative congressman from North Carolina, a constant critic of the census -- one of the people who sounded the alarm about politicization when the

Rep. Paulsen, Karl Rove the latest to get ‘glittered’

Rep. Erik Paulsen and former Bush staffer Karl Rove were both showered with glitter at the Midwest Leadership Conference Friday

Rep. Perlmutter to hold constituent meet-up in grocery store

Colorado Congressman Ed Perlmutter will hold a Government in the Grocery constituent meet-up this evening from 5-7 at the Safeway at 38th and Wadsworth in Wheat Ridge. The address is 3900 Wadsworth. The meeting, where Perlmutter typically sits at a folding table and talks to whomever shows up, is free and open to the public

Rep. Perlmutter criticizes House measure that would eliminate 800K federal jobs

Congressman Ed Perlmutter today issued a scathing statement criticizing the House of Representatives for passing a spending bill that could put nearly a million federal employees out of work. The Colorado delegation voted strictly on party lines, with all four Republicans voting in favor of the bill and the three Democrats voting in opposition. Perlmutter’s statement: “My number one priority is to get people back to work because that’s the best thing we can do to pay our debt and move forward toward economic stability

Rep. Pete Stark Won’t Dignify Constituent by, er, Micturating Upon His Leg

In the tradition of Rep. Barney Frank (D-Mass.), California Democratic Rep. Pete Stark revealed at a recent town hall gathering that there are limits to what

Rep. Peace, ACLU seek investigation of soldier’s allegations of racial discrimination in Afghanistan

Both Rep. Steve Pearce (R-NM) and the American Civil Liberties Union agree: There needs to be an investigation into Spc.

© Copyright 2021 The Washington Independent All Rights Reserved

Terms & Privacy | twi.news@washingtonindependent.com