As regular readers know, one of my great challenges in life is trying to educate policy makers about the Laffer Curve, which is simply a way of illustrating that government won’t collect any revenue if tax rates are zero, but also won’t collect much revenue if tax rates are 100 percent. After all, very few people will be willing to earn and report income if the government steals every penny.
In other words, you can’t estimate changes in tax revenues simply by looking at changes in tax rates. You also have to consider changes in taxable income. Only a fool, for instance, would assume that you can double tax revenue by doubling tax rates.
But how do you explain this to the average person? Or, if you want a bigger challenge, how do you get this point across to a politician?
Over the years, I’ve picked up a few teaching examples that seem to be effective. People are always shocked, for example, when I show them the IRS numbers on how rich people paid a lot more tax when Reagan cut the top tax rate from 70 percent to 28 percent.
Almost everybody understands that hamburger sales would plummet and that they would likely lose revenue.
Well, great minds (or at least wonky minds) think alike, because the Tax Foundation has released a great video on dynamic scoring and they use donuts to make the same point.
The Economics of Tax Reform: Lessons from the Donut Shop
The video suggests that it would be a good idea to modernize the revenue-estimating process.
Dan Mitchell shows how ignoring the Laffer Curve is like running a stop sign!!!! Can You Spell L-A-F-F-E-R C-U-R-V-E? July 12, 2013 by Dan Mitchell I’m thinking of inventing a game, sort of a fiscal version of Pin the Tail on the Donkey. Only the way it will work is that there will be a map of […]
President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here. The way […]
Dan Mitchell does a great job explaining the Laffer Curve President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a […]
I have put up lots of cartoons from Dan Mitchell’s blog before and they have got lots of hits before. Many of them have dealt with the economy, eternal unemployment benefits, socialism, Greece, welfare state or on gun control. Today’s cartoon deals with the Laffer curve. Revenge of the Laffer Curve…Again and Again and Again March 27, 2013 […]
Class Warfare just don’t pay it seems. Why can’t we learn from other countries’ mistakes? Class Warfare Tax Policy Causes Portugal to Crash on the Laffer Curve, but Will Obama Learn from this Mistake? December 31, 2012 by Dan Mitchell Back in mid-2010, I wrote that Portugal was going to exacerbate its fiscal problems by raising […]
The Laffer Curve – Explained Uploaded by Eddie Stannard on Nov 14, 2011 This video explains the relationship between tax rates, taxable income, and tax revenue. The key lesson is that the Laffer Curve is not an all-or-nothing proposition, where we have to choose between the exaggerated claim that “all tax cuts pay for themselves” […]
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980′s […]
I got to hear Arthur Laffer speak back in 1981 and he predicted what would happen in the next few years with the Reagan tax cuts and he was right with every prediction. The Laffer Curve Wreaks Havoc in the United Kingdom July 1, 2012 by Dan Mitchell Back in 2010, I excoriated the new […]
Raising taxes will not work. Liberals act like the Laffer Curve does not exist. The Laffer Curve Shows that Tax Increases Are a Very Bad Idea – even if They Generate More Tax Revenue April 10, 2012 by Dan Mitchell The Laffer Curve is a graphical representation of the relationship between tax rates, tax revenue, and […]
When I see taxes go up then I expect to see people try to avoid paying the higher taxes. Why can’t liberals see that is going to happen? Look at this stats below. The Laffer Curve Bites Ireland in the Butt March 19, 2013 by Dan Mitchell Cigarette butt, to be more specific. All over the […]
Dan Mitchell Commenting on Detroit’s Bankruptcy __________________________ Are the states of Illinois and California going to join Detroit in Bankruptcy one day? One of the funniest cartoons I have see is one below about the states of Illinois, and California joining Detroit in bankruptcy some day. Should Detroit’s Bankruptcy Be an Early-Warning Sign for Washington? […]
Milton Friedman said that getting George Bush I to be his vice president was his biggest mistake because he knew that Bush was not a true conservative and sure enough George Bush did raise taxes when he later became President. Below is a speech by George W. Bush honoring Milton Friedman: Milton Friedman Honored for […]
Washington better wake up and cut spending or the USA will end up bankrupt like Detroit!!! Atlas Shrugs in Detroit July 25, 2013 by Dan Mitchell About two weeks ago, while making an important point about the Laffer Curve, here’s what I wrote about the fiscal disaster in Detroit. Detroit’s problems are the completely predictable result […]
I have put up lots of cartoons from Dan Mitchell’s blog before and they have got lots of hits before. Many of them have dealt with the economy, eternal unemployment benefits, socialism, Greece, welfare state or on gun control. Getting votes for handing out government services!!!! That is exactly what President Obama did by almost doubling our food stamp rolls. An […]
Will Taxing the Rich Fix the Deficit? Published on Jul 2, 2012 The government’s budget deficit in 2009 was $1.5 trillion. Many have suggested raising taxes on the rich to cover the difference between what the government collected in revenue and what it spent. Is that a realistic solution? Economics professor Antony Davies uses data […]
We got to cut spending or we will be in a fiscal crisis like Greece!!! Question of the Week: Has the European Fiscal Crisis Ended? January 12, 2013 by Dan Mitchell I’ve frequently commented on Europe’s fiscal mess and argued that excessive government spending is responsible for both the sovereign debt crisis and the economic stagnation […]
The Flat Tax: How it Works and Why it is Good for America Uploaded by afq2007 on Mar 29, 2010 This Center for Freedom and Prosperity Foundation video shows how the flat tax would benefit families and businesses, and also explains how this simple and fair system would boost economic growth and eliminate the special-interest […]
People will move when you raise the taxes too much!!!! Final Score: Dwight Howard 8,000,000 – Jerry Brown 0 July 7, 2013 by Dan Mitchell I feel sorry for the people of California. They’re in a state that faces a very bleak future. And why does the Golden State have a not-so-golden outlook? Because interest groups have effective […]
After all, very few people will be willing to earn and report income if the government steals every penny.
Over the years, I’ve picked up a few teaching examples that seem to be effective. People are always shocked, for example, when I show them the IRS numbers on how rich people paid a lot more tax when Reagan cut the top tax rate from 70 percent to 28 percent.
The Daily Hatch 