A 2012 survey of 40 prominent economists failed to find a single one in agreement with Lafferism. Supply-side advocates of tax cuts claimed that lower tax rates would generate more tax revenue because the United States government's marginal income tax rates prior to the legislation were on the right-hand side of the curve. For starters, though it's often criticized for being too simplistic, it can be said that its simplicity makes it an easy idea to grasp. CS1 maint: multiple names: authors list (, European Union Common Consolidated Corporate Tax Base, Institute on Taxation and Economic Policy, taxes borne relatively evenly by all taxpayers, Economic Growth and Tax Relief Reconciliation Act of 2001, Jobs and Growth Tax Relief Reconciliation Act of 2003, "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review", "The Laffer Curve: Past, Present, and Future", "Trump is giving Arthur Laffer the Presidential Medal of Freedom. These are the core obsessions that drive our newsroom—defining topics of seismic importance to the global economy. [1] Under the assumption that the revenue is a continuous function of the rate of taxation, the maximum illustrated by the Laffer curve is a result of Rolle's theorem, which is a standard result in calculus. All told, the deficit is likely to exceed $1 trillion in the next fiscal year, on its way to $2 trillion over the coming decade. This led supply-siders to advocate large reductions in marginal income and capital gains tax rates to encourage greater investment, which would produce more supply. As The Washington Post reported in 1989, at the dawn of George H. W. Bush’s presidency:
For starters, the tax rate and tax revenue relationship is dependent upon a citizen's decision to work more or less. Select the purchase
[48] During the Reagan presidency, the top marginal rate of tax in the United States fell from 70% to 28%. "[14] A 1999 study by University of Chicago economist Austan Goolsbee, which examined major changes in high income tax rates in the United States from the 1920s onwards found no evidence that the United States was on the wrong side of the Laffer curve.
President Donald Trump also consulted with Laffer during the 2016 race. The logic underlying the Laffer Curve is that the greater the tax on production, the lesser the amount of production. All else remaining the same, higher government spending combined with a lower average tax rate is worse for the economy than lower government spending combined with a higher average tax rate. Mr. Laffer’s argument was that higher taxes discourage work, so raising taxes results in less government revenue. [59], Supply-siders argue that in a high tax rate environment, lowering tax rates would result in either increased revenues or smaller revenue losses than one would expect relying on only static estimates of the previous tax base.[60][61]. Never mind that the downturn started a full year before Mr. Obama took office; Mr. Laffer argues the stock market began falling in anticipation of Mr. Obama’s arrival and that led to the recession.
Here’s Cheney in 2014, reminiscing about the pivotal scribble in a Bloomberg video: I remember a white tablecloth and white linen napkins because that’s what [Laffer] drew the curve on. When asked whether a "cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut", none of the economists surveyed agreed and 71% disagreed.
[53] However, a 2018 study by the Congressional Budget Office showed average household income rising 68.8% after taxes for the bottom quintile from 1979 to 2014. Of course, it's important to remember that there are numerous factors at play here including culture, the current state of the economy and more. More recently, based on Laffer curve arguments, Kansas Governor Sam Brownback greatly reduced state tax rates in 2012 in what has been called the Kansas experiment. Drastic cuts to state funding for education and infrastructure followed[43] before the tax cut was repealed in 2017. For the most part, the Laffer curve continues to receive criticism for offering a simplistic view of economic practices despite all the factors at play. [24] A 2005 study concluded that with the exception of Sweden, no major OECD country could increase revenue by reducing marginal the tax rate. [44], Supply-side economics is a school of macroeconomic thought that argues that overall economic well-being is maximized by lowering the barriers to producing goods and services (the "Supply Side" of the economy). But the Democratic party, then rooted in the agricultural South, argued tariff reductions would increase revenues by increasing the number of taxable imports. Although the simplified Laffer curve is usually illustrated as a straightforward symmetrical and continuous bell-shaped curve, in reality the bell-shaped curve may be skewed or lop-sided to either side of the 'maximum'. For a reduction in tax rates to increase revenue, the current tax rate would need to be higher than the revenue maximizing rate. Setting goals can help you gain both short and long term achievements. Laffer drew on napkins when he had lunch with many people,” she said. JSTOR is part of ITHAKA, a not-for-profit organization helping the academic community use digital technologies to preserve the scholarly record and to advance research and teaching in sustainable ways.
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