Saturday, August 6, 2016

The Laffer Curve

Sometimes we hear acquaintances or political commentators on television scoff at the notion that decreasing taxes can actually increase the revenue taken in by the federal government. Indeed, superficially it does seem counter-intuitive to suggest that if the government reduces the taxes it assesses taxpayers it will actually reap more money for the treasury. Yet, to a point, it's true. There's a rate on the tax rate scale above which tax revenue diminishes and below which it increases.

The concept is based on something called the Laffer Curve, named for economist Art Laffer who first brought it to public attention back in the 80s. This short video explains the idea. As stated in the clip, if you're a liberal who wants big government then, as strange as it may sound to you, you should be in favor of lowering, not raising, taxes:
The Laffer Curve is one reason why conservatives have long favored modest tax rates, and why they think the liberal tendency to call for raising taxes, sometimes as high as 70% or more, is counterproductive and foolish.