Laffer Laughing at Belling's Curve

The Laffer Curve suggests there is an optimal rate for government to collect taxes. It does not suggest that lower tax rates are optimal.

Mark Belling stretched the fantasy curve again. We will not waste time getting into the debate as to the flawed logic behind the thinking of the Laffer Curve. As a reminder, Arthur Laffer suggested, as noted at Investopeid.com , Laffer Curve, that:

The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue.

In other words Mark Belling is just plain wrong when he says:

Laffer’s theory was that as tax rates declined, economic activity (and therefore income) would increase resulting in more taxes paid to government.

If you believe in this hocus-pocus, at least get it right. Laffer argues that there is an optimal point were the tax rate will result in the greatest revenue for the government.

Set the tax rate too high, and revenues decline. Set the rate to low and revenues decline.

In other words, taxes might be too low.

More misinformation from right wing Milwaukee talk radio.

Out of fairness to Mark, his analysis on Mike Dikta's attempt to help old injured football players was good. Maybe Belling should stick to sports.

Comments

[wondering]

"We will not waste time getting into the debate as to the flawed logic behind the thinking of the Laffer Curve."

So, you believe that tax revenues are maximized at a tax rate of 100%?

[Paul]

How stupid. Did I say that or even suggest that?

[ME2]

It's pretty clear that we are still to the right of T*. I agree that he shoots from the hip a lot, but why are you so compulsive about maximizing payments to the government?

[liberal trapped in waukesha]

Hooray! Thanks for paying attention to the Milwaukee talk radio scene, and for your quick, incisive rebuttals. Keep up the good work!

[Fraley]

If our starting Tax Rate is to the right of T* (which I would argue is true), then Belling's analysis is correct, up until the point T* is reached.

[John P]

Why are we so predisposed to focus on revenue. We should focus on the expense side. We should be funding what is necessary and eliminate all wasteful spending. Over 40% of my income is going to taxes, is that not enough? This does not include all of the other excise and sales taxes I pay. We all need to pay taxes to fund necessary Government activities, however, we should not be maximizing government revenue just because we can. We need to only fund what is necessary. Pork projects are not necessary.

[wondering]

You: "We will not waste time getting into the debate as to the flawed logic behind the thinking of the Laffer Curve."

Me: "So, you believe that tax revenues are maximized at a tax rate of 100%?"

You: "How stupid. Did I say that or even suggest that?"

I'm a reasonably accomplished scientist. In particular, I know how to read a graph. You are right that Belling is wrong. But the Laffer curve says at some tax rate, revenues roll over. It's a pretty bland observation, really, but you say it's flawed. I am left to conclude that you think revenues rise monotonically. So, in the absence of elaboration on your part I conclude that, yes, you suggested exactly what I said originally.