There’s been a buzz in blogland lately about the Laffer Curve. For those of you who don’t know, the Laffer Curve is napkin sketch made by economist Arthur Laffer that illustrates that there is a diminishing return to government revenue after raising tax rates beyond a certain optimal rate. The idea being that as the government share of productivity rises beyond that level, people do less and work harder to find loopholes.
For example, if I were to choose between working an extra job at night and spending time at home, how much I take home from that extra job matters. If the government taxes my income on that extra job so that I take only 25% – 50% of what I make, I’ll be more likely to skip the extra job.
Laffer himself points out the concept was not original and has been around since at least the 14th century.
Recently, Washington Post columnist Ezra Klein asked a group of economists where the Laffer Curve bends, which sparked quite a discussion the blogosphere.
First, the discussion pleasantly surprised me. It seems like just a short while ago, the left didn’t want to admit the Laffer Curve existed. In fact, I had discussions where I was treated as a moron for believing in such nonsense. So, it was pleasantly surprising to Continue reading