The Laffer curve has two points that people seem to agree on, zero tax rate produces zero revenue, and 100% tax rate produces zero revenue.
The shape of the curve beyond those two points is speculation, although it is usually drawn as a symmetrical bell curve, giving the false impression that tax rates over 50% are detrimental. But growth averaged higher when tax rates were higher.
People are complaining about the growth rate of the last 8 years, but when were taxes lower than the last 8 years?
Growth rates were higher when the top rate was 93%, growth rates were higher when the top rate was 70%, Growth rates were higher when the top rate was 50%.
And here's why, the biggest portion of any tax cut goes to the investor class, based on the lie that they will invest the money to create jobs. But what no one says is that to finance that tax cut, the money will be borrowed.
So the same "tax cut" that cuts taxes 1.5 Trillion dollars, freeing that money for investment, also creates an "investment" of 1.5 trillion dollars, taking 1.5 trillion out of the funds available for investment, leaving a net effect on funds available for investment that is close to zero. Of course the increase in the debt has a negative effect on the economy, as more government revenue gets allocated to interest payments rather than being used for the legitimate functions of government.
And that is one of the main reasons why after all this cutting of the taxes over the years has left us with such a puny growth rate, and why lowering the tax rate more will do next to nothing for the economy.
If you wanted to structure a tax cut that would give the economy a big boost, take the same amount, and give every tax payer a check for "the average tax cut".
Instead of putting 80% of the money to the investor class who will use it to own a larger percentage of the economy, give each taxpayer a check for $4000.
Because investors don't expand businesses just because they have the money, companies are sitting on huge cash reserves right now.
People invest in expanding their businesses when their customers have more money to spend.
Spread that money evenly and there will be a huge increase in consumer spending, that will drive a huge increase in investing that creates jobs.
I was curious because the Laffer curve & impedance matching seem similar, so I wanted to see if anyone had written anything about the analogies between maximum power transfer and optimal tax rate (for maximizing revenue).
I forgot to mention earlier that if we look at the tax rate as income goes up, it seems to approach a percentage not too far off from the number that this Crier Curve blog article came up with (te = 0.35).
The Laffer curve is all about growth, it's about a lower tax rate producing more revenue, because the lower tax rate produces more growth.
Raise or lower tax rates by 10% and the next tax period revenues will be just about 10% higher or lower.
If I make $100,000/year, and you raise my rate 2%, I'll pay the extra 2%, if you drop it 2% I'll pocket the extra 2%, I'm not going quit and spend a year on the couch if rates go up a little, or work twice as hard if they go down a little.
Business was trying to maximize profits when the corporate tax rate was much higher.
The Laffer Curve is based on fast talking, not research, it's based on wishful thinking not evidence.
The fast talkers always assume that we are on the part of the curve with a negative derivative, where cutting taxes produces more, but every tax cut has produced less revenue in the following year.
The fast talkers point out that several years after a tax cut revenue has grown to "record levels", but this is true in nearly every year following a tax increase, or following no change to the tax rate structure.