Wordgems - Wealth & Economics: Laffer Curve

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Economics:

The Laffer Curve

Rush Limbaugh, September 10, 2003

On Wednesday, Patrick in Madison, Wisconsin rang me up to ask the following: "With regard to tax cuts stimulating more revenue to the federal government, where is the break-even point? I mean, we can't cut all taxes, so where is the point where you can't cut them any more because it's going to negatively impact the budget and revenue?" The Laffer Curve, which gave us the term "supply side economics," defines this very point. Economist Arthur Laffer jotted down this simple theory on a cocktail napkin, and it's brilliant in its simplicity.

Depending on where tax rates are, you can reduce them some and stimulate economic activity that will then result in more treasury income and more taxpayers as a result of more jobs. Liberals have gotten away with making it sound like some of us think we can get away with no taxation, but that's not the case anyone is making. Everyone knows you can't cut taxes to zero. What people fail to realize is that you can go too far towards 100%, to a point where people will no longer continue to work. The goal is to strike the ideal tax rate of 15% to 18%. The Russians, of all people, have enjoyed a huge boom with a flat tax rate. Nothing is more "fair" than everyone paying an equal tax rate.

I believe that the government taking anything more than a quarter of someone's money is immoral. There's no way you can make the case that "fairness" is increasing somebody's tax rate simply because they earn more. It's not a crime to achieve, and it shouldn't be punished as if it is. Tax cuts are a sale on working, so the government gets more revenue. That happened when Ronald Reagan lowered the top marginal tax rate in 1986 and when JFK did it 25 years before that. Reagan cut out a lot of deductions to get that reduction, which has come back to bite the taxpayer as Congress has raised the percentages. I've linked to a lot of great stuff on this Laffer Curve business from the Essential Stack of Stuff. Read up on it, because it's key.

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