The Laffer Curve is an graphic representation of the theory of Taxable Income Elasticity.
First proposed by Jude Wanniski within the 1970s, the Laffer Curve is named after Arther Laffer, a supply-side economist who Wanniski based his work on.
Here is the translation for every person else: The Laffer Curve tells the government how much money it can charge in tax debt before revenue starts going down.
the Laffer Curve math
This is how the Laffer curve works for those of us who don’t have degrees in theoretical economics or math. It is a theory of economics that states taxpayers will change their behavior based on taxes. At percent tax, tax payers are motivated to earn quite a few cash while the government will get no money. If the government taxed at 100 percent then they wouldn’t get any cash since there would be no motivation to earn cash. This means that the tax rate needs to stay between and 100 percent.
On the Laffer Curve this is usually someplace around 50 percent even though that wouldn’t be the perfect tax rate. Many studies say the ideal tax is someone around 30 or 40 percent
The Laffer Curve affecting US policy
The Laffer Curve was first proposed within the 1970s. US tax policies tend to make use of the underlying theory. Andrew Mellon made the argument that lowering the tax rate would bring in more money in 1924. The top income tax bracket was reduced from 73 percent to 24 percent between 1921 and 1929.
At the same time, income tax rose from $ 719 million to $ 1 billion. Reganomics within the 1980s and the Bush Tax Cuts of the early 2000s also had a very heavy basis within the Laffer Curve theory.
Arguments against the Laffer curve working
Just like all the other economic theories, the Laffer Curve doesn’t exist in its own economic bubble. Income tax is only designed to be like a short term loan to the government from the taxpayers to make sure of the economy of scale. Some historians might point out that at the near-100 percent tax rates, counties such as Russia and others were able to maintain a working economy. Progressive taxation will make it much more complicated to get calculations from the Laffer Curve.
