Getting on the Laffer Curve

As a supply-side economist, I subscribe to the Laffer Curve, made famous by economist Arthur Laffer.

While it has been incorrectly maligned over the years, the Laffer Curve is a straightforward economic concept. That is, when income tax rates are pushed too high, economic activity is restrained or declines, tax avoidance and evasion increase, and tax revenues are restrained or fall. In contrast, a lower tax rate can boost the economy, reduce tax avoidance/evasion and increase tax revenues. We have seen examples of this throughout economic history, and it is a very clear phenomenon when it comes to capital gains taxation.

Fortunately, economist Dan Mitchell narrates a couple of videos for the Center for Freedom and Prosperity explaining the economics of the Laffer Curve.

The first video – The Laffer Curve, Part I: Understanding the Theory – looks at the theoretical relationship between tax rates, taxable income, and tax revenue.

The second video – The Laffer Curve, Part II: Reviewing the Evidence – looks at real-world Laffer Curve examples.

Each is well worth watching.