The Mythical Laffer Curve

I’ve mentioned the Laffer Curve a few times on this blog, often in connection with one of its greatest proponents, Señor Daniel Hannan. This excellent blog from Robert Nielson expertly debunks the myth of the Laffer Curve. The curve was allegedly sketched on a napkin in a restaurant by right-wing economist Arthur Laffer to illustrate “taxable income elasticity” and to thereby rationalize the so-called “trickle-down effect” (also known as voodoo economics) and flat taxes, in particular. The Laffer Curve is closely associated with supply side economics and, in particular, Reaganomics. The idea that flat taxes will magically benefit everyone is patently absurd, especially when one considers the example of the Poll Tax and the effect that it had on low-income households.
The Laffer Curve is also known by the name “Laffer-Khaldun” Curve on account of the fact that it was originally devised by the 14th century Muslim philosopher Ibn Khaldun. Laffer simply appropriated it and deployed it as a sort of neoliberal talisman.

Whistling In The Wind

Conservatives everywhere condemn the use of tax increases for fear of the Laffer Curve. This is the idea that if taxes are too high, people will lose the incentive to work and therefore revenue will actually decrease. It is most famous for its counter-intuitive argument that a tax cut could increase revenue. Unfortunately there is little or no evidence to support this claim. History clearly shows that cutting taxes does not increase revenue. The Laffer curve is a political idea used to justify tax cuts for the rich. It is not based on sound economics.

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Filed under economic illiteracy, Economics, neoliberalism

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