XIV. on the Laffer Curve

Prager University is a very pro-free enterprise thinktank, — read capitalist, greedy, rightwing, conservative, or whatever other buzzword you associate with that term — but the University of Chicago isn’t; this is a very interesting video that everyone should watch.

ADMISSION: My rendition of the economic principle, & the outcomes I draw from it, come from a very limited understanding of economics. I’m not unlearned, but I’m definitely not qualified to pass off what I say as fact. So I’d recommend just watching the video. . . .  / DISCLAIMER: I’ve done no research further than watching the video, reading some of the comments on that video, skimming the Romer & Romer paper online, & reading one other liberal review of the paper.

Anyway, if you can’t — or are not in the mood to — watch the video, the Laffer Curve is the relation between tax rates on a population & the amount of tax revenue received from that population. At 0%, the government receives £0 of the national income as taxes, and at 100%, there is no incentive to work, so the government eventually receives £0 as the national income of becomes £0. / All economists agree with this principle. The disagreement comes from where the hump sits. / For example, it would be to the Capitalist‘s benefit if the hump sat at 10%: — this would mean that if the government takes >10% of the national income as taxes, the government would begin to lose revenue. And it would be to the Socialist‘s benefit if the hump sat at 90%: — this would mean that the government can set taxes all the way to 90% of the national income and still continue to gain revenue.

The Romer & Romer paper, by leftist economists and commissioned and published by a leftist university (are there any that aren’t?) found that the hump is about 33%.

So, from what I can gather, technically, in a nation with a flat tax rate, it makes perfect sense; the 33% is the flat figure across all demographics that will give the government the most amount of money. BUT every country I know of employs a progressive tax rate, so depending on the bracket you fit into, it might be 50% for the high earners but only 20% for the low earners. So does the 50% cancel out the 20% and meet at 35% overall — almost perfect? It seems that this isn’t the case. What drives the drop in the Laffer Curve is lack of incentive to work. By taxing the high earners >50%, it gives people a smaller incentive to aim for that final tax bracket; and seeing as the richer people are, — & the higher the number of rich people is — the government suffers because the demographic suffers. / This would also happen if the low earners were taxed 50% and the high earners were taxed 20%. Because the majority of low earners are young people, or unskilled workers, it makes them less likely to enter the workforce.

CONCLUSION: If you are the biggest socialist ever, & want the biggest government possible, you should want a flat rate of tax at 33%. This means you should want the rich as well as the poor to be taxed 33%.

P.S. This is strictly talking about the money the government takes in, & not the growth of the economy. From other sources, — Britain in 1700s, the U.S.A. in 1800s, Israel in the 80s, Hong Kong, Russia after the fall of the U.S.S.R. — the ideal rate of government spending in respect of overall national income growth (and therefore government income growth, if that is actually important to you), has been about 10%.

Lower Taxes, Higher Revenue: http://youtu.be/FqLjyA0hL1s


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