Arthur laffers idea, once derided as voodoo economics, is being revived. The work of milton friedman has been bastardized by a handful of superrich republicans who were partially responsible for increasing the payroll tax from 2% in the 1950s to 15. Laffer curve has long been debunked as economic theory. Wanniski named the image on the napkin the laffer curvea term he would also use in his seminal 1978 treatise on supplyside economics, the way the world works. The idea, famously sketched by then usceconomics professor arthur laffer, was that there was some. He is a frequent cable news contributor and the author and coauthor of many newspaper articles and books including return to prosperity and an inquiry into the. This new group preached something called supplyside economics. The graph, famously sketched on a restaurant napkin, purport to show that under certain specific circumstances, a major cut in marginal income tax. Laffer, the legendary reagan supplysider who came up with the laffer curve, and balconi, have written a wonderful introduction to. In the four decades since, the laffer curve and its supplyside. The laffer curve shows how tax revenues change when the tax rate is either increased or decreased. Arthur laffer, american economist who propounded the idea that lowering tax rates could result in higher revenues.
Debunking the debunking of dynamic scoring and the laffer. Art laffer and the intellectual rot of the republican party. Laffer himself notes antecedents in the writings of the 14thcentury social philosopher ibn. Apr 09, 2020 voodoo economics is a distracting pejorative of supply side economics. The laffer test somewhat wonkish august 10, 2010 10. When the tax rate is at one hundred percent, all production ceases in a. Five critiques of arthur laffers supplyside model show. The underlying hypothesis behind the laffer curve is that if tax rates are 0%, no money will be raised, and if tax rates are 100%, no money will be raised because people will. Arthur laffers theory on tax cuts comes to life once more. Voodoo economics definition of voodoo economics by the free.
Stephen moore is chief economist at the heritage foundation and a coauthor with arthur laffer of. In fact, without detailed data, you cant tell where on laffers curve or. In this case, cutting tax rates will both stimulate economic incentives. Voodoo economics synonyms, voodoo economics pronunciation, voodoo economics translation, english dictionary definition of voodoo economics. And yet there continues to be a deep and abiding belief in a theory known as the laffer curve. Supplyside economist arthur laffer is often enlisted to bolster this argument with his analyses purporting to show that states lacking an income tax or estate tax have economies that outperform the rest of the country, and that any state can easily replicate. Oct 18, 2017 art laffer and the intellectual rot of the republican party the godfather of supplyside economics and inventor of the laffer curve is largely discredited by his peers, but revered by trump and. Laffer drew the famous laffer curve, which showed that, starting from a zero tax rate, increases in tax rates will increase the governments tax revenue but that, at some point, when the rates become high enough, further increases in tax rates will decrease revenue. Jun 01, 2004 the story of how the laffer curve got its name begins with a 1978 article by jude wanniski in the public interest entitled, taxes, revenues, and the laffer curve. Sep 07, 2012 the curve was allegedly sketched on a napkin in a restaurant by rightwing economist arthur laffer to illustrate taxable income elasticity and to thereby rationalize the socalled trickledown effect also known as voodoo economics and flat taxes, in particular. The laffer curve is a theory that states lower tax rates boost economic growth. Critics like to deride the laffer curve as voodoo economics by pointing to counterexamples, say of tax rate reductions that didnt increase total revenue, or by pointing to tax rate hikes that brought in more revenue.
Moreover, the laffer curve also shows that tax increases can impose very high economic costs even if they do raise revenue, so the value of using such. Apr 29, 2017 wanniski named the image on the napkin the laffer curvea term he would also use in his seminal 1978 treatise on supplyside economics, the way the world works. There is an entire branch of economic literature that uses detailed equations to show cutting top tax rates does not spark. This is because at 100%, there is no incentive for the individual to earn any money, as there will be none they can take home. Not all taxes have the same power of influencing peoples behavior. Derision, too, as the architect of what bush 41 had called voodoo economics. Aug 10, 2010 the laffer test somewhat wonkish august 10, 2010 10. Arthur laffer, famed economist, and writer michelle balconi, sit down with the conservative book club to discuss their new economics book for kids. A little laffer curve reality should guide republican tax. Arthur laffer, in full arthur betz laffer, born august 14, 1940, youngstown, ohio, u. The laffer curve describes how changes in tax rates affect government revenues in two ways. Voodoo economics is a distracting pejorative of supply side economics. The most famous example of this came during the gop primary, when george h.
Bush, during the republican primary campaign in 1980, referring to saint ronnies reckless promotion of supplyside economics. The laffer curve is derived from the obvious observation that at both 0% and 100% tax rate, no tax revenue will be collected. Laffer is well known for the laffer curve, an illustration of the theory that there exists some tax rate between 0% and 100% that will result in maximum tax revenue for governments. Laffer is best known for the laffer curve, an illustration of the concept that there exists some tax rate between 0% and 100% that will result in maximum tax. Theyve been ridiculed as trickle down and voodoo economics a phrase coined. Its time we broke the spell of voodoo economics the national. Bush in reference to president ronald reagans economic policies, which came to be known as reaganomics. This is not arthur laffers famous napkin the new york times. In economics, the laffer curve illustrates a theoretical relationship between rates of taxation. But these possibilities were contained in the original laffer curve itself. But many oldschool republicans scoffed at laffers trickledown theories. A good first point in thinking the title of this letter should be titled mr. Jan 14, 2019 but many oldschool republicans scoffed at laffers trickledown theories.
The assumption of the laffer curve is one of those that i often see people make when they want to be smart. The laffer curve concept infers that a tax rate cut could lead to an increase in tax revenue, or a decrease in tax revenue, depending whether you have already passed the optimal tax rate whatever % that may be tax rate t3 might be considered optimal if the objective is to maximise total tax revenues. Evidence on the highincome laffer curve from six decades. Laffer was an associate of the reagan administration, which had a staged cut in the marginal higher rate of personal income tax from 70% to 28%. Nevertheless, it seems reasonable to suppose that a government would get little or no revenue from a 0% or 100% taxation rate. Voodoo economics hardcover august 1, 1992 by william hamilton author 5. Trumps massive taxcut plan is discredited, dangerous voodoo economics. The theory being adopted by trump advisers is that cutting taxes will spur enough economic growth to generate new. Apr 10, 2015 no, laffer hasnt grown out of fashion with mainstream economics he was never in fashion.
Jul 31, 2018 the assumption of the laffer curve is one of those that i often see people make when they want to be smart. Apr 27, 2017 trumps massive taxcut plan is discredited, dangerous voodoo economics. Dec 26, 2014 stephen moore is chief economist at the heritage foundation and a coauthor with arthur laffer of. Jim tankersley has a good article on arthur laffers neverstronger influence on the republican party, with just one seriously misleading statement laffers ideas have also grown out of fashion with much of the mainstream economic community. Nevertheless, it seems reasonable to suppose that a government would get little or no revenue from a. The laffer curve is the most famous, nonempirical economic concept of the last fifty years. He showed the relationship between taxes and revenue in the laffer curve. Both principles were well established in the the first half of the 20th century. Evidence on the highincome laffer curve from six decades of tax reform brookings papers on economic activity, 1999, no.
There was never any evidence to support strong supplyside claims about the marvels of tax cuts and the horrors of tax increases. Oct, 2017 washington it is one of the iconic moments in modern economics. The laffer curve is a plot of tax rates against tax revenues. Apr 25, 2017 the laffer curve shows how tax revenues change when the tax rate is either increased or decreased. Lets chat about economics basic principles through. President trump is set to award the presidential medal of freedom to economist arthur laffer, known as the father of supplyside economics. Laffer and his supporters say the proof is in the pudding the late 1980s were a.
He was expressing a growing frustration among reputable conservative. The notorious laffer curve explained the washington post. The curve was allegedly sketched on a napkin in a restaurant by rightwing economist arthur laffer to illustrate taxable income elasticity and to thereby rationalize the socalled trickledown effect also known as voodoo economics and flat taxes, in particular. Voodoo economics definition of voodoo economics by the. It underpins supplyside economics, reaganomics, and the tea party s economic policies. The laffer curve is a theoretical relationship between tax rates and tax revenues. Laffers theory became an article of faith among certain economists, politicians and, of course, business leaders and wealthy individuals. Dec 03, 2014 critics like to deride the laffer curve as voodoo economics by pointing to counterexamples, say of tax rate reductions that didnt increase total revenue, or by pointing to tax rate hikes that brought in more revenue. Lawmakers seeking to reduce or eliminate income and estate taxes frequently claim that doing so will result in an economic boom. Laffer and his supporters say the proof is in the pudding the late 1980s were a time of great prosperity. In economics, the laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the governments tax revenue. The laffer curve and supplyside economics inspired reaganomics and the kemproth tax cut of 1981.
Apr 14, 2020 derision, too, as the architect of what bush 41 had called voodoo economics. Shortrun impact of the 2017 tax cuts and jobs act tcja. In its most general form, the laffer curve depicts the relationship between tax rates and the revenue the government receivesthat is, a single tax rate exists that maximizes the amount of revenue the government obtains from taxation. Art laffers inside track to trumps economic recovery. The laffer curve is a theory developed by supplyside economist arthur laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. It was thought that at that time in us history, the tax rates and current budget fell within the window of what laffer predicted. Reagan voodoo economics at the heart of scott morrisons. A young professor named arthur laffer sketched a curve on a bar napkin in 1974 to show an aide to president gerald r. The story of how the laffer curve got its name begins with a 1978 article by jude wanniski in the public interest entitled, taxes, revenues, and the.
It is named after the economist arthur laffer, although he does not claim to have invented it and he learned it from ibn khaldun and john maynard keynes. Bush dubbed reagans supplyside ideology voodoo economics. On it, the economist arthur laffer in 1974 sketched a curve meant to illustrate his theory that. On it, the economist arthur laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue. The effect on the budget deficit was also striking. If you raise taxes too much, people will stop working and you will get less revenue. Its time we broke the spell of voodoo economics the.
The tax rates depicted on a laffer curve range from 0% to 100%. Tax revenue increased 75 percent according to official sources. The laffer curve is officially the tax rate yield curve. The laffer test somewhat wonkish the new york times. The laffer curve shows the relationship between tax revenue collected by the government and tax rates paid by citizens. Art laffers inside track to trumps economic recovery team. May 20, 2012 the laffer curve does not say that all taxes are equal. Art laffer and the intellectual rot of the republican party the godfather of supplyside economics and inventor of the laffer curve is largely discredited by his peers, but revered by trump and. Moreover, the laffer curve also shows that tax increases can impose very high economic costs even if they do raise revenue, so the value of using such analysis is not driven by whether revenues go.
Arthur laffers new economics book for children author. Laffer is best known for the laffer curve, an illustration of the concept that there exists some tax rate between 0% and. The structure of the laffer curve the laffer curve was first made public in various newspapers and in jude wanniskis book the way the world works in 1978. The laffer curve is a theory developed by supplyside economist arthur. Debunking the debunking of dynamic scoring and the laffer curve. Jun 27, 2012 laffer was an associate of the reagan administration, which had a staged cut in the marginal higher rate of personal income tax from 70% to 28%. I know arthur laffer wasnt really an economist, that trickle down economics is really voodoo economics, and that the laffer curve wasnt original to arthur laffer. He is a frequent guest on fox news, former reagan economic adviser. Jan 10, 2019 the laffer curve was conceptualized for modern economies by arthur laffer during a meeting in which he argued against president gerald fords tax increase. The laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, and that there is a tax rate between 0% and 100% that maximizes government tax revenue. The original laffer curve illustrated that two tax. Washington it is one of the iconic moments in modern economics. Apr 25, 2017 on it, the economist arthur laffer in 1974 sketched a curve meant to illustrate his theory that cutting taxes would spur enough economic growth to generate new tax revenue. The laffer curve, which is sometimes called the lafferkhaldun curve, is a theoretical relationship between the money a government raises through taxation and all possible rates of taxation.
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