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One of the problems with the Laffer curve is that no one has been able to draw one using actual data.

You notice that when an example is shown there are never any labels on the axes. Even if it were a real sociological effect, how would you demonstrate it?

At any given period of time there are so many forces at work how can a single action be shown to be the cause of some economic activity.

What we do know is that the change in growth rates and tax rates don't follow any clear cut correlation. We also know that the growth in government expenditures has been covered by borrowing for much of the recent past. Historically this is always a prelude to inflation.

The Laffer curve is just another of a continuing justifications as to why the rich need to keep getting richer.


Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Jan 6th, 2006 at 05:26:16 PM EST
Yes, and the fact that the cons simply assert that the current tax rate (whatever it may by at any given time) is firmly to the right of the peak is an astonishing leap of faith, to say the least.

But of course, faith doesn't require rigor.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Sat Jan 7th, 2006 at 08:36:59 AM EST
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yes, both rdf's and your opinion are correct IMO.  I have not seen any studies that attempt to use real world data to prove the existence of the curve, or to plot the curve holding other factors concept.  It's just a somewhat intuitively appealling concept, particularly at the extremes--ie 90% marginal tax rates and 10% marginal tax rates.  But intuition just doeszn't cut it in the middle part of the curve, where most of the real world is.
by wchurchill on Sat Jan 7th, 2006 at 10:17:05 AM EST
[ Parent ]
I've certainly never heard of a case where someone was able to derive a Laffer Curve.  Often, the Supply-Siders will point to Jack Kennedy's 1963 tax cuts as evidence of the Laffer Curve's existence.  And it is, I think, a fair example, but it's important to remember that marginal rates were 90% prior to Kennedy's cuts.  That's an incredibly high rate.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sat Jan 7th, 2006 at 11:08:21 AM EST
[ Parent ]

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