Bonddad over at My Left Wing tears the NRO and its use of the Laffer curve a new one.
"Proof" that reductions in taxes increase revenues is based primarily on the same kind of Intelligence data as used by the Bush administration to promote the Iraq War. The graphic of the Laffer Curve Bonddad is discussing is found at Investopedia.com. The primary arguments are here: First, there is no way to derive this curve from any existing data set. Compare this to other bedrocks of economic thinking "supply and demand, marginal cost equals marginal revenue" which can be derived from data readily available to analysis. If you can't get a curve from existing data, maybe it doesn't exist. Secondly, Republicans always assume that current tax rates are to the right of the curve's apex. Therefore, the only direction for tax rates is down. It never occurs to anybody that rates are to the left and therefore a tax cut will decrease government revenues. My first point makes the second point that much more dangerous. There is no way someone who disagrees with the curve to empirically prove that a tax cut will decrease revenue [Since it cannot be derived from real data]. In addition, because there is no way to empirically discount the tax cut argument, the tax increase argument is easily attacked, discounted and placed at an extreme political disadvantage.
Third, [The idea that] tax cuts pay for themselves is a great sales pitch, easily sold via 30-second sound bites.
In short, the laffer curve is a brilliant self-reinforcing delusion. Because it can't be proven with existing evidence, those who disagree with the curve's conclusions are placed at a political disadvantage. And those who push the policies backed-up by this curve have an easy sales pitch.
[Emphasis is mine.]
Bonddad goes further. Go read it. Only the economically and statistically illiterate can disagree with him. |
You're right. 30 years ago it maybe was easier to see when the top tax brackets were over 70%, but now that the top bracket is 35%, there is almost no way to draw the peak to the left of the effective tax rate. It is a meaningless curve in the modern era. I tried to throw some data at it, but you're right, it is impossible to construct; especially in an expanding ecomonmy (which washes out everything else).
http://datatovirtue.blogspot.com/