The Laffer Curve

This video at Prager University explains the Laffer Curve, which in turn explains why raising tax rates doesn’t always raise revenue. It’s a very handy thing to know when you’re arguing with dumb people about why taxes are bad. They may not pick up on it without a visual aid, so be sure to bring your own white board.

I personally love the Laffer Curve; it’s definitely one of my top three favorite graphs, right up there with the chart of Red Hat Linux stock during the three days I owned it in August of 1998 (Internet bubble cash money, y’all! I blew it all on guitars!), and this pie chart:

However, Jacqueline Otto has a few things against the Laffer Curve:

This “Laffer Curve” has become a staple of conservative economics, because, hey, Reagan’s economics guy came up with it. Well, I have a confession. While it may be theoretically and mathematically accurate, I don’t like it. Meant with no animosity or disrespect to Mr. Laffer, I honestly don’t like what it has done to the conversation about taxation. 

The Laffer Curve and subsequent renditions have ceded the verbiage of the tax debate to the Keynesians. It frames the conversation in terms of maximizing revenue for the government as if that was taken for granted as the main goal of tax policy. 

But we are conservatives and libertarians! We read people like F.A. Hayek and Frédéric Bastiat, and we believe that the language of the debate should be in terms of plunder. Not revenue. 

Conservatives and libertarians agree that there is a minimal level of government operations required for a properly ordered society, though we may disagree on what that level is. We believe that any action of the government over and above their proper operations is a measure of tyranny. And any penny of taxation taken from citizens above the minimum level of revenue required for the government to conduct its proper operations is theft.

That is a very good point; however, the fact that the Laffer Curve doesn’t make the whole argument against taxation doesn’t make it a bad argument.

We must have a response for people who argue that higher taxation is the magic bullet answer to fiscal problems. These people aren’t going to respond to a moral argument, because they already obviously have no moral qualms about pushing for more taxes. Worse than that, they probably believe on some level that government has a moral claim on the earnings of citizens, and if pressed would probably give you some variation of the “you didn’t build that” argument.

The Laffer Curve provides a cold, hard data point that raising taxes past a certain point hurts the government. Let’s establish that, get a toe hold in the argument, and then get to what level of taxation is ethical.

Leave a Reply