I have mixed feelings about the Laffer Curve.
What it really says is that to maximize tax revenue, marginal tax rates can’t be too high, but they also can’t be too low. It doesn’t directly address the issue of flat taxes being better than progressive taxes. It just says that the attempt to punish success kills that success and you won’t get more than x% overall tax revenue no matter what.
I think it is far more important for people to understand the differences between business owners and high earners, on the one hand, and workers on the other. The former groups have power over prices and their own incomes, such that attempts to hit them with high taxes backfire.
Those taxes can be successfully shifted onto the consumer/worker, who only has the power to not buy and not work. When the consumer attempts to refuse this shift, the result is a business failing and jobs disappearing. This is not an evil scheme by the business owners and high earners; it is a natural law. For a business to pay a tax, it must first get the money from the consumer/worker. Hence “progressive” tax schemes are doomed to failure because they amount to nothing more than wishful thinking.
What if I told you that the entire income tax system, with its rates that run as high as 35% corporate and 39.6% individual, could be replaced with a single flat tax on individual incomes ... and that the rate would only need to be 10% ? What would happen to the economy if American corporations didn’t pay any income tax at all, and there was no misguided attempt to punish success with progressively higher tax rates ? What would happen when income from investments, dividends, and wages were all treated equally and the rate was only 10% ? America would become so attractive to businesses that our unemployment rate would evaporate overnight.
Very good points, well said.
Here’s something else to consider: liberals cause harm to business not only through punitive taxation, but also through regulation.
The combined effects of the EPA, the EEOC, and OSHA excesses are every bit as destructive to jobs and the economy as are high tax rates.
You would get a lot of leverage out of cutting the budgets of these agencies to as close to zero as is politically possible. The amount of Federal spending you would thereby cut would not be huge (relative to trillion dollar deficits), but the beneficial effect on the economy would be enormous. Lots of leverage there.
That would be fine with me.
I point out the Laffer curve because it demonstrates that there is such a thing as an optimum rate which creates optimum revenue. Too high punishes success and stifles initiative. The Obama Regime definitely comes down on that side of the curve due to its insistence on “fairness” and “social justice,” effects on the overall economy be damned.
I am sure that I have heard Art Laffer himself express support for a flat tax. The most important thing is to create a tax policy that doesn’t hold back initiative.