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The disagreement is not whether Laffer curves exist, in a basic sense - nobody disagrees that there is some kind of revenue curve (and it changes over time in r
by snrplfth 10y ago
The disagreement is not whether Laffer curves exist, in a basic sense - nobody disagrees that there is some kind of revenue curve (and it changes over time in response to various factors.) However: the Laffer curve does not necessarily say what the optimal tax rate is, though - just what the revenue maximizing rates are. And these are not the same thing - do not conflate the two! The reason Laffer curves were considered significant was because some economists said that some marginal tax rates were on the right-hand side of the peak - that is, by lowering these high marginal tax rates, the incentive to avoid tax and minimize earnings would be reduced, and therefore the government would collect just as much or slightly more revenue total. What the optimal tax rate is, depends on a lot of other things - like the other economic factors I just mentioned, as well as what outcomes you want to encourage with a particular tax policy. The Laffer curve is just a particular technical description of the situation (and sometimes carelessly associated with Arthur Laffer's personal opinion of where on this curve current policy is located.)
Here's a reasonably representative survey of US economists about the laffer curve: http://www.igmchicago.org/surveys/laffer-curve http://www.igmchicago.org/surveys/laffer-curve
Note what's happening here: most economists either think that a cut in federal income tax rates would lead to higher GDP, or are uncertain/think there's no effect. However, almost all also think that such tax cuts would not increase revenue - so any argument for tax cuts, according to these economists, is not based on the Laffer curve. Indeed, because of where these economists think US income tax rates are on the Laffer curve, they would have to agree, to be consistent, that increasing tax rates would increase revenue, on the margin. Therefore, the "Laffer curve consensus" among US economists is in fact the opposite of what your impression is.
> But the questions aren't going unanswered. Politicians ask and economists do answer questions about tax rates, unemployment rates, interest rates, wage growth...
In climatology, at least the basic principles have been tested in laboratories; higher concentration of CO2 in air -> less reflected sunlight -> higher temperature. The Laffer curve theory was never tested in a laboratory, yet it was for decades trotted out as the truth by economists.
Politicians get certain answers to these questions from different economists, but they're definitely live issues in the field itself. Don't confuse the theory that Laffer curves exist - which is not controversial - with the argument that a particular tax regime is on a particular point of the curve - which is more uncertain. Just because you get an answer does not mean the question is definitively concluded.
And you can test the Laffer curve in a lab - but only with small numbers of people in a limited economic context. When you scale it up to a large number of people in a complex economy, the picture is much less clear and more complicated. (Likewise with climatology.) That's why it's hard!
Also, consider the following paper, written around the same time that people first started calling it the Laffer Curve (though the basic idea had been understood well before.): https://object.cato.org/sites/cato.org/files/serials/files/cato-journal/1981/5/cj1n1-3.pdf https://object.cato.org/sites/cato.org/files/serials/files/c...
It's by David Henderson for Cato, who's quite in favour of cutting taxes. But rather than jump on the argument as a useful "justification" for doing so, he points out the numerous limitations of the model, and the possibility of unusual Laffer Curve shapes that would mean tax cuts would not "pay for themselves." Again - don't confuse the non-controversiality of the existence of a Laffer curve, with the actual controversy over where, on what kind of a curve shape, current policy is located. (And whether maximizing tax revenue is even the correct policy.)
You're acting as though "economists" are all of a mind on this issue - they aren't. They generally agree on some fundamental analytical tools, but come to a range of answers based on how they use them and what information they have.