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It is not unconditionally true. Your characterization of the Laffer curve is an unfortunate misunderstanding which was widely propagated by Reagan’s political

by pcstl 8y ago

It is not unconditionally true. Your characterization of the Laffer curve is an unfortunate misunderstanding which was widely propagated by Reagan’s political opponents. (Which was not helped by the fact that the Reagan administration, either due to incompetence or malice, propagated incorrect interpretations itself) What the Laffer Curve expresses is that there is a certain amount of taxation where, if taxation is further increased, the actual government revenue will decrease rather than increase, due to growth in tax avoidance and evasion. It does not mean that lowering taxes will necessarily increase government revenue (which is obviously false). It means that, past a certain point, increasing taxation is futile. However, determining where the point beyond which increases in taxation lead to diminishing returns lies is hard and there is no reliable way to do it.

CPLX 8y ago
That's correct. Which means you're saying the same thing as me, which is that the Laffer curve is incorrect, because it actually is. It's hard to misunderstand a graph relating two numbers. The curve posits a relationship between two variables. But there's data on this, and the curve doesn't hold, we've never seen the backside of the curve where lowering rates has increased revenue. And God knows people have tried, there are many who would love to find empirical evidence of this. They haven't. Agreeing that "past a certain point, increasing taxation is futile" doesn't validate that curve. That point could well be a 99.2% marginal rate for all we know. We haven't seen it.
- pcstl 8y ago
  I mean, you have essentially stated that the Laffer curve is correct.
  - CPLX 8y ago
    The Laffer curve isn't defined by the phrase "past a certain point, increasing taxation is futile" It's defined by an actual curve. That's why it's called the Laffer curve. It could be a linear relationship with a ceiling. In which case it would not be the Laffer curve, it would be a straight line meeting another straight line. Which is different. Regardless, the defining characteristic of the alleged curve is that it slopes backwards on itself, therefore lowering taxes will increase revenue. That phenomenon has not been observed in the wild.
    - pcstl 8y ago
      That it has not been observed in the wild (which is arguable) does not mean that it is not real. It is quite obvious that a tax rate of 0% would lead to no revenue. It is also obvious that a tax rate of 100% would not lead to the full expected revenue, as people would need to evade taxes in order to be able to survive. If we assume that tax revenue is a continuous function of tax rate, there must be an inflection point. The Laffer curve is indeed a curve, but which curve it is is not specified by the theory. The theory simply follows from the argument I have outlied above. It is not a specific curve, it simply states that, if we take tax revenue to be a near-continuous function of tax rate, it must not be a monotonic function, but instead have an inflection point.

by pcstl 8y ago

CPLX 8y ago

That's correct. Which means you're saying the same thing as me, which is that the Laffer curve is incorrect, because it actually is. It's hard to misunderstand a graph relating two numbers. The curve posits a relationship between two variables. But there's data on this, and the curve doesn't hold, we've never seen the backside of the curve where lowering rates has increased revenue. And God knows people have tried, there are many who would love to find empirical evidence of this. They haven't. Agreeing that "past a certain point, increasing taxation is futile" doesn't validate that curve. That point could well be a 99.2% marginal rate for all we know. We haven't seen it.

pcstl 8y ago
I mean, you have essentially stated that the Laffer curve is correct.
- CPLX 8y ago
  The Laffer curve isn't defined by the phrase "past a certain point, increasing taxation is futile" It's defined by an actual curve. That's why it's called the Laffer curve. It could be a linear relationship with a ceiling. In which case it would not be the Laffer curve, it would be a straight line meeting another straight line. Which is different. Regardless, the defining characteristic of the alleged curve is that it slopes backwards on itself, therefore lowering taxes will increase revenue. That phenomenon has not been observed in the wild.
  - pcstl 8y ago
    That it has not been observed in the wild (which is arguable) does not mean that it is not real. It is quite obvious that a tax rate of 0% would lead to no revenue. It is also obvious that a tax rate of 100% would not lead to the full expected revenue, as people would need to evade taxes in order to be able to survive. If we assume that tax revenue is a continuous function of tax rate, there must be an inflection point. The Laffer curve is indeed a curve, but which curve it is is not specified by the theory. The theory simply follows from the argument I have outlied above. It is not a specific curve, it simply states that, if we take tax revenue to be a near-continuous function of tax rate, it must not be a monotonic function, but instead have an inflection point.