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It is a tautology, so I'm not sure why people get annoyed about it. If you look at the curve, it just says the government will get 0 revenue at either 0% or 10
by shiroiushi 2y ago
It is a tautology, so I'm not sure why people get annoyed about it. If you look at the curve, it just says the government will get 0 revenue at either 0% or 100% taxes, and the maximum is somewhere in the middle. It doesn't say where, or make any judgments about current tax rates.
Obviously it shouldn't be used for any kind of serious discussion about tax rates, other than pointing out the baseline obviousness that taxing too high is counterproductive.
- mike_hearn 2y agoIt's not obvious to quite a lot of people. The fact that government revenues can go down when taxes go up, or go up when taxes go down, is regularly treated as a shocking revelation in forums like the Guardian. As the article states, macroeconomic modelling has for a long time basically assumed that people won't react rationally in the face of government policy changes, sometimes because they implicitly assume global government (i.e. the models don't handle the possibility of people leaving).
- shiroiushi 2y agoThe possibility of people leaving really has little to do with the Laffer curve. It's just the simple observation that if taxes are extremely high, people will change their behavior: for instance, if you have a choice between staying in your stable job with mediocre pay and middle-of-the-road tax rates, or taking a big risk to start a new business, but be subject to such high tax rates if you succeed that you'll make no more money after taxes, very few people would even bother starting that new business.