Tax Lawyer's Blog

Chris Good of The Atlantic has written an interesting column titled The Laffer Curve: The Most Powerful and Ambiguous Idea in Tax Politics:

A couple years ago I was interviewing Grover Norquist, head of Americans for Tax Reform, about economic policies and the 2008 election, and, as he told me repeatedly that lower taxes would yield higher revenue for the government, midway through the interview I stopped to ask a basic question: “If lower taxes mean more revenue, at what point does that stop being the case?”

In some ways, the Laffer Curve drives the most potentially powerful argument in tax politics: if lowering taxes really would increase revenue, then we can have our cake and eat it while riding unicorns through an exquisite rainbow, making necklaces out of gold dubloons and high-fiving Lincoln.

I have a question for Mr. Good: If higher taxes mean more revenue for the government, at what point does that stop being the case?

Hypothetically, if you believe the pro-tax crowd, a 99% tax rate would generate more money for the government than would a 50% rate.

The Laffer curve shows the obvious absurdity of this argument. If the tax rate were 99%, nobody would bother to work and there would be no income to be taxed.

Half of something is better than all of nothing.

So, the Laffer curve does not argue that lower taxes always mean more government revenue. It merely shows that there is a point of taxation which if exceeded will result in lower revenues for the government by lowering the incentives for income generation and wealth accumulation.

I agree with Mr. Good to the extent he is suggesting that the tax debate is not about whether or not we should have taxes, but rather, about what the optimum rate of those taxes should be.

And that truly is the debate that will never end.

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