>> There's is this common misconception among the GOP that tax cuts are always good.
The Laffer curve doesn't lead to such a misconception; you're talking about something different.
Clearly, there is a rate below which revenue will decline. Neither Laffer, nor anyone else, has defined what that rate is. It is NOT, as bentway has ignorantly suggested, "50%".
The Laffer curve was presented to a group of four politicians as parabolic in shape to simplify it. In reality, it is a higher-order function that has many inflections. The biggest single example is the capital gains rate -- different from the ordinary income rate -- which can cause huge surges in revenue (as it did in '03 and basically every time capgain rates have been cut). It is also affected by the total unrealized capital gains which will determine ultimately how much revenue can be raised. Other factors include such major items as corporate rates, AMT consequences, investment credits and accelerated depreciation, IRC Section 179, EITC, and tons of other provisions. The Laffer Curve is conceptual, and holds water, but far more complex in its implementation. There have been a couple of academics who have attempted to fit parameters to the curve but they are, at best, classified as "attempts". But we know the concept holds.
The Laffer Curve "effect" did hold during the Bush years, however, as I've pointed out. |
