What is the Laffer curve? If you read last week's column, it's an unjustifiable justification of supply-side economics. If you’re an economist, it’s nothing more than a graph imagining a hypothetical revenue-maximizing tax rate. The distinction, although seemingly obvious, is a fine one. Yes, the Laffer curve is often used to justify “trickle-down” economic policies, and yes, Arthur Laffer popularized the idea as a defense of Reagan-era tax cuts.
If we judge the Laffer curve by its political usage, last week’s column stands corrected. But the Laffer curve itself, and the theory behind it, both rely on a decidedly unpolitical idea: that there’s a tax rate between 0 and 100 percent where government revenue is maximized. Most sources, including the Congressional Budget Office, place this number in the high sixties to low seventies. When politicians, such as Scott Walker or Donald Trump, claim that lowering taxes will raise government income, they are lying. Plain and simple. Of course, there is an argument to be made that the GDP growth resulting from increased private sector spending during a tax cut is more beneficial than a larger government budget, but the idea that the Laffer curve itself is right-wing science fiction is nothing more than laughing fodder. Instead of giving the guise of economics (see: Voodoo economics) to a misleading and malicious talking point, let’s explain what the Laffer curve really implies. Let’s not allow economic fact to be tainted by political opinion.
This letter to the editor has been lightly edited for style and clarity.
Phillip Ableidinger studies economics at the University of Minnesota.