Dan Mitchell once again using the Laffer Curve to educate others.
Brian Domitrovic offers a concise history of tariffs at Forbes.com:
A tariff “for revenue” was one where a rate was set low enough for the good in question to flow into the country in sufficient quantity to bring in increasing receipts to the government. A “prohibitive” tariff was one that was so high, receipts would go up if a rate were lowered. The “Laffer curve” concept was the most discussed theorem in political-economic debates in the United States in the 19th century.
Today’s Larry Kudlow radio program:
This is what we fight on a daily basis. Feel free to leave a comment if you are on Instagram:
Dan Mitchell does what Dan Mitchell does with the Laffer Curve: He learns from it, applies lessons elsewhere, and makes us all smarter.
As far as I’m concerned, no sentient human being could look at what happened in the United States in the 1980s and not agree that high tax rates on upper-income taxpayers are foolish and self-destructive.
Not only did the economy grow faster after Reagan lowered rates, but the IRS even collected more revenue (a lot more revenue) because rich people earned and reported so much additional income.
That should be a win-win for all sides, though there are some leftists who hate the rich more than they like additional revenue.
Anyhow, I raise this example because there are politicians today who think it’s a good idea to go back to the punitive tax policy that existed in the 1970s.
Dan Mitchell loves the Laffer Curve, and we love learning when and where he see the Laffer Curve doing its thing.
Journalists are especially susceptible to silly statements when writing about the real-world impact of tax policy.
They don’t realize (or prefer not to acknowledge) that changes in tax rates alter incentives to engage in productive behavior, and this leads to changes in taxable income. Which leads to changes in tax revenue, a relationship known as the Laffer Curve.
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But don’t hold your breath. We have an overseas example of the Laffer Curve, and one of the main lessons is that politicians are willing to sacrifice just about everything in the pursuit of power.
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P.S. I’m not quite as pessimistic about the future of tax policy in the United States. The success of the Reagan tax cuts is a very powerful example and American voters still have a bit of a libertarian streak. I’m not expecting big tax cuts, to be sure, but at least we’re fighting in the United States over how to cut taxes rather than how to raise them.
Larry Kudlow joined the Big John and Ray Show out of Chicago. They mostly talked about health insurance issues, important to hear from a supply-sider on this.