Laughing at the Laffer Curve

Via the IGM Forum:

Question B: A cut in federal income tax rates in the US right now would raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut.

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Marianne Bertrand, Darrel Duffie, and Claudia Goldin are the disappointing “uncertain” votes out of the many responses to this question. They should listen to Ed Lazear:

This is the Laffer curve issue. There is little (if any) evidence that rates exceed revenue-maximizing levels. See Mankiw, Feldstein.

Or David Autor:

Not aware of any evidence in recent history where tax cuts actually raise revenue. Sorry, Laffer.

Or Michael Greenstone:

All evidence that I’m aware of suggest that cutting tax rates “marginally” from their current levels would DECREASE revenues, even 5 yrs out

Or Kenneth Judd:

That did not happen in the past. No reason to think it would happen now.

Or Anil Kashyup:

May look plausible on a cocktail napkin (or at a cocktail party), but not true empirically in the US.

Or Pete Klenow:

Not enough time for capital to respond much (physical, human, technology), so it would require implausibly large labor supply elasticities.

Or Robert Hall

See previous question. In addition, few studies suggest we are already at the max of the Laffer curve, though we may be close.

Or Austan Goolsbee:

Moon landing was real. Evolution exists. Tax cuts lose revenue. The reasearch has shown this a thousand times. Enough already.

There are many people who have an interest in making you believe otherwise, but tax cuts are inconsistent with deficit reduction  — they make the deficit problem worse.

 

This post originally appeared at Economist’s View and is posted with permission.

2 Responses to "Laughing at the Laffer Curve"

  1. Valli Genevieve   June 28, 2012 at 5:19 pm

    Can we repeat this loudly, constantly until finally the American people can hear it? Cutting taxes, cuts revenue, makes the deficit higher and makes our lives much, much worse.

  2. NLC   July 5, 2012 at 3:25 pm

    I appreciate your point. However, I would urge caution (and a bit of humility) on ANY matter that economists nearly universally agree on. Economic consensus has also been shown to be extremely unreliable at multiple times in the past.