I write about the Laffer Curve so often that I’m surprised people don’t run away screaming. But I’ll continue to be a pest because I want people to understand that you can’t just look at changes in tax rates when predicting changes in tax revenue. You also have to consider changes in taxable income.
Simply stated, my goal is for people to recognize that higher tax rates lower incentives to earn and report income and lower tax rates increase incentives to earn and report income. However, I also want people to understand that this doesn’t mean “all tax cuts pay for themselves.” That only happens in very rare cases. Moreover, it would be good if people recognized that there are lots of factors that influence the economy’s performance, and it’s therefore important to be cautious when making claims about the relationships between tax rates, taxable income, and tax revenue.
So we many not be able to precisely measure the impact of the Laffer Curve, we know it’s there and we know it can be very significant. We also know that economic incentives are not constrained by national borders. The Laffer Curve exists even in nations where politicians generally are not sympathetic to good tax policy. France naturally comes to mind, and here are some excerpts from a new report from Pierre Garello. He examines recent changes in tax rates and the tax base, and finds that better tax policy is having a positive impact.
In 2006 a major change was implemented in France regarding the income tax. Not only the top marginal rate was lowered (from 48.09% to 40.00%), but the same treatment was applied to the other rates. Also, the number of brackets was reduced from 7 to 5. As a result, whatever the level of taxable income, the rate applied was lower after the changes took place than before. …the tax base was also enlarged. In particular, while 20% of gross income from salaries was until then automatically deduced to compute the level taxable income, this was no longer the case with income earned in 2006 and after. …Based on data from the French Public Finances General Directorate (DGFiP) we can see that the impact was a minor drop in tax revenues from the 2006 personal income followed by a slightly higher increase in PIT revenues from 2007 earnings. As illustrated by the graph below, the successive cuts in marginal tax rates between 1995 and 2007 have resulted in higher tax revenues.
[…] cited interesting case studies from Canada, Denmark, Hungary, Ireland, Italy, Portugal, Russia, France, and the United […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] have cited interesting results from Canada, Denmark, Hungary, Ireland, Italy, Portugal, Russia, France, and the United […]
[…] the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] shared evidence from around the world (England, Italy, the United States, and France) and from various states (Illinois, Oregon, Florida,Maryland, and New York) to argue that it is […]
[…] on the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, […]
[…] on the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, […]
[…] shared evidence from around the world (England, Italy, the United States, and France) and from various states (Illinois, Oregon, Florida,Maryland, and New York) to argue that it is […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] in Portugal? For the same reasons that higher taxes have failed in Greece, Spain, Bulgaria, France, Italy, the United Kingdom, and so many other […]
[…] that the same pattern keeps appearing in nation after nation, whether we’re looking at Italy, France, or Spain. Or states such as Illinois, Oregon, Florida, Maryland, and New […]
[…] 4, 2012 I’ve shared evidence from around the world (England, Italy, the United States, and France) and from various states (Illinois, Oregon, Florida,Maryland, and New York) to argue that it is […]
[…] shared evidence from around the world (England, Italy, the United States, and France) and from various states (Illinois, Oregon, Florida,Maryland, and New York) to argue that it is […]
[…] Instapundit readers. Y’all may also want to read (here and here) about the Laffer Curve disrupting the plans of French politicians. Heck, even Snooki has teamed up […]
[…] year ago, we wrote about how a French supervision was removing astonishing additional revenues following a doing of reduce taxation […]
[…] year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
[…] One year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
[…] year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
[…] year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
[…] year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
[…] year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax […]
A correct understanding of poverty will elucidate a correct understanding of economics as well as a correct understanding of our current economic situation with or without a Laffer Curve.
While I am not an Austrian proponent I have made the subjective basis of economics the
foundation of the economic theory laid out in the ebook referenced below. But I come
to very different conclusions regarding monetary policy, credit operations, taxation, and the
definition of individuals and enterprises in any economic system. I also compare communist
economic systems to our current western credit economic system.
I would really appreciate your review of the economic principles proposed in the following ebook
http://www.smashwords.com/profile/view/povertyandthefoundationofeconomics
and your comments on any errors that you find. If you do not have the time to do
this, I would appreciate your assigning the task to your students as an exercise.
As long as we continue to use the western credit system as the primary driver of
economic production the wealthy will continue to control the means of economic
production and poverty will be a guaranteed result. The link above describes an
alternative economic system that will eliminate poverty and maximize economic
production.
Thank you for your time and attention in this matter.
[…] the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states (Illinois, Oregon, Florida, Maryland, and New York) to make the case that it […]
[…] the past few years, I’ve shown lots of evidence from around the world (England, Spain, and France) and in various states (Illinois, Oregon, Florida, Maryland, and New York) to make the case that it […]
[…] I obviously have little regard for the French politicians who are imposing this tax hike. You might think they would know better, particularly after they benefited from a Laffer Curve effect after lowering tax rates a few years ago. […]
Most tax cuts pay for themselves, though only in the mid to long run, though the fact that growth rate has the nasty tendency (nasty to collectivists that is) to relentlessly compound. That is why the US government reached the point of raising a lot more per capita revenue taxing its citizens at 28% than the Soviet Union was raising taxing its citizens at 95%. And that is the reason why America will raise more per capita tax revenue than France – assuming, of course, that the Useful Idiocy of prosperity through redistribution and central planning does not take hold in the US.
The Laffer Curve always gets discussed in the wrong context. There’s a short term Laffer curve (1-3 years timeframe) and a longer term Laffer Curve (5-20 years). Hint: The peak in the longer term curve occurs much earlier than the peak in the shorter term curve. It’s unlikely that people will make major life decisions in the next few months based on fickle tax policy.
It takes time for individuals to permanently restructure their lives around central planning and redistribution incentives, like not going to college and settling for becoming a bank teller because in any case ObamaCare uses Robin Hood economics to guarantee the same level of health services to all. Unfortunately, the Laffer Curve of such redistributive effects operates on a 10-20-30 year timeframe.
When Americans finally realize that copying the rest of the world in collective dirigisme was not, after all, the path to prosperity, it will be too late. It is a rare occasion for a country to travel the Laffer Curve backwards. Either decline into insignificance and economic marginalization, or collapse and regeneration are the typical scenarios. In that respect, the US has a long way to go down the road to serfdom – a gradual 2-3 generation decline to average worldwide prosperity levels (still though, well before the terrible calamity of worldwide temperatures rising another 1C because we did not fully embrace the dirigistic dream of building enough high speed rails and solar shingles materializes).
[…] International Liberty « Php and dynamic inputs Official Nettuts+ Discussion Thread » […]
[…] This post was mentioned on Twitter by Samir N. Kapadia, Joshua Davis and © Tobias Fuentes, Dan Mitchell. Dan Mitchell said: The Laffer Curve Works…even in France http://tinyurl.com/4tubq84 […]