Tax Chats Professor Arthur Laffer on His Curve
Jun 1, 2022
Arthur Laffer, a renowned economist and creator of the Laffer Curve, dives into the relationship between tax rates and revenue. He shares the iconic story of sketching the curve on a napkin, illustrating its profound impact on tax policy. The discussion covers the unintended consequences of high tax rates on work incentives and argues for lower taxes to boost economic activity. Laffer also tackles the complexities of unrealized income taxation and its implications for wealth disparity, advocating for a simplified tax system to promote fairness and growth.
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The Laffer Curve
- Tax changes have two effects on revenue: arithmetic and economic.
- Raising rates increases per-dollar revenue but incentivizes avoidance, creating a curve.
Napkin Curve
- The Laffer Curve's popularization wasn't a singular event but a repeated illustration.
- Laffer used the curve in discussions and classes, drawing it on napkins long before its fame.
Micro vs. Macro
- Economists often overlook microeconomic principles in macroeconomics, like how taxes affect behavior.
- They forget that reported income is not always the same as actual income, due to tax shelters and other avoidance methods.
