Oh Aye?

And he has never ever said the opposite of this has he?

I could go on.

Never a truer word…

Why do these comments indicate the Laffer curve is true? The Laffer curve has no figures on its horizontal axis except two zeros and none on its vertical, except zero. Would you like to fill in the missing figures Timmy?

The ‘Laffer’ curve (he’s never claimed to have invented the concept) has been known for centuries – 14th-century scholar Ibn Khaldun being one of the earliest recorded discussions of the concept. Doubling a tax rate doesn’t necessarily double the tax take. Halving it doesn’t necessarily halve the tax take. That’s all it says and it’s so bleeding obvious only a moron would say the concept has been ‘discredited’. Richard Murphy says that the concept has been discredited.

The argument is really about where on that curve is the most tax raised.

Although the real argument is about whether a government should try to raise the most amount of tax that it can or whether it should raise the least amount it needs to.

@ “Me”
It is not whether the Laffer curve itself is “true” but whether it exists.
It is difficult to claim with a straight face that it does not exist since the tax take at 0% is zero and the tax take has been and continues to be non-zero at various other rates. It is postulated, with plausible reasoning, that the tax take at 100% will be zero but that is not a necessary requirement for there to be a curve.
Laffer claims that there will be a maximum value on the curve that represents tax receipts at some point between 0% and 100% tax rates. This MUST be true if receipts are zero at 0% and non-zero at some otther rate. So your question indicates that you are ignoring elementary logic.
The only thing that *can* be debated is where the maximum (or maxima) lies/lie.
Historical data suggests that it is below 83% since Geoffrey Howe actually increased receipts from Higher Rate tax by reducing that tax rate from 83% to 60%. That, incidentally, is overwhelming evidence for the existence of the Laffer Curve.

The ‘Laffer’ curve (he’s never claimed to have invented the concept) has been known for centuries – 14th-century scholar Ibn Khaldun being one of the earliest recorded discussions of the concept. Doubling a tax rate doesn’t necessarily double the tax take. Halving it doesn’t necessarily halve the tax take.

I’ll see if I can remember this story correctly, I’m sure those more learned than me will correct me if I don’t 🙂

In AD360 the young Caesar Julian was camped in Paris for winter and needed money to pay the wages of his troops. The city director of Paris (I forget the title) was corrupt and refused to help Julian.

Julian realised that not only were taxes very high but that he was taxing the poorest and middle class to the hilt but the rich elite were hardly being taxed, because of corruption. Taxes were also being evaded.

He took over the city, reduced taxes, made sure the rich paid and as a consequence the tax take rose and he could pay his troops. His grateful troops then elevated him to Emperor, which by that time was how it happened, whether they wanted to be emperor or not.

@Theo Now define the State’s “Essential Functions”….

Opinions vary wildly about this…. Even here…

Reading this discussion, it reinforces my opinion that economics is the science of the bleeding obvious. Laffer gets to discover the Laffer Curve & his name gets put to it because economists are basically ignorant.
Actually, it’s been known about since the first ruler tried to tax the ruled. Your zero start point. There will be a level of taxation where the ruled rebel, overthrow the ruler & tax drops to your other zero. And intermediate levels below that where the cost of enforcing collection rises as the tax rate rises. And a sweet spot where you get your maximum net revenue for your enforcement cost.
It’s exactly the same calculation. Since it was no doubt first done in the Stone Age when people were hunting mammoths, maybe it should be the Ug Curve?

The only thing that *can* be debated is where the maximum (or maxima) lies/lie. Historical data suggests that it is below 83% since Geoffrey Howe actually increased receipts from Higher Rate tax by reducing that tax rate from 83% to 60%. That, incidentally, is overwhelming evidence for the existence of the Laffer Curve.

Given that we seem to be at (or near) the maximum on lots of taxes in the UK, it wouldn’t surprise me if that after the dust settles on “Rachel from Accounts” tax bomb budget, the revenue raised from various taxes actually falls with the higher rates.

No doubt the usual suspects like Ritchie will piss-and-moan about “Tax Evasion”, but the truth is that while there is a lot of squeeze in the economy, it’s not infinite.

You can’t get blood out of a stone.

“My point is, however, a straightforward one. It is that tax changes behaviour, and often quite dramatically.”

Can’t think of a greater change in behaviour than leaving the country to move somewhere with lower tax rates , that according to the potato never happens (except for myriad instances)

@Norman – “The Laffer Curve is essentially a depiction of the Law of Diminishing Returns.”

No. The Laffer Curve is pseudo-mathematics intended to make a position look good.

Let’s take the points usually made.

* A tax rate of 0% raises no money. False. People can (and do) make voluntary tax payments. There’s a page for how to do this at https://www.gov.uk/guidance/voluntary-payments-donations-to-government

* A tax rate of 100% raises no money. False. This has been tested in two ways: slavery and communism. Under slavery, everything produced by the slave belongs to the master who spends it how he wishes. A sensible master will keep the slave healthy and productive, but that’s merely good business, not a mathematical necessity. Similarly, a system similar to communism can take everything produced and let the state do what it wishes with it – even if that causes mass starvation.

* The part about there being a maximum is an intuitive argument which would be Rolle’s Theorem in the right circumstances, though unfortunately this requires a function, which taxation is not guarateed to be.

So every part of it is wrong. In fact, it’s worse than that. Not only is the mathematics wrong, it is arguing for the wrong result. It’s like slaves arguing that they should be whipped less because the whippings are making them less productive through injury. This accepts the initial immoral position of assuming slavery is acceptable. Similarly, even if it were completely true, we should not be using it in arging against taxation. The taxation should be judged on the merits of its purpose. Maximising revenue is not a legitimate purpose.

And taxation is not a function. A function must map each input value to one output value. Taxation need not do so. For example, if a tax is 10% and raised to 20% this might raise a different amount of revenue than if the tax had been 30% and was reduced to 20%. It is almost inevitable that real taxes are like this – when a tax is high enough, people will pay overhead costs to set up schemes to avoid it, but lowering the tax rate – even to a level where such schemes are not worth setting up – will not result in schemes being abandoned.

Taxation also may not have a maximum. For example, if a tax theoretically would raise $10m but the amount depends on how much is spent on enforcement. No enforcement raises no tax. Each $1m spent on enforcement halves evasion of the tax, so the amount raised does not have any maximum. However close you get to $10m, you can always get closer, yet you can never get there.

So the Laffer curve is nonsense. Don’t use it in an attempt to claim that taxation can be excessive – just state directly that taxation is excessive.