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Growthology

Where does the Laffer curve peak?

The Laffer Curve probably peaks around 60-70%, but an optimal top rate is much lower.

By Guest blogger / August 20, 2010

The Laffer Curve shows the relative rates of government revenues and taxation rates. If nothing is taxed, the government gets no money, but if everything is taxed, there is no incentive to create a tax base. Economists continue to argue about the shape of the curve and what its highest point must be.

Wikipedia user Vanessaezekowitz (http://en.wikipedia.org/wiki/File:Laffer-Curve.svg)

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Ezra Klein asks "Where does the Laffer Curve bend?" but he's really asking where it peaks. It bends at the origin, of course, a tax rate of 0.1 percent.

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Writer, Kauffman’s Growthology.org

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Many experts think the Laffer Curve peaks around 60-70 percent, but I'm confident none of them would recommend this as the target rate. Maximizing government revenue is a hideous goal, fit for the likes of Kim Il Sung. The goal, one would hope, is to maximize human welfare. This starts with considerations of private wealth generation, should include deference to liberty and personal property, and end with careful appreciation of long-term growth. All of those point to an optimal lower rate which would be lower relative to the preferences of the respondents. My guess is that even the most ardent social planners would opt for a rate no higher than 50 percent. But it would be pretty easy to argue for a top rate of 15 percent.

It's a shame that very little empirical evidence is known on this question. I've been working on some experiments, but need to finish up those working papers with the results. At minimum, this seems like ripe material for the next blogger's survey, no?

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