Aug 20, 2011

Laffer Curve and Taxes


This is the Laffer curve, which demonstrates that if you tax 0 you will get 0 income, and if you tax 100% of income you will not receive any taxes because people will quit work. Between those two extremes there is a "Sweet Spot" that will optimize tax revenue.


The question before us now is are we near or at that "Sweet Spot".  I would argue no and that we have been living for some time with the Bush tax cuts which cut taxes and revenue. Eliminating those cuts will increase government revenue without damaging the economy.  The economy was performing well before those tax cuts went into effect.


We must reduce the annual deficits we are running at the Federal level, probably with a combination of program cuts and tax increases. But we probably should not be doing much of either until we get our economy working well again.

http://en.wikipedia.org/wiki/Laffer_curve