At the ASI.
In which we spot the Laffer Curve in the wild again.
Tags: Timmy Elsewhere
// Sep 27, 2012 at 10:04 am
1) Governments always push marginal tax rates to a little past the peak of the Laffer curve
2) Therefore we can always increase revenue by cutting the marginal tax rate.
3) Applying (2) year after year, marginal tax rates will tend to zero.
4) Therefore the peak of the Laffer curve must be below zero.
5) I think I must have got this wrong somewhere.
// Sep 27, 2012 at 10:14 am
2 & 1 are contradictory.
If 1 is true, the 2 cannot happen.
If 2 is true, then 1 is false.
// Sep 27, 2012 at 11:53 am
1 & 2 can both be true.
This relies on the fact that politicians are sufficiently stupid that despite knowing perfectly well that (2) is true, they never proceed to attempt the first half of (3) by doing anything about it.
This is of course a long-winded way of re-writing point (1).
// Sep 27, 2012 at 5:28 pm
Step 2.5) But we don’t, so go back to 1) and skip the rest.
// Sep 28, 2012 at 1:23 am
Contrary to what everyone else on this thread seems to think, the top income tax rate was reduced in the UK in 1971, 1979, 1988, and 2012. The top rate in the USA was reduced in 1964, 1982, 1988, and 2003.
// Sep 28, 2012 at 10:17 am
Applying (2) year after year, marginal tax rates will tend to zero.
Not necessarily. You can have a decreasing sequence with a non-zero limit. It just requires a degree of sophistication not normally found at the Treasury to grasp the point.
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