The Laffer Curve Lectures in Macroeconomics Charles W

Do Tax Cuts Cut Revenues? $X Revenues 0 Tax Rate as a % of

0% or 100% Rate = Zero $X Revenues 0 Tax Rate as a %

A 10% Rate $X Revenues $Y 0 10% Tax Rate as a % of

Pushing Our Luck $X Revenues $Y 0 10% Tax Rate as a % of

There Comes a Point $X Revenues “tau” $Y 0 * 10% Tax Rate as

Its downhill $X Revenues “tau” $Y 0 * 10% Tax Rate as a %

The Laffer Curve $X Revenues 0 *The Laffer Curve 100%

The Laffer Curve $X Revenues The logic is flawless. There is some rate that

The Laffer Curve $X Revenues Are we here? 0 *The Laffer Curve 100%

The Laffer Curve $X Revenues If the tax rate is above *, cutting taxes

The Laffer Curve $X The revenue Revenues decline above * is due to incentive

The Laffer Curve $X Revenues Or here? 0 *The Laffer Curve Are we here?

The Laffer Curve $X Revenues Or here? 0 *The Laffer Curve If the tax

The 1964 Tax Cuts $X Revenues In 1964, the top marginal rate was cut

The 1981 Tax Cuts $X Revenues 0 *The Laffer Curve In 1981, we cut

The 1986 Reforms In 1986, we cut the top rate to 31% by eliminating

Today Most economists think overall rates are below *. But perhaps a $1 cut

Specialized Taxes $X Revenues There are specific taxes where the Laffer Effect probably works.

Cigarette Taxes $X Revenues A city raising cigarette taxes might get less revenue. 0

Cigarette Taxes $X Revenues Suppose NYC raised taxes $1 a pack, so cigarettes went

Cigarette Taxes $X %D = %P x ( ) Revenues 0 *The Laffer Curve

Cigarette Taxes $X Revenues But what about tax avoidance? Smuggle cigarettes in from NC,

Capital Gains Taxation $X Revenues 0 *The Laffer Curve If you own common stock,

Capital Gains Taxation $X Revenues One of the arguments given for cutting capital gains

Supply Side Economics We know taxation has an impact on the demand for GDP;

Supply Side Economics Supply side economics talks about making the pie bigger. The Laffer

Supply Side Economics How do taxes impact A? The Laffer Curve

Supply Side Economics How do taxes impact K? How do taxes impact A? The

Supply Side Economics How do taxes impact K? How do taxes impact A? taxes

Supply Side Economics That requires a detailed look at taxes The Laffer Curve

Militant Supply Siders The higher the percent of GDP taken by taxes, the lower

Militant Supply Siders They have a point. Take 100%, and your remove all incentives.

Militant Supply Siders GDP will be zero. Size of National Pie 0% 100% The

Militant Supply Siders This is simplistic. Different taxes have different incentive effects. Size of

End © 2003 Charles W. Upton. All rights reserved The Laffer Curve

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The Laffer Curve Lectures in Macroeconomics- Charles W. Upton

Do Tax Cuts Cut Revenues? $X Revenues 0 Tax Rate as a % of Y The Laffer Curve 100%

0% or 100% Rate = Zero $X Revenues 0 Tax Rate as a % of Y The Laffer Curve 100%

A 10% Rate $X Revenues $Y 0 10% Tax Rate as a % of Y The Laffer Curve 100%

Pushing Our Luck $X Revenues $Y 0 10% Tax Rate as a % of Y The Laffer Curve 100%

There Comes a Point $X Revenues “tau” $Y 0 * 10% Tax Rate as a % of Y The Laffer Curve 100%

Its downhill $X Revenues “tau” $Y 0 * 10% Tax Rate as a % of Y The Laffer Curve 100%

The Laffer Curve $X Revenues 0 *The Laffer Curve 100%

The Laffer Curve $X Revenues The logic is flawless. There is some rate that maximizes tax revenues. 0 *The Laffer Curve 100%

The Laffer Curve $X Revenues Are we here? 0 *The Laffer Curve 100%

The Laffer Curve $X Revenues If the tax rate is above *, cutting taxes raises revenue. 0 *The Laffer Curve Are we here? 100%

The Laffer Curve $X The revenue Revenues decline above * is due to incentive effects and avoidance. 0 *The Laffer Curve Are we here? 100%

The Laffer Curve $X Revenues Or here? 0 *The Laffer Curve Are we here? 100%

The Laffer Curve $X Revenues Or here? 0 *The Laffer Curve If the tax rate is below *, cutting taxes lowers Are werevenue. here? 100%

The 1964 Tax Cuts $X Revenues In 1964, the top marginal rate was cut from 91% to 70%. We may have been above *. 0 *The Laffer Curve 100%

The 1981 Tax Cuts $X Revenues 0 *The Laffer Curve In 1981, we cut the top rate to 50%. Some claimed we were above *. Most economists 100%so don’t think

The 1986 Reforms In 1986, we cut the top rate to 31% by eliminating some exemptions. Again, some claimed we were above *. $X Revenues 0 *The Laffer Curve 100%

Today Most economists think overall rates are below *. But perhaps a $1 cut only costs us 67¢ $X Revenues 0 *The Laffer Curve 100%

Specialized Taxes $X Revenues There are specific taxes where the Laffer Effect probably works. 0 *The Laffer Curve 100%

Cigarette Taxes $X Revenues A city raising cigarette taxes might get less revenue. 0 *The Laffer Curve 100%

Cigarette Taxes $X Revenues Suppose NYC raised taxes $1 a pack, so cigarettes went from $7 to $8 a pack. 0 *The Laffer Curve 100%

Cigarette Taxes $X %D = %P x ( ) Revenues 0 *The Laffer Curve If =-0. 2, a 14% rise should reduce demand by 3%. Not enough to reduce revenue. 100%

Cigarette Taxes $X Revenues But what about tax avoidance? Smuggle cigarettes in from NC, NJ, CT? 0 *The Laffer Curve 100%

Capital Gains Taxation $X Revenues 0 *The Laffer Curve If you own common stock, hold it for more than a year before selling it, your top tax rate is 20% 100%

Capital Gains Taxation $X Revenues One of the arguments given for cutting capital gains taxation was the Laffer Curve. 0 *The Laffer Curve 100%

Supply Side Economics We know taxation has an impact on the demand for GDP; that is how we cut C and I to make room for G. The Laffer Curve

Supply Side Economics Supply side economics talks about making the pie bigger. The Laffer Curve

Supply Side Economics The Laffer Curve

Supply Side Economics How do taxes impact A? The Laffer Curve

Supply Side Economics How do taxes impact K? How do taxes impact A? The Laffer Curve

Supply Side Economics How do taxes impact K? How do taxes impact A? taxes impact L? The Laffer Curve

Supply Side Economics That requires a detailed look at taxes The Laffer Curve

Militant Supply Siders The higher the percent of GDP taken by taxes, the lower the value of GDP Size of National Pie 0% 100% The Laffer Curve % Taken for Taxes

Militant Supply Siders They have a point. Take 100%, and your remove all incentives. Size of National Pie 0% 100% The Laffer Curve % Taken for Taxes

Militant Supply Siders GDP will be zero. Size of National Pie 0% 100% The Laffer Curve % Taken for Taxes

Militant Supply Siders This is simplistic. Different taxes have different incentive effects. Size of National Pie 0% 100% The Laffer Curve % Taken for Taxes