By Michael Kinsley on August 10, 2010
On vacation last week, my only regret was that I missed an opportunity to comment on a column in the Wall Street Journal by Art Laffer, inventor of the Laffer Curve, which has done more damage than any other geometric shape in history. Famously first drawn on a restaurant napkin for the benefit of the late congressman Jack Kemp, the curve purports to show that you can increase government revenues by cutting taxes. And indeed you can. If you reduce taxes from 100 percent to 99 percent, you will bring in more money than if you leave them at 100 percent and remove everybody's incentive to go to work at all. Back in the early 1960s, when marginal tax rates were as high as 90 percent, cutting them may well have increased government revenue by making tax shelters more trouble than they were worth. The question is whether this tells you anything useful about the effect of raising and lowering taxes in the real world of today.
What's interesting about last week's piece is how little the argument has changed--like, not at all. I needn't have rushed home from Spain and missed my play date with Michelle and Sasha. Laffer is frozen in time, still dusting off a quote someone found years ago from John F. Kennedy, still dating his findings from 1978. He cites "Presidents Johnson, Nixon, Ford and Carter." He talks about "the Hoover/Roosevelt Great Depression." True, the traditional picture of Tip O'Neill as the symbol of liberal excess has been replaced with one of Nancy Pelosi (a big aesthetic improvement).
Nothing that has happened in the past four decades has caused Laffer any doubts. Bill Clinton raised taxes and produced a surplus? Laffer ignores Clinton's general tax increase and reinvents him as a tax cutter because he "cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied houses to 0% for almost all home owners." Laffer does not pause to consider whether perhaps, in hindsight, the housing sector is not the best poster child for the prosperity of the Clinton era.
(More here.)
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