The Laffer Curve Is No Longer a Punch Line
The man who drew the Laffer Curve gets the presidential Medal of Freedom, June 2019.
Photographer: Ron Sachs/Bloomberg
For years it was a punch line. Now the Laffer Curve — which purports to show that tax cuts can increase revenue — is making a kind of comeback. This time around, it is providing more of an intellectual than a policy framework, but that is a useful role as some states and city governments appear eager to test the proposition that no tax is too high.
Famously (or infamously?) drawn on a napkin by the economist Art Laffer in 1974, the Laffer Curve is a concave shape plotting the relationship between tax revenues and the tax rate. It shows that at a certain point, tax cuts lead to greater revenue. When the tax rate is too high, people work less, thus reducing tax revenue.