WILLisms.com: Trivia Tidbit Of The Day: Part 470 -- Laffer Curve.

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Trivia Tidbit Of The Day: Part 470 -- Laffer Curve.

He's Huge In Europe-

Ever heard of Art Laffer and his curve?

Here's a good example of how lower tax rates can produce higher tax revenues:

Britain began the corporate tax-cutting revolution in the mid- 1980s with a reduction of its rate from 52 percent to 35 percent. The United States followed with a reduction of its rate from 46 percent to 34 percent. Since then, every major nation has cut its corporate tax rate, and many smaller nations have as well. In the European Union, the average corporate tax rate has fallen from 38 percent to 24 percent since 1996.2 The United States has a combined federal and state rate of about 40 percent.
The tax-cutting trend is global. Since 2000, we've seen corporate tax cuts in far-flung places such as Russia (35 percent to 24 percent), Israel (36 percent to 29 percent), Panama (37 percent to 30 percent), Turkey (33 percent to 20 percent), Vietnam (33 percent to 28 percent), Guinea-Bissau (39 percent to 25 percent), and Ghana (33 percent to 25 percent). Perhaps the most dramatic recent cut was a 2005 reform in Egypt, which reduced that country's corporate rate from 40 percent to 20 percent in one swoop.

A veritable "race to the bottom," as American Democrats sometimes say. But this is a good race to the bottom. Interestingly, as the developed world has cut, collectively-speaking, its corporate taxes, more tax revenues have come in:

...the average central government statutory rate was 40 percent or more before the mid-1980s. But then supply-side tax policies gained support and tax rates plunged. The average rate in the 19 countries fell from 45 percent in 1985 to 29 percent by 2005. During the same period, corporate tax revenue soared from 2.6 percent to 3.7 percent of GDP.6 That is a 42 percent increase of corporate revenue relative to the size of the economy.

So where does the United States stand in relation to the world on this issue? We have the highest corporate tax rate in the entire OECD and one of the highest rates in the entire world. Sure, Americans pay lower personal income taxes, lower "carbon" taxes, lower sales taxes, and so on, but the portion of the American tax code that stands out like a sore thumb is our once-low-but-now-high corporate tax rate.

What is even more unfortunate is that, in this country, "corporation" seems to have become a hyper-politicized concept at best, and a flat out dirty word at worst. The thought of cutting taxes on American businesses is wholly antithetical to today's political zeitgeist. Meanwhile, in other countries, often ones run by people far more left-wing than even our own dear Nancy Pelosi and gang, are racing to cut their corporate tax rates to reap the benefits of stronger growth and higher tax revenue:

Canada just passed a reduction of its federal corporate rate from 22 percent to 15 percent. Britain's corporate rate is falling from 30 percent to 28 percent, and Germany's is plunging from 38 percent to 30 percent. Corporate tax cuts are also on the agenda in France, and have been discussed in Japan.

Not to mention the flat tax "evolution" slowly but surely sweeping through Eastern Europe and elsewhere. Let's get with the program, people, unless we want the rest of the world to have the last Laff.

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Previous Trivia Tidbit: Japan and China Trade Wars.

Posted by Will Franklin · 21 December 2007 12:07 PM

Comments

You hit on the point that was first to pop into my head - that US politicians will never cut rates on those Satan-incarnate EVIL CORPORATIONS.

Maybe they would except for evil Oil Co.s... and evil Pharmacy Co.s... and evil _______ Co.s ... and evil.... etc. etc. etc.

Posted by: Hoodlumman at December 21, 2007 01:07 PM

Evil oil...EVIL!!!

Posted by: Zsa Zsa at December 21, 2007 03:41 PM

The Laffer Curve should be inherently obvious to any thinking person with a lick of common sense. And you don't even need to know the Min-Max Theorm. The only question is the shape of the curve. By now there must be sufficient empirical data to allow someone to make a good estimate.

Posted by: JGsez at December 23, 2007 06:45 PM

For people that don't understand basis economics and think that the Federal government is in charge of generating wealth and fall to their knees when a liberal talks about soaking the rich and spreading the confiscated funds to them, how do you even start to come to a common ground for discussion?
I find it difficult at times, when engaging conservative people, who have been life-long democrats that the current democrat strategy violates every thing they believe in.
So many people have given in: protect me, ensure my my comfort, and provide for me everything I need and I will vote for you.
Proper education, and achievement based on personal initiative seems to be the key. Depending upon liberal politicians leads you to begging for more while they never fulfill your wishes.

Posted by: Eneils Bailey at December 24, 2007 01:38 PM

As a follow-up, there not one person in ten in the general population that would understand or even believe the Laffer Curve.
The Democrats, with the MSM have people believing that taking money from the successful who would use it to generate more wealth, more jobs, and therefore more taxes is not good for this country. The left does not care about the generation of wealth, only the control of people.

Posted by: Eneils Bailey at December 24, 2007 02:07 PM