Alex Massie

The Laffer Curve & Its Reverse

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Danny Finkelstein makes an obvious, if oft-ignored or forgotten, point and does so with his customary elegance:

This idea of [Arthur] Laffer's is clearly true. We don't know what the curve (does it have a different dips for different taxes or a sharp fall near 100 per cent, say) would look like exactly and we don't know the lags. But obviously something like a Laffer curve must exist.

But the reverse Laffer argument is also true. If tax rates were 0 per cent there would be no tax revenue. So there must come a point at which as you cut taxes revenue falls.

The relationship between tax rates and revenue is therefore not as simple as Maurice [Saatchi] argues. Lower tax rates do not necessarily mean higher tax revenues.

Someone should probably mention this to the Republican party.

Written byAlex Massie

Alex Massie is Scotland Editor of The Spectator. He also writes a column for The Times and is a regular contributor to the Scottish Daily Mail, The Scotsman and other publications.

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