The Laffer Curve and Trickling Economics

The easy place to learn about the Laffer curve is– the website dedicated to the accomplishments of Dr. Arthur Laffer.  Laffer is best known for development of the Laffer Curve – which ostensibly describes how taxation rates can be set to raise the money for the government.

It’s economics – in geometry I learned that two established points can be connected with a straight line.  Dr. Laffer used two established points (0 and 100) to develop a curve.  Might explain why I’m not an economist – I’d really like a little more data. 

The theory has face validity.  If your tax rate is zero, the revenue you raise will be zero.  On the other hand, if you tax income at 100% you really do take away most of the motivation to work.  I really think that we have enough tax records since Abraham Lincoln started the income tax that we should be able to fill in some numbers on the right hand side of Laffer’s curve.

Right now, our tax brackets top out at 37% – and, if you’re single, that kicks in when you’re a little past a half-million in earned income.  Back in 1963, the top income tax bracket was 91%, and it kicked in at $200,000.  Of course the bottom bracket in 1963 was 20% and that went from 0 to $2,000 for filing single.  (It went up to 22% when you climbed to $2,000).   Today the bottom bracket is 10%, and it doesn’t go up until $9,950.

Back when Lincoln started the income tax, it was 3% from $600 to $10,000, then going up to 5% on all income over $10,000.

Since there should be 160 years of data, ranging from 3% up to 91% taxation rates, it shouldn’t be all that hard to put real numbers on the Laffer Curve.  Laffer actually did research the data to develop his theory, and more recent data can be accessed at SOI Tax Stats – Individual Statistical Tables by Size of Adjusted Gross Income | Internal Revenue Service

A few quotes from Dr. Laffer (easier than reading the whole book – but one of his books is available at

“Government spending is taxation. When you look at this, I’ve never heard of a poor person spending himself into prosperity; let alone I’ve never heard of a poor person taxing himself into prosperity.”

“The tax rate increases reduce economic growth; they shrink the pie; they cause more poverty, more despair, more unemployment, which are all things government is trying to alleviate with spending.”

“And you can’t have a prosperous economy when the government is way overspending, raising tax rates, printing too much money, over regulating and restricting free trade. It just can’t be done.”

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