Once Again, the Laffer Curve Curves May 9, 2011

Michael Barone, whom I usually respect, confuses, like most Republicans, the issue about tax rates. Yes, when Kennedy cut the top rate from 90% to 70%, federal revenues did actually go up. And when Reagan cut the top rate to 38.9%, federal revenues actually did go up. But the effect of cutting tax rates doesn’t continue forever. The Clinton years, with a top rate of 38.9%, were not exactly lean years for the economy or the government. And G. W. Bush’s decreasing of the rate to 28% did not increase federal revenue. The rate of Clinton’s time, and the rate we would return to if the Bush tax cuts expire, 38.9%, is, I believe, precisely that point on the Laffer curve at which federal tax revenues will be maximized; or if not, very close to it. I’ll admit I’m no fan of a highly progressive tax, because since the government serves all of us, it should cost all of us something. The rich don’t have enough money to fund the government without everyone else sacrificing as well. But the rate of 38.9% was not oppressive, and the most all-inclusive boom in recent times, that of the Clinton-Gingrich years, happened at that rate. We now again have a Democratic President and a Republican House. I have, rightly or wrongly, been hoping for a repeat of the late ‘90s. Time will tell, however.

 

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