Art Laffer explains the Laffer Curve

Dr Art Laffer - renowned American economist - explains the Laffer Curve as the relationship between tax rates and total tax revenues.

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[chesterg.]

Art Laffer refering to his profile as the laffer curve really made me laff

[wolfson]

The hard part is knowing where you are on the curve

[AroundSun]

Many of you are looking at this all wrong. What you're failing to see is that lower tax rates generate more production and economic growth (GDP). This is due to the smaller overhead on business, their ability to grow and expand, produce more, purchase more, start businesses, and hire more workers. So, think of an economy with low taxes as a pie that is growing in size. This growth means that there are more businesses in business and more taxpayers paying taxes. So, to make it simple, would you rather have 15% of a pie the size of the empire state building, or 90% of a pie the size of a Volkswagen? The lower percentage, believe it or not, actually correlates with more revenue for the government. Would you rather have 18% of a gigantic economy worth trillions, or 91% of a small economy worth a few million? If your answer is that you want 91% of a gigantic economy worth trillions, you're missing the point. That economy would have never grown to that size with the 91% tax rate, and to make that the policy going forward, will only shrink it.

Another way to look at it: You will receive more tax revenue in a robust economy by taxing hundreds of workers making 60k a small 10% tax -- than you will if you taxed a smaller economy that has only maybe 10 or 20 workers making 60k, at a 60% or 70% tax rate.

Moral of this story: you will not have that robust economy with hundreds of workers making that 60k in a 60-70% tax environment, only because of that low 10% tax rate is it possible to even have that many workers making 60k, and the nice side effect is more revenue for the government in the end, REGARDLESS of the lower actual rate (%)

[raypurchase]

A difficult concept, explained very simply. Well done.
Here in the UK, for a time about 50 years ago, the tax rate on high-earning individuals was 99%. So all of those high-earners went overseas and the government earned zero. When the tax rate was dropped to a sensible level, those high-earners returned and tax revenue increased dramatically.

[CoreyChambersLA]

Largely the same as the price curve for any product or service, except taxes are by force.

[danieldoucet]

Art also created the Laffer track so people know when to laugh during sitcoms.

[Arcticgreen]

There is another point, it is unfixed as far as "percentage taxed" but it is fixed as far as "tax revenue collected". That point is the point where you don't collect 100% of their money, but you do collect enough that they cannot progress, they make JUST enough money to live and pay the bills... and NO MORE. Because they cannot progress, there is no incentive to work, they work for nothing, just working to work more tomorrow, there is no future and no growth, therefore, the economy dies. This is important because it means that you actually hit that "zero tax revenue" point well before reaching the 100% taxes point.

[elsenored]

It's easy to find out where you are, on the curve. Just lower tax rates. If revenue goes up, then the old tax rate was too high!

[roosnijbroek]

I never tought this sort of stuff could be interesting, but it definitly was!

[darthhodges]

What he didn't state clearly was that the graph shown was subjective, not objective. By which I mean the point at which revenues start to decrease is not 50%. This inflection point varies by time and place. In the American colonies in the 1770s it was in the single digits and only certain goods were taxed, but widespread disobedience (and armed revolt) made that little bit of taxation an inflection point. There have been documented cases of 10% and of 70% being inflection points.

More progressive tax systems like what are used in the U.S., where the rich pay higher percentages than the poor, also complicate any attempt to discuss actual numbers. Interestingly because the rich are more able to move their money around and change where they live or work to avoid paying taxes the inflection point on the rich is lower than the inflection point on the poor. A massive tax hike on the poor is more likely to raise revenue than a hike on the rich as the poor are less able to avoid paying.

[Fingolfin]

Such a simple, great concept by Laffer. Fits well with the Law of Diminishing Returns, another econ 101 concept (and reality). I find it bothersome that lots of people in the comments section here are getting all upset about this. This isn't political, folks, unless you make it.

[PadminiRavindraNath]

Wonderful...sharing with my undergraduate students ( who are rather could be better than the laffer curve explained by Arthur Laffer himself

[dagpepeonik]

Now, I would like to see him explain in a separate video, as to why does the peak of the Laffer curve shift? And is it, that he would still encourage its use then?

[Blitzkrieg_Wolf]

All these years later, that one scene in Ferris Bueller's Day off makes so much more sense.

[jeffbrack]

I saw Arthur Laffer in the early 1980s at Cal State Fullerton as I was a Finance major at the time.  He told a parable that has been planted in my subconscious now for about 40 years.  He stated that "one of the first economic lessons we learn as a kid is a terrible one and that lesson is derived from Robin Hood. Robin Hood goes thru Sherwood Forest taking from the rich and giving to the poor-but what happens when the rich just decide to not go through Sherwood forest? or bring armed guards?  " the proverbial socialist dilemma of how great socialism is until you run out of other peoples money. Since our current crop of college kids are by and large complete economic buffoons, let me answer the question of what happens when the rich don't go thru the forest.  You see Robin Hoods men (government politicians) get lots of support at first from the villagers who seem to think there is after all a 'free lunch'  and at first this would seem to be the case. But right off the bat they notice that Robin Hood and his merry men are taking a pretty good slice of the booty from the rich but hey it still beats working right?  So the villagers don't plant seed for next year because that is hard work and even risky, you may not even have a crop so why go thru the hassle and toil. Now the rich have armed guards and it is much harder for Robin to loot the rich and Robin's merry men want more money for taking on the armed guards and now even less is going to the villagers. Ultimately the rich don't go thru the forest and it is very hard to find them anywhere.  Even so the villagers stay with Robin Hood and urge him onward and upward-find more rich they say and the 'rich' are now people with say two cows instead of one and some are even here in the village...well ultimately this downward spiral has an end game.  Robin Hood has no more rich to loot and has to control the unruly peasants who have not planted for the harvest nor have they honed their skills at their trades as it was easier to obtain largess from Robin and his 'party'. The poor peasants are now starving and belatedly come to the realization that they are totally dependent on RH and his gang and they also realize the entire village is in major digression and their very lives are in jeopardy but they are now ruled by Robin and his merry men who  only how to take and not produce and are experts in the use of force to obtain their objectives.   The end product is Venezuela my friends.. Probably the greatest take away from my time in college was that lecture. The laffer curve works, when Reagan lowered tax rates revenue surged, look at the latest CBO numbers under Trump, tax revenue is increasing though rates are dropping. Why did the deficit explode and is currently doing the same?  because EXPENDITURES far outstrip the increase in revenue, the exact same in Reagans tenure..this is why we see this every time- but don't let anyone ever tell you that we have to 'pay' for the tax cuts, they actually brought more money to the table and paradoxically Alexandra and Kamella and Warren should be cheering this as it actually brings more money into the federal coffers,  but these modern day Robin Hoods will never be swayed from their dogma with the presentation of facts and the villagers will always blindly cheer them on-until its too late.Ironically, I also  had a professor in 'crisis biology' who told me some of the real estate in south orange county California  was the best farmland in the world and in thirty years I would be seeing condos pulled out and farms put back in..  I knew my parents had farmland in Kansas selling for around 1k per acre and this made no economic sense.  Forty years later, I still live in south orange county and it still doesn't make any economic sense and I'm still waiting for at least one farm to come back and any condo's to be torn down.
I hope my college age kids get to see Laffer and let his views sink in as it was quite an epiphany for me that has forever changed my economic worldview. Thank you Arthur, for your insights.

[chumleyk]

And that's why most civilised countries have income taxes near but below the middle. However, there are stealth taxes, like the uK's national insurance that is an income tax ontop of income tax but because its split from income tax people don't factor it into 'how much they are taxed' in a simplistic manner.

[faithlesshound]

In recent times where have we seen tax rates over 90%? In the UK, it was when people receiving state benefits of one sort or another had their benefits reduced by the amount that they earned above a very low threshold. Inspectors were employed to make sure that the poor had no money coming in. That contrasted with the indulgence shown to the rich who didn't want to pay tax.

[lopony]

Watching ferris bueller with the subtitles on brought me here!!

[commercialrealestatephilos]

How does inflation (not so hidden tax these days) impact ?

[festy]

「Military Aide :
Arthur B. Laffer, the Father of Supply- Side Economics, is one of the most influential economists in American history. He is renowned for his economic theory, “The Laffer Curve”, which establishes the strong incentive effects of lower tax rates that spur investment, production, jobs, wages, economic growth and tax compliance. Among other accomplishments during his distinguished career, Dr. Laffer was the first chief economist of the Office of Management and Budget and a top economics adviser to President Ronald Reagan.The United States proudly recognizes Arthur B. Laffer for his public service and his contributions to economic policy, which have helped spur prosperity for our nation.」
June 2019 White House 　
President Trump Presents the Presidential Medal of Freedom to Arthur Laffer.