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Emmanuel Saez on Laffer Curve - Dictionary of Arguments

Saez I 153
Laffer Curve/Saez/Zucman: There’s the economy’s tax rate on one axis and the amount of tax revenue collected on the other. When the tax rate is zero, no revenue is collected, which makes sense. As the tax rate rises, revenues first increase, but as the rate is further hiked, at some point they begin to fall. When the tax rate reaches 100%, revenues are back to zero. The lesson is simple: Too much tax kills tax.
Saez I 154
VsLaffer: As a diagram, the napkin displayed in the museum is incomprehensible. It has everything upside down: the axes are inverted, and the equations all have the wrong signs. But while Laffer may not have been the mathematical wizard Frank Ramsey was, he had a point.
Saez I 155
New Deal: income. From the presidency of Franklin Roosevelt to that of Dwight Eisenhower, it was clear that the top marginal income tax rates did not add revenue. They were of the “wrong” side on the Laffer curve. They destroyed income. This was not a bug: it was the goal of the policy. The quasi-confiscatory top rates championed by Roosevelt and his successors in office were meant to reduce the income of the super-rich and thereby compress the income distribution.
Saez I 156
From the late 1930s to the early 1970s, income inequality fell. The share of pre-tax national income earned by the top 1% was reduced by a factor of two, from close to 20% on the eve of World War II to barely more than 10% in the early 1970s. In 1960, for example, only 306 families earned more than $6.7 million in taxable income a year, the threshold above which income was taxed at 91%.(1)


1. US Treasury Department, Internal Revenue Service. Statistics of Income: Individual Income Tax Returns 1960. Washington, DC: Government Printing Office, 1962. p. 32. Available at www.irs.gov/pub/irs-soi/60inar.pdf


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Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments
The note [Author1]Vs[Author2] or [Author]Vs[term] is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition.
Saez, Emmanuel


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