The Laffer Curve, named after economist Arthur Laffer, works!
As the Curve predicts, increase in tax rates will tend to raise, rather than lower, actual tax revenues.
President Donald Trump’s tax cuts are becoming a case in point.
Despite the cut in tax rates — brought forward by the introduction, in February, of revised tax withholding tables — federal income tax revenues for the first half of 2018 are 9 percent higher than in the first half of 2017.
The difference comes to $76 billion of unanticipated revenue.
Because the Congressional Budget Office refuses to score tax cuts “dynamically” — that is to recognize the effect of the Laffer Curve, it had predicted an annual increase in the deficit of $139 billion.
Now, half of that projected rise in the deficit has not come true.
Indeed, the Treasury Department’s monthly reports suggest that, despite the tax cut, actual revenues for 2018 will exceed those of 2017.
In explaining the turnabout, the CBO says the increase “largely reflects increases in wages and salaries.”
Just like Laffer predicted!
Too often, to paraphrase Churchill, the myth makes it halfway around the world before the truth puts its pants on in the morning.
But, now, let us circulate the truth to give it time to catch up.
Then, perhaps, we can avoid having the same debate every time a conservative proposes a tax cut.