The Laffer Curve, By Mark Koba

once the government has set targets and objectives, it is up to the policy makers to use the tools available in order to meet these objectives. these levers are made up using fiscal and monetary policy tools. The tools used in the fiscal policy is the use of taxation in order to control public spending, which can affect aggregate demand. When taxes are lower individuals and business will be able to keep more of what they earn, causing better cash flow in the economy and increasing consumer spending ans confidence. This will also be more of an incentive for individuals to seek work including workers from other countries in the EU, as they can keep more of what they earn as take-home pay, this will cause a rise in employment, improving the efficiency of the country. When taxes are high this will generally work in the opposite

Whilst William McBride, chief economist for Tax Foundation website, sided with tax cut policy saying that to strengthen the financial state, “we should lower taxes on the earnings of capital,” “workers and the businesses that hire them,” Chye-ching Huang and Nathaniel Frentz, both are senior Tax Policy analysts, completely debunked the evidence McBride provided to support his argument, which includes the review of twenty-three among twenty-six studies he thought to advocate the idea. Indeed, as one conducts research, regardless of what sources it comes from, agreement over tax issue should never be found as a unanimous answer. One of the reasons why it is so difficult to reach a definite conclusion rests on the fact that although some statistics may show economic growth was in step with tax cut, correlation does not mean causation: just as ice-cream sale and murder rate increase during summer time, it is baseless to assume that higher ice-cream consumption leads to higher odds for crime. Moreover, because there is a great amount of research has been done on taxes, different interpretations from these data are understandable. Before concluding that “nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal” finds cutting taxes improves the financial status quo, thus, people need to consider

The government relies on collecting taxes in order to create revenue and function successfully. A decrease in taxes affects business and the government differently. A decrease in taxes is good for business and bad for the government. Many entitites rely on government funds in order to operate and function

rate, in periods of higher income tax the GDP sees an increase thus proving that higher taxes do not create a drag in the economy. When the top marginal tax rate is at a 75 to 80 there is an about 4.6 GDP growth creating this “Sweet-spot”.

Tax revenue accounts for about 75% of the federal budget. During the 2010 fiscal year, the United States government collected about $2.16 trillion dollars in tax revenue. About 42% of these taxes are from individual income taxes; another 40% from Social Security taxes and the rest are split between excise, estate, and corporate taxes (cbo.gov). The United States uses what is called the progressive tax system. Which means the more you make, the more taxes you pay. Tax revenue has become a very hot topic in the past few months, mostly due to the fact of a recent group of people who call themselves “Occupy Wall Street”.

The colonies during the time of early America experienced many hardships from the British, and at multiple times were let down from what they estimated they were deserving of. The “J curve” is known as a diagram indicating the climbing up and the sudden down of any idea, or action. The “J curve” is an accurate representation of the colonist’s expectations at the time of the “oppressive” British. The “J curve” seems to center around two main points for the colonists. The first was the wars they fought, the outcomes, and the government and the economy. The second was the legislatures that were designed by or against the colonies. The expectations of the colonists in relation to

First, lower tax rate will lower revenues. Overall tax cuts for a new coming year will bring the different amounts of revenue for the previous year if the tax rate falls

What happens to the economy when the government raises or lowers taxes? Lots of people in America do not understand exactly what happens to the economy when the government raises or lowers taxes. In this paper I am going to address that question as well as a few other things such as: Describing the effect on net personal income when the government raises taxes and when the government lowers taxes. Describing how the Gross Domestic Product (GDP) is affected by higher taxes and lower taxes. I will also identify what other economic factors are affected when taxes are raised or

These range from an increase in labor supply to faster economic growth. Dr. Andreas Peichl wrote an article detailing the expected results of a flat tax system. He based his expectations upon the various countries that currently employ such a system. The increase in labor supply can be explained by following the economic law of supply, which states that the supply of a good will increase as the price increases. Thus, as taxes are lowered and families are able to bring home more income, more people are willing to search for work. By stimulating the job market, the economy as a whole will be stimulated, as more families will have greater expendable incomes. Another effect that a simpler tax code will have is that more Americans will be able to reap the full benefits of the tax code. By eliminating itemized deductions taxation becomes more equal. In a chart published by the Tax Foundation, of those making less than fifty-thousand dollars, only eighteen percent made use of itemized deductions. By simplifying the tax code the rate of compliance would increase.This is caused by the shrinking of the tax code from seventy-thousand pages down to at most ten. In addition to raising compliance, by simplifying the tax code, it becomes a more equal system of taxation, as each would pay the same marginal rate, however, due to the generous exemption there would be an inconsistency between the marginal and

The United States economy, as known by all, is not in its best shape. One way in which the government gains money is by imposing taxes on people. There are many taxes that are placed on different things that everyone needs or already has. The United States uses a taxation system which is criticized by many. The system used in Progressive Tax; however, many people believe the system of Flat Tax, or Proportional Tax, should be the system that is used for taxing.

Taxes are one of the many ways that American politicians display their greed. Many politicians believe that the greatest way to fix the country’s economy is by taxing the rich less and the middle class more. This does make sense in some way considering that

A graphical representation showing the relationship between the government increasing taxes and the total revenue they will collect is referred to as the Laffer curve, this is a hypothetical representation. The curve is named after Arthur Laffer the economist, though he has pointed out that this concept is not his as it originates from writings by a Muslim philosopher of the 14th century Ibn Khaldun ADDIN EN.CITE Dalamagas199864(Dalamagas, 1998)646417Dalamagas, BasilTesting the Validity of the Laffer-Curve HypothesisAnnals of Economics and Statistics / Annales d'Économie et de StatistiqueAnnals of Economics and Statistics / Annales d'Économie et de Statistique77-102521998L'INSEE / GENES on behalf of ADRES0769489Xhttp://www.jstor.org/stable/20076152( HYPERLINK l "_ENREF_1" o "Dalamagas, 1998 #64" Dalamagas, 1998). There are other historical precedents that also exist. The Laffer curve suggests that the government can increase taxes up to a certain level if they want to increase their revenue and reduce the budget deficit, but past the optimal level then the negative would occur as people would want to work because most of the money they earn would be taken by the government in terms of paying taxes. The government should endeavor to remain at the optimal point of the Laffer curve so that it can maximize on its revenue and also encourage people to work harder.

Whenever economic turbulence increases, the policy makers adjust the taxation rates in an effort to stabilize it. When it comes to income

The Laffer curve is a concept which explains the relationship between government revenue from taxes and tax rates. The concept of the Laffer curve is that the higher the tax rate is the lower the output, that is to say for example, if the government imposed a higher tax rate, production would be lower and government revenue would therefore be lower. The Laffer curve was developed by an economist by the name of Arthur Laffer, a professor at the University of Chicago. Arthur Laffer does not take all credit for this theory, he claimed it was not new and that the concept was pretty straightforward and people already knew about it many years ago. The origin of the Laffer curve goes back to an article written by Jude Wanniski, associate editor of the Wall street journal at that time. Sometime in December of 1974, Wanniski had dinner with Laffer, Donald Rumsfeld who was the chief of staff to president Gerald Ford, and Rumsfeld’s deputy Dick Cheney, who was a former classmate of Laffer at Yale. All four were having dinner at a restaurant in Washington D.C. while they were talking about President Ford’s “Whip Inflation Now” proposal for tax increments then suddenly Laffer grabbed a napkin and a pen then proceeded to sketch a curve on the napkin about the relationship between tax rates and tax revenues. Jude Wanniski decided to name this relationship “The Laffer Curve”. And that is how The Laffer curve began. Vast majority of companies want to maximize their profit, so it

Local and state taxes vary in America. A low tax rate leads to an increase of an individual’s income which allows that person to work less to maintain their lifestyle. The low tax rate may increase population growth, where if the taxes are high it has the opposite effect. With the population of retirement age people increasing and the population of working age people decreasing, the tax burden would probably increase. There will be more people needing government help and a decrease in workers.