1. Lectures in Macroeconomics- Charles W. Upton The Laffer Curve

2. Do Tax Cuts Cut Revenues? 0 100% Tax Rate as a % of Y Revenues $X

3. The Laffer Curve Do Tax Cuts Cut Revenues? 0 100% Tax Rate as a % of Y Revenues $X

4. The Laffer Curve 0% or 100% Rate = Zero 0 100% Tax Rate as a % of Y Revenues $X

5. The Laffer Curve A 10% Rate 0 100% Tax Rate as a % of Y Revenues $X $Y 10%

6. The Laffer Curve A 10% Rate 0 100% Tax Rate as a % of Y Revenues $X $Y 10%

7. The Laffer Curve Pushing Our Luck 0 100% Tax Rate as a % of Y Revenues $X $Y 10%

8. The Laffer Curve There Comes a Point 0 100% Tax Rate as a % of Y Revenues $X $Y 10% ** “tau”

9. The Laffer Curve Its downhill 0 100% Tax Rate as a % of Y Revenues $X $Y 10% ** “tau”

10. The Laffer Curve 0 100% Revenues $X **

11. The Laffer Curve 0 100% Revenues $X ** The logic is flawless. There is some rate that maximizes tax revenues.

12. The Laffer Curve 0 100% Revenues $X ** Are we here?

13. The Laffer Curve 0 100% Revenues $X ** Are we here? If the tax rate is above  *, cutting taxes raises revenue.

14. The Laffer Curve 0 100% Revenues $X ** Are we here? The revenue decline above  * is due to incentive effects and avoidance.

15. The Laffer Curve 0 100% Revenues $X ** Are we here? Or here?

16. The Laffer Curve 0 100% Revenues $X ** Are we here? Or here? If the tax rate is below  *, cutting taxes lowers revenue.

17. The Laffer Curve The 1964 Tax Cuts 0 100% Revenues $X ** In 1964, the top marginal rate was cut from 91% to 70%. We may have been above  *.

18. The Laffer Curve The 1981 Tax Cuts 0 100% Revenues $X ** In 1981, we cut the top rate to 50%. Some claimed we were above  *. Most economists don’t think so

19. The Laffer Curve The 1986 Reforms 0 100% Revenues $X ** In 1986, we cut the top rate to 31% by eliminating some exemptions. Again, some claimed we were above  *.

20. The Laffer Curve Today 0 100% Revenues $X ** Most economists think overall rates are below  *. But perhaps a $1 cut only costs us 67¢

21. The Laffer Curve Specialized Taxes 0 100% Revenues $X ** There are specific taxes where the Laffer Effect probably works.

22. The Laffer Curve Cigarette Taxes 0 100% Revenues $X ** A city raising cigarette taxes might get less revenue.

23. The Laffer Curve Cigarette Taxes 0 100% Revenues $X ** Suppose NYC raised taxes $1 a pack, so cigarettes went from $7 to $8 a pack.

24. The Laffer Curve Cigarette Taxes 0 100% Revenues $X ** If  =-0.2, a 14% rise should reduce demand by  3%. Not enough to reduce revenue. %D = %P x (  )

25. The Laffer Curve Cigarette Taxes 0 100% Revenues $X ** But what about tax avoidance? Smuggle cigarettes in from NC, NJ, CT?

26. The Laffer Curve Capital Gains Taxation 0 100% Revenues $X ** If you own common stock, hold it for more than a year before selling it, your top tax rate is 20%

27. The Laffer Curve Capital Gains Taxation 0 100% Revenues $X ** One of the arguments given for cutting capital gains taxation was the Laffer Curve.

28. The Laffer Curve Supply Side Economics We know taxation has an impact on the demand for GDP; that is how we cut C and I to make room for G.

29. The Laffer Curve Supply Side Economics Supply side economics talks about making the pie bigger.

30. The Laffer Curve Supply Side Economics

31. The Laffer Curve Supply Side Economics How do taxes impact A?

32. The Laffer Curve Supply Side Economics How do taxes impact A? How do taxes impact K?

33. The Laffer Curve Supply Side Economics How do taxes impact A? How do taxes impact K? How do taxes impact L?

34. The Laffer Curve Supply Side Economics That requires a detailed look at taxes

35. The Laffer Curve Militant Supply Siders Size of National Pie % Taken for Taxes 0%100% The higher the percent of GDP taken by taxes, the lower the value of GDP

36. The Laffer Curve Militant Supply Siders Size of National Pie % Taken for Taxes 0%100% They have a point. Take 100%, and your remove all incentives.

37. The Laffer Curve Militant Supply Siders Size of National Pie % Taken for Taxes 0%100% GDP will be zero.

38. The Laffer Curve Militant Supply Siders Size of National Pie % Taken for Taxes 0%100% This is simplistic. Different taxes have different incentive effects.

39. The Laffer Curve Militant Supply Siders Size of National Pie % Taken for Taxes 0%100% This is simplistic. Different taxes have different incentive effects.

40. The Laffer Curve End ©2003 Charles W. Upton. All rights reserved