Questions About 1099

The Laffer Curve is an graphic representation of the theory of Taxable Income Elasticity. First proposed by Jude Wanniski in the 1970s, the Laffer Curve is named after Arther Laffer, a supply-side economist who Wanniski based his work on. Here is the translation for everyone else: The Laffer Curve helps the government decide how much money they want to charge in tax debt before revenue goes down.

Math involved in the laffer curve

This is how the Laffer curve works for those of us who don’t have degrees in theoretical economics or math. It is a theory of economics that states taxpayers will change their behavior based on taxes. For example, at 0 percent tax, taxpayers will be motivated to earn as much money as they can, but the government receives no money. There is no motivation to earn money if the government taxes at 100 percent making the government earn no money. The ideal tax rate would then be somewhere between 1 and 10 percent. On the Laffer Curve this is usually somewhere around 50 percent even though that wouldn’t be the ideal tax rate. Many studies suggest the ideal tax rate is between 30 and 40 percent

US policy being affected by the Laffer Curve

The Laffer curve was suggested first in the 1970s. However, U.S. taxation policies have often made use of the underlying theory. In 1924, Andrew Mellon made the argument that by lowering the tax rate, the government would bring in more money. The top income tax bracket was reduced from 73 percent to 24 percent between 1921 and 1929. In that same time period, income tax receipts rose from $ 719 million to $ 1 billion. Reganomics in the 1980s and the Bush Tax Cuts of the early 2000s also had a very heavy basis in the Laffer Curve theory.

Arguments against the Laffer Curve

The Laffer curve doesn’t exist in an economic bubble like most economic theories. Income tax is supposed to be a small loan from the taxpayers to the government to help make use of the economy of scale. Historians are quick to point out that countries like Russia have a near 100 tax rate and still have a working economy. The Laffer Curve is also has complicated calculations because of progressive taxation.

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