I was stunned to learn this morning that leading economists flat-out don’t believe in the Laffer Curve. I mean, economic historian and liberal favorite Bruce Bartlett calls the Laffer Curve “a generally accepted analytical device … [that is] a widely discussed subject in respected academic journals.”
Indeed, here is a widely discussed paper from 2012 — not the 1980s – “How Do Laffer Curves Differ Across Countries?” by economists Mathias Trabandt of the Federal Reserve and Harald Uhlig of the University of Chicago.
Prof. Wolfers, whose work I follow and enjoy, is mistaken.
First of all, here is the complete set of survey results from the University of Chicago:
1. Sorry, one cannot conclude from those survey results that “0% believe in the Laffer Curve.” Question B, the one Wolfers highlights, merely says that economists don’t believe an income tax cut at current rate levels would gain more revenue from economic growth than it would lose from the lowering of rates. Note the phrase “right now” in the question.
Perhaps some/most/all of these economists don’t believe in the Laffer Curve. Or perhaps some/most/all just believe the U.S is on the wrong side of the Laffer Curve so that tax cuts don’t pay for themselves. Anyway, supply-siders don’t believe that all tax cuts at all rate levels pay for themselves.
2. What Wolfers strangely fails to mention is Question A. Those results show that 43% of respondents agree that cutting income taxes right now would boost economic growth over the next five years vs. 9% who disagree. 43, yes, 9, no. Hmm …
Let me close with something one of my favorite blogs, The Supply Side, recently had to say in an essay about the global acceptance of economist Art Laffer’s insight on marginal tax rates:
Since the 1980s, the top income tax rate has been raised twice and cut once, settling at 35% for the last decade. Income tax rate increases have been offset by cuts in the capital gains tax rate, now at 15%. More than 30 nations have adopted flat tax systems, including, ironically, most of the former Soviet bloc nations, and several other countries are considering them today. Recent discussions of lowering the US corporate tax rate have included bipartisan recognition that lower rates could bring in similar levels of revenue. While in the 1970s many developed nations had top tax rates well above 70%, today, most nations keep tax rates below 50%. In short, Art Laffer is a world historical figure who has helped lead the restoration of classical economics’ focus on production incentives. That his arguments about tax rates’ incentive effects have been accepted in broad terms today among economists of all political stripes is testimony to his tremendous skill as an economist and advocate.