Monday, May 26, 2014

Laughing at Laffer

I would like to take a moment to discuss the "Laffer Curve".  For anyone who is unfamiliar with it, it is an economic theory that somewhere between 100% and 0% tax rate, a country will maximise its revenue, and above that level, it will begin to loose revenue as the economy stagnates.  (More here )  In 1974,when Arthur Ladder famously scribbled the bell curve on a napkin, it was probably true that the top of the economic ladder was taxed at too high a rate... however it is also true that under this theory we might (probably have) swung too far in the opposite direction.

The Curve was (and is) a central thesis behind supply side economics ( aka trickle down or voodoo economics).  Again, at that specific moment in time the country might have needed some supply side policies, freeing up personal wealth and disposable income which would lead to a boom in small business, innovation, and an overall healthier economy. (Although I would argue that the policy should have been slanted more towards the middle of the economic ladder than what actually happened)

These policies had, at their core, an implicit bargain between the holders of capital (the top rungs) and society at large... If we lower their tax "burden", we would be magnanimously rewarded by the mystical,all mighty 'invisible hand of the market' with renewed prosperity, more and better jobs and opportunities, and a strong and healthy economy.  An economy that had ample jobs that provided not just a life, but a GOOD life, and the chance to climb the ladder through hard work, loyalty and dedication.

We were suckers to believe it initially, and we have been getting shafted ever since.

Admit it, we were gullible... we WANTED it to be true, after all, that was how the country had worked in the 50s and 60s, things had just stalled.  So freeing up some $$$ and putting it in people's hands (and wallets) would jump start the economic engine...Right??

We desperately wanted it to be true, because many of us harbor secret (or not so secret) business ideas and plans, and we had become convinced that we would be the beneficiary of that prosperity. (My plan includes a deli/coffee music, educational speakers, and maybe a 2nd run movie theater....)

The sad fact is, all those small businesses and personal dreams would have created broad prosperity and decent, good paying jobs... it's a truism in micro-economics that smaller companies pay workers better than corporations that directly compete (it's harder to screw over people when you see them everyday,know their families, etc)

However, I am just tired of hearing "The Curve" solely used to promote another tax cut at the top, when it can just as easily be used to argue in favour of RAISING the tax rate at the top...especially since those who have already benefited from the low taxes (at the top) have abjectly failed to 'trickle down' the wealth and opportunities we were promised for 30 years.

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