Politicians, such as Ronald Reagan and George W. Bush, have used the Laffer curve to justify tax cuts. Both resulted in lower revenues
RARELY has a dinner-table scribbling created such a legacy. In 1974 Arthur Laffer, an economist, sketched a simple diagram on the back of a napkin to illustrate a truism of tax policy. Set income-tax tax rates to zero and governments will not collect any revenue. Set them to 100%, and they will also collect nothing because people will have little incentive to work. Somewhere in between lies a sweet spot where government revenues are maximised.
Mr Laffer’s scribbling caught on. Some 45 years later some 15,000 journal articles mention the “Laffer curve” in their title. Today President Donald Trump will award the Presidential Medal of Freedom, America's highest civilian honour, to Mr Laffer—an adviser to Mr. Trump’s 2016 presidential campaign and co-author of the book “Trumponomics”. In its announcement of the event, the White House described Mr Laffer as “one of the most influential economists in American history.
This may explain why many economists are so critical of Mr Laffer’s supply-side policies. In 2012 the Initiative on Global Markets, a research centre at the University of Chicago’s Booth School of Business, asked a panel of 40 economic experts whether a cut in income-tax rates in America would raise enough revenue to pay for itself in five years. Not one of them agreed. Richard Thaler, winner of last year's Nobel prize in economics, responded simply “That's a Laffer!”.
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