"The Laffer Curve"

The myth goes something like this; "If you lower taxes revenue will increase, counter-intuitively." If we doubt our intuition, we need only look at the facts and figures. 

The thing about this myth is that it isn't historically demonstrable.  Following the Kemp-Roth tax cuts in the early 1980's the revenue fell and didn't surpass (in CONSTANT dollars) the level of fiscal year 1981 (Carter's last) until FY1986,[1] even as population grew by 10.7 million during that time. Obviously, the early 80's recession had some effect on this (though it was largely over by mid FY1984) after this, revenues grew gradually until FY1987 when the income tax code was flattened while payroll taxes were raised.[2]

To illustrate more clearly, I put together a Top 25 list of all-time yearly individual income tax receipts (in millions) [3] all converted to constant 2005 dollars[4]:

2000: 1,145,731

2001: 1,106,296

2007: 1,093,694

2008: 1,038,661

1999: 1,028,151

2006: 1,008,022

1998:   982,202

2011:   947,048

2002:   939,622

2005:   927,222

1997:   882,559

2003:   846,612

2004:   838,821

1996:   802,074

2010:   800,989

1995:   738,519

1994:   698,014

1990:   682,579

1989:   671,827

1993:   667,382

1991:   650,121

1992:   640,081

1987:   632,137

1988:   627,041

1981:   597,029

Note that fiscal year1981 was under Jimmy Carter's tax policies, and surpassed the revenue of 5 of Reagan's fiscal years. Considering that there is practically an entire ideology built around this one myth, the subject is deadly serious.  But if it wasn't, I'd consider it a laugher, for sure! :-P


[1] [4] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

[2] http://www.ssa.gov/oact/progdata/taxRates.html

[3] http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=203