Art Laffer refering to his profile as the laffer curve really made me laff

Art also created the Laffer track so people know when to laugh during sitcoms.

A difficult concept, explained very simply. Well done. Here in the UK, for a time about 50 years ago, the tax rate on high-earning individuals was 99%. So all of those high-earners went overseas and the government earned zero. When the tax rate was dropped to a sensible level, those high-earners returned and tax revenue increased dramatically.

The hard part is knowing where you are on the curve

There is another point, it is unfixed as far as "percentage taxed" but it is fixed as far as "tax revenue collected". That point is the point where you don't collect 100% of their money, but you do collect enough that they cannot progress, they make JUST enough money to live and pay the bills... and NO MORE. Because they cannot progress, there is no incentive to work, they work for nothing, just working to work more tomorrow, there is no future and no growth, therefore, the economy dies. This is important because it means that you actually hit that "zero tax revenue" point well before reaching the 100% taxes point.

Now, I would like to see him explain in a separate video, as to why does the peak of the Laffer curve shift? And is it, that he would still encourage its use then?

Largely the same as the price curve for any product or service, except taxes are by force.

I never tought this sort of stuff could be interesting, but it definitly was!

It's easy to find out where you are, on the curve. Just lower tax rates. If revenue goes up, then the old tax rate was too high!

What he didn't state clearly was that the graph shown was subjective, not objective. By which I mean the point at which revenues start to decrease is not 50%. This inflection point varies by time and place. In the American colonies in the 1770s it was in the single digits and only certain goods were taxed, but widespread disobedience (and armed revolt) made that little bit of taxation an inflection point. There have been documented cases of 10% and of 70% being inflection points. More progressive tax systems like what are used in the U.S., where the rich pay higher percentages than the poor, also complicate any attempt to discuss actual numbers. Interestingly because the rich are more able to move their money around and change where they live or work to avoid paying taxes the inflection point on the rich is lower than the inflection point on the poor. A massive tax hike on the poor is more likely to raise revenue than a hike on the rich as the poor are less able to avoid paying.

Many of you are looking at this all wrong. What you're failing to see is that lower tax rates generate more production and economic growth (GDP). This is due to the smaller overhead on business, their ability to grow and expand, produce more, purchase more, start businesses, and hire more workers. So, think of an economy with low taxes as a pie that is growing in size. This growth means that there are more businesses in business and more taxpayers paying taxes. So, to make it simple, would you rather have 15% of a pie the size of the empire state building, or 90% of a pie the size of a Volkswagen? The lower percentage, believe it or not, actually correlates with more revenue for the government. Would you rather have 18% of a gigantic economy worth trillions, or 91% of a small economy worth a few million? If your answer is that you want 91% of a gigantic economy worth trillions, you're missing the point. That economy would have never grown to that size with the 91% tax rate, and to make that the policy going forward, will only shrink it. Another way to look at it: You will receive more tax revenue in a robust economy by taxing hundreds of workers making 60k a small 10% tax -- than you will if you taxed a smaller economy that has only maybe 10 or 20 workers making 60k, at a 60% or 70% tax rate. Moral of this story: you will not have that robust economy with hundreds of workers making that 60k in a 60-70% tax environment, only because of that low 10% tax rate is it possible to even have that many workers making 60k, and the nice side effect is more revenue for the government in the end, REGARDLESS of the lower actual rate (%)

Laffer owes Peter Schiff money

Watching ferris bueller with the subtitles on brought me here!!

Wonderful...sharing with my undergraduate students ( who are rather young).....What could be better than the laffer curve explained by Arthur Laffer himself

All these years later, that one scene in Ferris Bueller's Day off makes so much more sense.

In recent times where have we seen tax rates over 90%? In the UK, it was when people receiving state benefits of one sort or another had their benefits reduced by the amount that they earned above a very low threshold. Inspectors were employed to make sure that the poor had no money coming in. That contrasted with the indulgence shown to the rich who didn't want to pay tax.

Great video.

Thank you

This dude owes a penny to somebody

great explanation

And that's why most civilised countries have income taxes near but below the middle. However, there are stealth taxes, like the uK's national insurance that is an income tax ontop of income tax but because its split from income tax people don't factor it into 'how much they are taxed' in a simplistic manner.

I think some Democrat politicians should watch this

Does this mean that everyone, regardless of their income level should be taxed at this revenue maximizing point?

Thanks Dr Laffer

Hard to believe that politicians like Bernie Saunders still don't understand this curve.

Such a simple, great concept by Laffer. Fits well with the Law of Diminishing Returns, another econ 101 concept (and reality). I find it bothersome that lots of people in the comments section here are getting all upset about this. This isn't political, folks, unless you make it.

I saw Arthur Laffer in the early 1980s at Cal State Fullerton as I was a Finance major at the time. He told a parable that has been planted in my subconscious now for about 40 years. He stated that "one of the first economic lessons we learn as a kid is a terrible one and that lesson is derived from Robin Hood. Robin Hood goes thru Sherwood Forest taking from the rich and giving to the poor-but what happens when the rich just decide to not go through Sherwood forest? or bring armed guards? " the proverbial socialist dilemma of how great socialism is until you run out of other peoples money. Since our current crop of college kids are by and large complete economic buffoons, let me answer the question of what happens when the rich don't go thru the forest. You see Robin Hoods men (government politicians) get lots of support at first from the villagers who seem to think there is after all a 'free lunch' and at first this would seem to be the case. But right off the bat they notice that Robin Hood and his merry men are taking a pretty good slice of the booty from the rich but hey it still beats working right? So the villagers don't plant seed for next year because that is hard work and even risky, you may not even have a crop so why go thru the hassle and toil. Now the rich have armed guards and it is much harder for Robin to loot the rich and Robin's merry men want more money for taking on the armed guards and now even less is going to the villagers. Ultimately the rich don't go thru the forest and it is very hard to find them anywhere. Even so the villagers stay with Robin Hood and urge him onward and upward-find more rich they say and the 'rich' are now people with say two cows instead of one and some are even here in the village...well ultimately this downward spiral has an end game. Robin Hood has no more rich to loot and has to control the unruly peasants who have not planted for the harvest nor have they honed their skills at their trades as it was easier to obtain largess from Robin and his 'party'. The poor peasants are now starving and belatedly come to the realization that they are totally dependent on RH and his gang and they also realize the entire village is in major digression and their very lives are in jeopardy but they are now ruled by Robin and his merry men who only how to take and not produce and are experts in the use of force to obtain their objectives. The end product is Venezuela my friends.. Probably the greatest take away from my time in college was that lecture. The laffer curve works, when Reagan lowered tax rates revenue surged, look at the latest CBO numbers under Trump, tax revenue is increasing though rates are dropping. Why did the deficit explode and is currently doing the same? because EXPENDITURES far outstrip the increase in revenue, the exact same in Reagans tenure..this is why we see this every time- but don't let anyone ever tell you that we have to 'pay' for the tax cuts, they actually brought more money to the table and paradoxically Alexandra and Kamella and Warren should be cheering this as it actually brings more money into the federal coffers, but these modern day Robin Hoods will never be swayed from their dogma with the presentation of facts and the villagers will always blindly cheer them on-until its too late.Ironically, I also had a professor in 'crisis biology' who told me some of the real estate in south orange county California was the best farmland in the world and in thirty years I would be seeing condos pulled out and farms put back in.. I knew my parents had farmland in Kansas selling for around 1k per acre and this made no economic sense. Forty years later, I still live in south orange county and it still doesn't make any economic sense and I'm still waiting for at least one farm to come back and any condo's to be torn down. I hope my college age kids get to see Laffer and let his views sink in as it was quite an epiphany for me that has forever changed my economic worldview. Thank you Arthur, for your insights.

How does inflation (not so hidden tax these days) impact ?

How might this apply to progressive tax rates?

Awesome

「Military Aide : Arthur B. Laffer , the Father of Supply- Side Economics , is one of the most influential economists in American history. He is renowned for his economic theory , “The Laffer Curve”, which establishes the strong incentive effects of lower tax rates that spur investment , production , jobs , wages , economic growth and tax compliance. Among other accomplishments during his distinguished career , Dr. Laffer was the first chief economist of the Office of Management and Budget and a top economics adviser to President Ronald Reagan.The United States proudly recognizes Arthur B. Laffer for his public service and his contributions to economic policy , which have helped spur prosperity for our nation.」 June 2019 White House 　 President Trump Presents the Presidential Medal of Freedom to Arthur Laffer.

Good video even though it is 6 years old. What is the optimum tax rate 40 or 50% or is it lower, the amount of work can also be effected by culture and other pressures. For example if there is a war on and all taxes and work is needed for that to defend the country. Ukraine would be an example.

the Laffer curve does point out that taxing people to the point where their work isn't worth it hinders revenue as people deliberately earn less to avoid taxes. It also shows that above a certain percentage that high earners are finding ways to avoid paying tax on extremely high and in some cases, unspendable amounts of income. hire a dozen accountants for a year to find these loopholes and close them. what would the curve look like then?

"Here's Johnny!"

In a vacuum but not in the real world.

excellent

Have you paid your penny to shift yet ??

Coach Murray the goat 🐐

The laffer curve makes absolute sense. Some may argue that its subjective nature makes it unusable. They miss the point. Another curve that is false in this Keynesian dystopia is the Phillips curve relating inflation to employment. Fiat money creation is the root cause of inflation and not employment.

I wanted a video about the Laffer curve and saw Laffer himself did one. Though to myself "if anyone should know this shit its him"... I was right

Beautiful

If you increase wages then the portion of taxes paid by wage earners will increase as well Nearly all income tiers above $100,000 paid higher shares of total income tax in 2015 than they did in 2000 (though the shares for many high-income groups fell in the early 2000s, following enactment of major tax cuts in 2001 and 2003). For example, the $2 million-and-higher group paid 20.4% of all tax in 2015, up from 17.2% in 2000. The share for the $200,000-to-under-$500,000 group rose to 20.6% from 14.9%. Some of those shifts may be due to changes in the tax laws or to what’s known as “bracket creep” - the phenomenon in which inflation pushes people into higher tax brackets.

Jordan Belfort looks older now...😲

That graph is hard to understand

Not just Ibn Khaldun but chanakya suggested that when a part of a Kingdom is destroyed, you don't tax it and let it develop until it's taxable. Thus acknowledging that lower or no tax rates help the economy. Not exactly laffer curve but quite obvious that lower taxes lead to more development

from succession

Pay your penny .!!

Did anyone else get here from a Ben Stein/Ferris Bueller rabbit hole? Because I sure just did.

To me it's still really simplistic. It does not take into account the benefits that would be provided by the specific tax rate we are considering. It should be adjusted with this other variable, which obviously is different for each country, therefore the model should be three-dimensional

Ibn Khaldun Low Taxation Method

The Laffer curve erroneously assumes that the purpose of the tax rate is to maximize government revenues. That is incorrect. The purpose of the tax rate is to attain the target level of government revenues to finance government spending. The intended level of government spending determines the tax rate, not some notion of maximizing government revenues.

I really wonder what the real shape of the Laffer curve really is. I bet it it not a parabola.

Thank you for your kind explanation in a nutshell...

he looks like a low budget Jack Nicholson

I think 45% tax on the rich is that point where most tax revenues can be raised. Anything below and above that reduces tax revenues.

I have a degree in economics and have always questioned its relevance to the real world. On the original napkin that Laffer wrote in 1974 he puts the statements, “If you tax a product less results/If you subsidize a product more results./We've been taxing work, output and income and subsidizing non-work, leisure and un-/employment./The consequences are obvious!” Don't the taxes we pay help output? Don't teachers, policemen, judges, roads and bridges etc. help make work possible? Doesn't the market economy benefit from education, law and order, defense and infrastructure both directly and indirectly e.g. the military industrial complex. Governments can also get income from other sources e.g. ownership of industries and "rents" on resources.

no body can explain laffer curve better than you ..sir

The curve is accurate in theory. But you can't say at what set of tax rates revenues are optimized, especially since the curves shift constantly based upon a billion unmanageable variables, so it is worthless as a tool for determining tax rates.

Anyone who argues the laffer curve as not knowing where it starts where it ends is really a leftist....my laffer curve tells me the government takes way to much because they spend our money freviously on a bunch of bullshit and the fact that GOBERMENT is way to big and all they want is to grow it. Then tax you more to pay for it only to grow it until you reach the point of destruction of the economy. You know the democrat way of doing shit.

The Laffer curve has as much economic validity as mercantilism.

basic. would be good to get an ideal number. From what I can see it seems like high taxes for the wealthy are beneficial to all (even the weathy) as the society gets more equal, less crime .. Denmark seems like a good example. Very hight taxes though.

Inapplicable, everyone is in a different tax bracket, it takes the average. If you lower taxes on bottom, and raise slightly on top,more revenue

Great video. Very informative. Best part is that it was not oozing with political bias, like most political / economic topics these days (the Keynesians would be displeased over that 😅😆...) Well done!

The economy will boom with higher wages people will spend more and government will collect more taxes. So neither governments nor individuals will need to live off borrowed money and debt paying interest rather than taxes not a good idea. Economists should study accounting and stop messing with theories based on centuries ago nonsense that has brought us to a world run by banks

The world is too complicated for the laffer curve to decide policy. This is a very simple pedagogical tool not a specific calculation, laffer says this in the video. In reality the curve would not have such a consistent shape across different tax levels. This also assumes a flat tax rate, with graduated taxes and where graduations are placed all effects the output of the economy and revenue from taxes. This also treats taxation as a simple drain sucking resources from the economy, the truth is that government spending and investment effects economic activity and ultimately total productivity. Not to say we should tax at some crazy high rate but trying to simplify the world is were we stumble into peril. The first thing you learn in economics is no action occurs in a vacuum. Everything interacts meaning our world is one complicated place needing careful examination and calculation.

Bueller, Bueller?.... Bueller?...........

makes sense to me, untill the point where he assumes the peak of the curve is at 50% and the curve is symmetrical. how does he know its not at 20% or 80% or any other number?

Why does he keep making the Illuminati symbol?

you look like dafoe

Laffy McLaffface

Please send this to your far right friends who think they are liberals

"Something d-o-o economics"

So this chart is wrongly constructed: Revenue is a function of Tax Rate in this case, therefore Tax Rate should be the x-axis, and Revenue the y-axis. If that were the case, no one would have to explain anything since the plotted function would be easy to read and understand instead of this... "drawing". This "drawing" in the video is a great example of a bad attempt at representing something simple to understand.

The key flaw here is that you're only talking about income taxes. Wealth taxes are a looming specter in western countries and they incur a tax rate of up to infinity percent of income. Never ever vote for or consent to any form of wealth tax.

The man the myth the legend

But it's not a perfect parabola as shown..... js

Here to learn about voodoo economics.

This is too complicated for every lefty in the western world to understand.

Oh really same effect can be achieved to pay more for labour then people will spend more and not need to borrow to live. The only reason the rich wants less taxes is to enrich themselves further not to share the economic output with labour but to pocket more for themselves. The lowering of 10% tax for a low paid workers only put at best extra 2k in their pockets whereas for the rich same tax cut gives them extra 200k in pockets to invest on stocks and make themselves even richer

He's 78 years old.

Smartest economist ever❤

I would work at 100 tax rate cause I am unemployed

From the curve. The maximum tax rate is 50% at maximum tax revenue. We are all screwed!

The Laffer Curve: Too Simplistic

Per Laffer, above say $500,000 income per year including capital gains, if you taxed at like 70% those people would have little incentive to make more money. Agreed. So they would have less incentive to keep rents high and wages low. So things would get better for the majority below say $50,000 per year. 70% marginal tax rate to fund a homeownership program. Lets do this thing.

is it symetrical? bellcurves don't necessarily have to be symmetrical. bezos is XYZbillionaire. will it kill of the monopolies? possibly? but some like bezos, will keep going regardless. is there 100% incentive bar for the average joe? - yes. and will breed more competition for the up and comers. So what's the downside then? does taxation offset the fees the employer is pocketing instead of paying to subsidize the workforce? example: bezos works population XYZ and dumps them when they are no longer "useful" which then the healthcare and unemployment must pick up the slack? example: bezos provides no return goods infrastructure and many returns get junked to the local landfil at the cost of the local tax payer. does taxation offset the stocks of the CEO who makes bonus yet pays nothing back into the company in form of investment? and instead relies on the inflated magical worth of the company by investors to fund R&D.

This is all wrong and we have the last 40 years to prove it. Low tax rates after a certain point do nothing other than allow the richest people to store more money. Money to not being circullated is money not driving something like infrastructure and other projects. Things that employ people and hand out contracts to millions. Those things require supplies and equipment and those that supply those things grow and invest in more employees and equipment and so on. The ripple effect is amazing for both the rich and not so rich. But it's not happening and hasn't happened for 40 plus years. Trickle down was and is still one of the biggest lies sold to us.

70 Marxist thumbed down your video. At least they figured out how to use a smartphone.

lol this guy again...... if he had any pride he would be living with patrick star...

This guy desyroyed socialism in minutes

Optimum tax rate is always 50%! lol

This is baloney. If a 100% tax were imposed for individual sums of wealth above some astronomical amount, say 3 billion, do you really think that entrepreneurs would say to themselves “if I can only make 2 billion but not 20, I have no incentive, therefore I choose not to start a business.” Of course not.

LOL this assumes black markets don't exist.

No one works just for money. I personally find sitting around home doing nothing completely depressing and unfulfilling. Of course money is a motivating factor but it's not everything. I'd take a minimum wage job over no job at all any day of the week. Also, Art Laffer is a corporate buffoon

Absolute idiotic nonsense

Wait a minute, why doesn’t he make the point that the laffer curve would also suggests that you wouldn’t want taxes too low. He just says that the laffer curve suggests that taxes should be too high. I smell someone using basic math to spew bullshit

The only thing renowned about Art Laffer is what a joke he is, and how awful and dangerous his policies are.

This is such nonsense.

🤣🤣🤣🤣 HE IS SUCH A FRAUD!!