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Tuesday, 12 September 2017 11:49

Why we know Reagan's tax reforms worked

Written by  Tim Worstall

Given the frenzied shouting that is going to accompany the current calls for tax reform we need to remind ourselves of one rather important thing – the Reagan tax reforms worked.

By this I don't mean that Art Laffer is always and everywhere right, that tax cuts pay for themselves, not that that's what he actually said anyway.

Rather, they succeeded in bringing our tax rates roughly to where any further increases will not do much to increase government revenue, and they forced much of the compensation that high-earners were receiving in the form of untaxed perks back into being reported and taxed as personal income.

What Laffer and his Curve did actually say is that it is possible for tax rates to be so high that lowering them will change people's behavior enough to increase revenue. NYC seems to have reached that point, for example, with its tobacco taxation, gross revenue declined after the last rise. Just about any level of financial transactions tax goes over that peak revenue raising rate. Whether the American Federal income tax rate is above that at the moment, well, around and about that maximal rate is probably the right answer.

The best research we've got into this is from Peter Diamond and Emmanuel Saez – one with a Nobel, the other tipped as an odds-on certainty for his own.

Read more at The Washington Examiner

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