Why do Americans think this is an amazing deal for them??
Doing the actual work required shows the Laffer curve calls to increase taxes right now. One study of the United States between 1959 and 1991 placed the revenue-maximizing tax rate (the point at which another tax rate increase would decrease tax revenue) at between 32.67% and 35.21%.[3] In 1991 the "average" tax rate was 19.58%. The US is currently on the lower side of the maximum tax rate predicted by Laffer's curve. Hsing also concluded that Reagan's tax cuts reduced revenue, since the average tax rate at the time was only 20.41%. This means Laffer's curve has completely backfired in what it was said it was supposed to do (increase government revenue).
The tax rate the Laffer curve deals with is an "average" or overall rate. In a progressive tax system, lower income people should be paying, approximately, a total tax of 10-15% and upper income people in the 60-70% range, comparable to the 70% that was found to give an optimal result in Sweden in the 1970s.[4] And despite that marginal rate since being lowered to +55% in Sweden (the shortfall resulting in sales tax increases), it is still well higher than the the highest federal bracket in the US — 35% — in 2011. A worker earning about $20,000 a year pays a 15% income tax plus almost 15% in "payroll" taxes towards the Social Security and Medicare/Medicaid programs, or about 8% less than the tax rate paid by someone earning a hundred times as much.[5]
It’s invoked to justify objectives opposite to those it purports to achieve. The whole point of the Laffer curve is to set taxes at the “optimal” level, where the curve reaches its peak, in order to maximize government revenue. But it is then cited to justify endless tax cuts, by those who seek to minimize government revenue, to reduce government spending by “starving the beast.” This non sequitur goes almost universally unnoticed by both advocates and opponents of the policy.
It focuses on the wrong segment of the population. The people that'd theoretically benefit the most from the tax cut would be those facing the highest effective tax rate; the people on welfare. Due to the rules about means-testing for things like housing assistance, food stamps, and healthcare, make juuust enough money and you lose it all. Oh sure, it's phased out, but the end result is that it's still effectively a tax. Earn an extra $10,000 this year? Screw you, you don't need these $6,000 worth of food stamps and housing benefits, oh and you can now afford to pay an extra $2000 in tax, oh and this is after we tax your money through your employer before you even see it! And this is BEFORE Social Security which for some stupid reason is only levied on the first $110,000. This is known as the Welfare trapWikipedia's W.svg. It's almost as if the system is designed to prevent people from escaping poverty. So even if the Laffer Curve was true, the rich are the last group that need the cut.
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