Laffer Curve for Dummies
The now famous Laffer Curve, named after its originator, economist Arthur Laffer, shows that beyond a certain easily reached point, lower taxes yield higher government revenue. In other words, lower taxes are a win-win situation: Individuals and businesses win because they get to keep and spend more of their own money, and government wins because it takes in greater revenues than it would if higher tax rates continue to prevail.
The government gets more money at the lower tax rate because that lower rate encourages investment, business start-ups, and job creation: More investment means more businesses; more businesses mean more jobs; more jobs mean more tax payers; and more tax payers mean more government revenue.
Ever since the late Paul Simon, Democrat from Illinois dubbed this plan “trickle-down economics” in the 1970s, that name has stuck and has become a term of derision. What the Democrat deriders do not remember is that this plan is older than the 1970s. This plan was tried in the early 60s under President Kennedy. His tax cuts more than paid for themselves in less than one year. Although government officials predicted that Kennedy’s tax cuts would yield a nearly $90 billion dollar revenue shortfall, they actually expanded government coffers by more than $50 billion.
Rather than a trickle, this tax cut proved to be a cascade, one Kennedy described as a rising tide that raises all boats. No Democrat, then or now, accused Kennedy of favoring the rich. They do that only when a Republican offers Kennedy’s plan.
Which raises the question: Have you noticed the ever-widening gap between current Democrats and JFK, their supposed darling? He was a tax cutter; he was pro-business; he was a militant anti-Communist; and he was fervidly in favor of a strong national defense. JFK is far more like the GOP than he is like the Obama Democrats. Despite the Democrats’ professed admiration for JFK, they run madly away from his ideas. They have done the same with MLK.
Dr. Michael Bauman is Professor of Theology and Culture and is Director of Christian Studies at Hillsdale College, where he has been since 1988. He also is Scholar in Residence for the Summit Semester program of Summit Ministries. He is a former inner city pastor in Chicago, an honorably discharged Marine, and a former cycling world champion.