Rick Kelo and The Laffer Curve

Imagine, you work 50 hours a week. You’re exhausted. You hate your coworkers and your boss is a jerk. Not to mention, all your income is going to your taxes. So you decide, I’m just going to watch YouTube while I’m at work and everyone else can just go stuff it. Now imagine, all those things are still in place, but you’re income is higher due to low taxes. So you’re working hard to bring home the bacon. This is an example of the Laffer Curve.

The Laffer Curve was created by Chicago economist, Arthur Laffer, in 1974 when he first drew up the idea on a paper napkin while discussing the United States economy with the senior staff members of President Gerald Ford’s administration. At the time, many economists believe that the government needed to spend more in order to stimulate demand for products. Laffer argued that it wasn’t too little demand, rather heavy taxes on income impeded production and government revenue. The more money taken from an income, the less motivated the common man became to produce a demand. However, Rick Kelo, a tax industry professional with over ten years experience, believes that the highest point of the Laffer Curve may maximize revenue, but it may be destroying some amount of economic growth.

 

The Laffer Curve in 1974 led to one of the biggest tax cuts of the century in the United States, however currently fails to resolve the current economy. It is simplistic in assuming that there is a single tax rate and a single labor supply when in reality the systems of public finance are complex. Furthermore, the Laffer Curve does not take into account the tax avoidance taking place, which means that the highest point may be farther right on the curve than thought. And to add fuel to the fire, a survey went out to economists in 2012 with the question “if there were a cut in federal income tax rates in the US right now, would it raise taxable income enough so that the annual total tax revenue would be higher within five years than without the tax cut”? 71% disagreed with this idea and no one agreed.

Rick Kelo believes that if the dollars taken by higher taxes are saved, the economy would enlarged and there would be a potential for raising overall wages. However, if those dollars are redirected to the government sector, then everything will be consumed rather than saved. More information on economics and Rick Kelo can be found on Rick Kelo on issu.