The Laffer Curve is a method for illustrating the relationship between tax rates, taxable income, and tax revenue.
But it’s important to realize that there are actually lots of varieties.
The Laffer Curve for capital gains taxes, for instance, will look different than the Laffer Curve for payroll taxes. Or corporate taxes. Or marijuana taxes.
In every case, the shape of the curve will depend on what’s being taxed and the ability of affected taxpayers to alter their behavior.
And the shape of the Laffer Curve also will depend on whether one is measuring the short-run revenue impact of tax changes or the long-run impact of tax changes.
Given all these varieties, no wonder so many people, both right and left, sometimes misstate its meaning.
Let’s try to expand our understanding of the Lafffer Curve by looking at some new research.
Professor Aaron Hedlund of…
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