Sam Brownback wants to raise taxes

[muon2]

But... the Laffer curve napkin!

The Laffer curve is correct, its just that most American jurisdictions are on the left side of the curve.

I've never seen explanation of the Laffer curve that acknowledges the income effect. That's a glaring oversight.

Like many basic economic models the Laffer curve does not take into account multivariate features of the economy. That doesn't invalidate it, it just limits its predictive power. The curve itself long predates Laffer and he attributed it to the medieval Islamic scholar Ibn Khaldun (who incidentally was a student of the works of Ibn Rushd).

The curve is based on two theorems and one economic assumption. The first theorem is that if the tax rate is zero then revenue will be zero. The second is that if a function is continuous and positive, then it reaches a maximum between two points where the function is zero. The economic assumption is that as taxation rises, people will change their economic behavior to reduce their activity that generates the tax (This is the principle argument given in favor of raising cigarette taxes - it encourages people to cut back on smoking.) The corollary to this assumption is that if the tax rate is 100% then people will completely avoid that activity since they would get no value from it. The logical conclusion from the assumption is that there is a tax rate less than 100% that generates maximum revenue.

The problem is that when there are multiple methods of taxation then calculation of that point of maximum revenue becomes difficult. It is almost certainly the case that the revenue rate curve is not symmetric and may have more than one peak. Another problem is that consumption taxes (like the sales tax) don't confiscate the good or service so there is always some value and the 100% point isn't reached for that tax.

[muon2]

Muon2, your post did not communicate much. It was mostly jargon. We do know that a zero tax generates no revenue, and a 100% tax generates next to none. It is what in-between that matters, and the elasticity of how assiduously  folks will endeavor to change their behavior/financial transactions to avoid taxes, and how much their amount of toil will truncate as marginal tax rates increase (yes maybe it will increase at certain points in the formula to get enough net income to meet basic needs - one will work very hard working at a 90% marginal tax rate to avoid the alternative of starvation - good recipe for revolution that one), and the particular economic environment matters also - if not working at all means starvation (so the robustness of the social safety net works into the formula too). And you know what? I don't think anybody really knows. Just like nobody really knows, how much of the corporate income tax morphs into higher prices of goods, and how much is really a tax on capital. If somebody really does, they should give me a call.

The lack of a good and reliable data base of course is what fuels ideological rhetoric. Absent hard data, folks have more space to assume what fits within what they wish to believe, to effect a better fit between their ideology and reality. Who knew?

I admit a dry response, but I'm weary of years of attacks on the Laffer curve, simply because it was glommed onto by the architects of Reaganomics. It's as basic as a supply-demand curve. It's also easy to prove its validity in the simple case with very few assumptions, do I did. There are academic papers that show the ideal rate should be 30% and others that say 70%. Just like a supply-demand curve the optimal point shifts depending on how many factors one wants to include. As I noted sales taxes don't fit the assumptions of the curve, so there is no optimal rate for Brownback to set on cigarettes and liquor.