Why Zynga Should Worry About the Laffer Curve
byrnehobart.com
byrnehobart.com
The Laffer Curve normally describes government revenues compared to marginal tax rates. It’s a curve because, given a sufficiently high tax rate, the incentive to work, report income, or live in a particular country declines. This leads to the argument that lower taxes are net beneficial: if we’re past the peak, they’ll raise government revenue, but even if we’re not, they can produce economic growth.
I think what he means to say is that the Laffer curve describes government revenue versus tax rate. That is, it is not that at a certain tax point the incentive to produce taxable revenue in that country decreases -- this happens at any increase in tax rate. Rather, the argument is that at a certain point the disincentive to create taxable income is high enough to meet the amount gathered in taxation. At any point beyond this point, the disincentive is actually higher than the tax rate, causing the government to acquire less revenue than it would at a lower tax rate (because the decrease in taxable income produced is higher than the revenue at the increased marginal tax rate). I think the author understood this (the rest of the argument seems cogent), but I just felt that paragraph was a little unclear.