The Laffer Curve: The Most Powerful and Ambiguous Idea in Tax Politics

A couple years ago I was interviewing Grover Norquist, head of Americans for Tax Reform, about economic policies and the 2008 election, and, as he told me repeatedly that lower taxes would yield higher revenue for the government, midway through the interview I stopped to ask a basic question: "If lower taxes mean more revenue, at what point does that stop being the case?"

Thus commenced my first exposure to the Laffer Curve, the economic curve that expresses the relationship between tax rates and government revenue. The Laffer Curve isn't so much a curve as it is the idea that there is a curve: it operates just the same as any other basic economic price curve and expresses the notion of marginal returns on tax rates, but there's no comprehensive data set to back it up.

In some ways, the Laffer Curve drives the most potentially powerful argument in tax politics: if lowering taxes really would increase revenue, then we can have our cake and eat it while riding unicorns through an exquisite rainbow, making necklaces out of gold dubloons and high-fiving Lincoln. The idea is very, very appealing; it is perhaps the most appealing argument in favor of lowering taxes, because it evaporates the moral debate about whether we should have to pay more to support welfare or foreign wars. New-school fiscal conservatism isn't as grounded in economics so much as in economic liberty and the idea that government infringes on freedom when it taxes, but the Laffer Curve is a powerful concept because, if Norquist's view for instance holds correct, there no reason at all to uphold our current tax rates, from anyone's perspective.

The Laffer Curve is unique in politics because it is a measureless measure of policy analysis. It begats and participates in arguments of policy for which there are no solid answers. Dylan Matthews, writing on Ezra Klein's blog at The Washington Post, has a valuable roundup of what tax experts, liberals, and conservatives think of the Laffer Curve and where, on it, our current tax rates fall. The lack of agreement between left and right is sort of impressive. Nonpartisan tax experts cite figures in the neighborhood of 60% and 70%; liberals advocate 70%; conservatives advocate anywhere between 15% and 33%. Some appear certain of their answers. Many don't.

So many other questions in politics--should we be fighting in Iraq, does Barack Obama have enough experience to be president, has the administration lived up to its promises on gay rights--are either ideological/moral questions of opinion, or they have actual answers. The Laffer Curve indulges neither of those facets. Our place on the curve is sometimes cited as fact, and yet there is no commonplace agreement behind it. It seems there is little chance of reaching one.