Letter
to the editor
Incorrect
economics
Re
“Protesters should do homework before
walkout,” Letters, May 12: I agree
with Mr. Kuck’s suggestion that students
consider the broader ramifications of their
demands for low tuition on the state’s
budget I take issue, however, with his dismissal
of tax increases as a part of the solution.
Mr. Kuck writes, “We are now on the
wrong side of the Laffer Curve ... Higher
taxes will bring in less state revenue,
not more.” There are two problems
with this statement.
First,
there is precious little evidence that any
government has ever been on the “wrong
side” of Mr. Laffer’s famous
invention. The best test of the Laffer Curve
was the adoption of supply side economics
during the early 1980’s by the Reagan
Administration. The idea was that if we
were on the “wrong side” of
the curve, a cut in taxes would lead to
increased economic activity and increased
tax revenues.
In
1981 Federal taxes were cut across the board.
Between 1981 and 1984 federal tax receipts
decreased from 9.6 percent of GDP to 8 percent.
This happened in spite of the fact that
many Americans were being forced into higher
tax brackets by inflation at the time.
The
second problem with the invocation of the
Laffer Curve in policy debates is that it
obfuscates important issues.
Rather
than invoking the Laffer Curve in order
to dismiss any increase in tax rates, we
should take a more careful look at the distortions
the current tax system creates and attempt
to rectify them on a tax by tax basis. In
so doing we can actually reduce inefficiency
while maintaining tax receipts, a free lunch
if there ever was one.
—
Noel D. Johnson
assistant professor, economics
|
