The Laffer Curve

Having your cake and eating it too!

Are taxes too high in the US?

Draw a graph showing the relationship between tax rates and tax revenue

What is the relationship between tax rates and tax revenue?

Tax R

ate

%

Tax Revenue

Draw a Laffer Curve

According to the Laffer Curve:

• What happens to tax revenue at a 0% rate?• Why?• What happens to tax revenue at a 100% rate?• Why?• What does the point labeled “m” represent?• How can this information help economic

policy makers?

Do higher taxes slow growth?

What are tax rates today?

Would you stop working once you reached $174,400 of income?What would if cost you if you earned $174,500?

How does the US compare to other countries?

What price do we pay for low taxes?

Can you have your tax cake and eat it too?

• According to Laffer?• According to Congressional Budget Office

data?• Why might policy makers favor Laffer’s

theory?