Despite its name, the Laffer Curve is no joke. The Laffer Curve is part of a theory first advanced by economist Arthur Laffer. Laffer used the curve to illustrate his hypothesis that higher taxes can actually result in decreased tax revenue for the government. The Laffer Curve was an essential component of supply-side economics that advocated for decreased government spending in order to help grow the economy. Let’s take a ride up the Laffer Curve--you don’t need to be too serious.
By analyzing questions, you can see patterns emerge, patterns that will help you answer questions. Qwiz5 is all about those patterns. In each installment of Qwiz5, we take an answer line and look at its five most common clues. Here we explore five clues that will help you answer a tossup on The Laffer Curve.
DRAWN ON A NAPKIN
The Laffer Curve had something of an inauspicious start. Laffer drew his namesake curve on a napkin in 1974. He showed this doodle to two members of the Ford administration: Dick Cheney and Donald Rumsfeld. The senior advisors of the Ford administration had been planning on a tax increase to combat stagflation. However, Laffer was opposed to the idea.
0 OR 100
The Laffer Curve is classically represented as an inverted parabola. The x axis is tax rate, and the y-axis is tax revenue. There are two places on the graph where the tax revenue is equal to 0: at 0% taxation and at 100% taxation. Laffer believed that the government’s duty was to find somewhere in the middle where revenue could be maximized with minimal taxation.
Jude Wanniski was a financial journalist and a major proponent of supply-side economic theory. In 1978 Wanniski recounted the famous dinner meeting 4 years earlier, and in that same article he dubbed Laffer’s illustration “The Laffer Curve.”
Although Laffer first introduced his ideas during the Ford Administration, they would really find traction during the Reagan Administration. Reagan’s cornerstone economic policy relied on supply-side economic theories, sometimes known as trickle-down economics. These theories emphasized cutting government expenditures which would in theory free investors and business owners to re-invest their increased capital in the economy. Collectively known as Reagonomics, Reagan’s policies made use of the Laffer Curve to argue in favor of tax cuts.
The Laffer Curve was named for Laffer, but the ideas behind it are older than the mid 1970s. In fact, Laffer traced the inspiration for the curve to the 14th century Islamic scholar Ibn Khaldun. Khaldun lived in North Africa and lived at the tail end of the Islamic Golden Age. Hundreds of years before Laffer, Khaldun argued that a just, Islamic government would impose low taxes, as higher taxes would erode the polity’s tax base and disincentivize work.
Quizbowl is about learning, not rote memorization, so we encourage you to use this as a springboard for further reading rather than as an endpoint. Here are a few things to check out:
Read this article to learn more about Ibn Khaldun’s economic theories.
Controversy over the theories behind Reagonomics lingers to this day.
Want to go a little deeper into the theory here? Read this article for a more in-depth explanation of the Laffer Curve.
What better way to learn about the Laffer Curve than to have it explained by Arthur Laffer himself?
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