In economics, the Laffer curve is used to illustrate the idea that increases in the rate of taxation do not necessarily increase tax revenue.1
Interesting stuff. Take the extreme case: If I make $50,000 and pay 0% in taxes, I’m probably pretty motivated to keep working. If I make $50,000 and pay 100% in taxes, there’s obviously no reason for me to keep working — I quit my job and the government loses money.
The theory is that the most likely outcome of a variety of tax rates is somewhat of a bell curve and that there is a point at which increasing taxes causes a behavior change that results in decreased federal revenues.
The Laffer Curve, Part I: Understanding the Theory2
[video:youtube:fIqyCpCPrvU]
The Laffer Curve, Part II: Reviewing the Evidence3
[video:youtube:YsB_rnzBA08]
The Laffer Curve, Part III: Dynamic Scoring4
[video:youtube:ATDzKSOQCi8]
References:
1 http://en.wikipedia.org/wiki/Laffer_curve
2 http://www.youtube.com/watch?v=fIqyCpCPrvU
3 http://www.youtube.com/watch?v=YsB_rnzBA08
4 http://www.youtube.com/watch?v=ATDzKSOQCi8