What does the Laffer curve say?
At a 0% tax rate the government collects nothing; at 100% nobody bothers to earn taxable income, so revenue is zero again. Somewhere in between lies a revenue-maximizing rate. Above it, cutting rates could actually raise revenue. The more elastic taxpayers' behavior, the lower the peak.
Do tax cuts really pay for themselves?
The Reagan tax cuts of the 1980s were sold partly on Laffer logic, but deficits grew—suggesting US rates weren't past the peak. Trabandt and Uhlig (2011) estimate labor-tax peaks of roughly 50–70% in the US and Europe. The logic is sound; the real fight is over where current rates sit on the curve.
FAQ
- Was it really drawn on a napkin?
- The story goes that Laffer sketched it on a restaurant napkin for officials in 1974.
- Are high tax rates always bad?
- Below the peak, raising rates increases revenue, and fairness goals matter too.
Sources reviewed: 2026-10-25
References
- Laffer, A. B. (2004). The Laffer curve: Past, present, and future. Heritage Foundation Backgrounder, 1765.
- Trabandt, M., & Uhlig, H. (2011). The Laffer curve revisited. Journal of Monetary Economics, 58(4), 305–327.