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Wednesday, August 11, 2010

A Stupid Question

Where does the Laffer Curve bend?

My answer: Who gives a care.

The Laffer curve (or blob as I often call it in my econ class) is a dead concept (and has been for years).  There is no magic number.

Let's think about this logically.  A person has the first choice:  "should I work or should I not?"  Given that most people enjoy being productive and given that living costs money and given that people like living, then the answer in the vast majority of cases will be "yes."

Great, so the decision to work is independent of a change in income but rather is a function of wanting SOME income at all versus none.

Ok, so the next decision is, if tax rates skyrocket to really high levels, will I purposely seek to work less or at a lower paying job to get a lower tax rate?  On this question, the conservative assumption has always been yes.  But this is certainly far from obvious in my mind.  If I make a million bucks a year, unless I'm taxed 100% at that level, I'm not going to start flipping hamburgers at McDonalds for $10 an hour.   There is something to be said for the intrinsic satisfaction of utilizing ones skill set to the fullest.   Might I seek to work less hours?  Maybe, but for many Americans the decision to work less hours is not an option at that high level of pay.   You may be a CFO and go to the executive of your company and say, "I'd like to work 10 hours less a week".  And he'll say:  "K bye!  Don't let the door hit your ass on the way out."  Because guess what, there's always that OTHER person who's willing to take $800K instead of $1 million take home pay for the chance to work at that level full-time - especially in this market.