Tax Revenue, Tax Rates, the Laffer Curve and Rangel
The only thing as sure as death in this world is taxes. Most people understand the basic idea of taxes. Income x Percentage = Tax. But how about the economic view from the IRS and Congress. How do they increase their revenue and not anger all of their constituents.
I ran across this interesting study by the Chris Edwards at the Cato Institute while I was at my favorite tax blog: Tax Prof Blog. The study was to demonstrate that tax revenue follows a laffer curve. That is, as the corporate tax rate decreases tax revenue increases. We brushed on this earlier with my post concerning the AMT tax. In particular in the comment section some readers had a discussion on whether or not higher taxes decrease productivity. Although the Cato study does not say lower taxes increase productivity it does cite that revenues do increase in lower tax atmospheres.
The main factor causing the surge in corporate tax revenues appears to be taxpayer responses to reduced tax rates. Lower rates generate real and financial responses from businesses, prompting them to report higher profits.
This is a quick read (only 2 pages) to brush up or learn about the economics of tax policy. I have to commend Chairman Charles Rangel for proposing a corporate tax rate decrease.
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