Business Report: The Laffer Curve - Hawaii News Now - KGMB and KHNL

Business Report: The Laffer Curve

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HONOLULU (HawaiiNewsNow) -

Do you remember the Laffer Curve? He's baaack. In the 1970s Arthur Laffer drew a curve on a napkin to show a basic principle. Tax rates of 0% and 100% produce no tax revenue. But somewhere in between is X, a rate that brings optimal revenue. Laffer always seemed to think X was lower than whatever actual tax rates were. For politicians it was a seductive argument: cut taxes, be popular, no ill effects. Reagan loved it, so he cut taxes. 

Problem was, Laffer was wrong.

The deficit ballooned so much Reagan had to take 11 tax increases. Fast-forward to modern-day Kansas. Governor Sam Brownback, advised by Laffer, cut taxes. A budget surplus became a deficit so big even school funding had to be cut. Why keep pretending Laffer isn't a fool? Because some Republicans believe in another principle called, "Starve the Beast." That theory is, spending is never cut unless there's a crisis, so create a crisis. It's like crashing your car to teach your kids to buckle up. Only someone who doesn't care about people in the backseat would do it.

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