Laffing It Up

LAFFING IT UP….The Wall Street Journal editorial page is really getting desperate. Even for them. In an editorial today they present data on corporate tax rates around the world and, like those people who find an outline of the Virgin Mary in a potato chip, they discover a Laffer Curve! It’s a miracle!

This comes via Mark Thoma, who draws a more plausible straight line through the data over at his site and finds that as tax rates go up, so does tax revenue. Shocking, I know. That is, it would be shocking unless you knew that the effective corporate tax rate in America isn’t 35%, it’s about 26%, and there’s not an economist on the planet who thinks the Laffer effect kicks in at anywhere near that rate. But we all knew that, right?

And one more thing. Just for laughs, take a look at what the Journal’s barmy graph drawing implies: Norway, with a corporate tax rate of about 29%, generates enormous amounts of corporate tax revenue. But then, since it’s the only way to get an upside-down U out of the data, the graph goes nearly vertical. Even the Journal’s editorial writers, normally a pretty barefaced bunch, were apparently too embarrassed about this economic singularity to follow the right side of their graph to its logical conclusion, but we can: at a rate of about 33% corporate taxes produce no revenue at all. An increase of a mere four percentage points destroys tax revenue entirely! Mirabile dictu!

A junior high school geometry student would be embarrassed to produce work like this. But not the Wall Street Journal editorial page. Or the American Enterprise Institute, which created it in the first place. They apparently think their readers are too dumb to see what they’re doing. Why their readership puts up with this obvious contempt for their intelligence is a question for another day.