THE PARTY LINE….The point of the Laffer Curve, in a nutshell, is that sometimes tax rates can be so high that they seriously disincentivize people from working at all. Ronald Reagan was a Laffer acolyte because of his days in Hollywood during the era of 90% marginal rates, when actors would sometimes forego making a third or fourth movie during a year because, why bother? Once you hit the 90% level, you’re only going to take home a few thousand bucks for your effort. But if you reduced the top rate to, say, 50%, maybe Reagan would go ahead and make that third movie, and then both he and the government would end up making more money. That’s Laffer in action.
However, the current top marginal rate in the United States is 35%, and no one in their right mind thinks that’s anywhere near high enough to have a serious Laffer effect. When top rates are that low, lowering them further just reduces tax revenue. However, when Megan McArdle, who is in her right mind, said exactly that recently in an otherwise scathing review of (I assume) Jon Chait’s The Big Con for a conservative magazine, her review was promptly bounced. So, since she was arguing a few weeks ago that kooky supply-sidism didn’t have a hegemonic hold on American conservatism, she’s now willing to concede defeat:
I suppose I ought to have known, but I didn’t. Go ahead liberals, pile on: you told me so. The Laffer Curve and the supply siders pushing it seem to be the teacher’s unions of the right.
Out of the frying pan and into the fire. Ezra Klein leaps to the intellectual defense of liberals vis à vis teachers unions:
Indeed, it often seems that there’s nothing safer in Democratic circles than criticizing the teacher’s unions. Just about every Democrat in the media establishment makes it their favored point of heterodoxy.
True enough — though when you get to the level of, say, politicians running for president, Megan has more of a point. Barack Obama, for example, was praised to the skies a few months ago simply for making a (very) brief and (very) oblique reference to merit pay in a speech that otherwise was just a gigantic slab of red meat for teachers.
Still, is there really any comparison? In fact, is there any subject among liberals that has the same totemic appeal as tax cutting does to conservatives? As near as I can tell, every single Republican running for president publicly says that cutting taxes always raises revenues — even though the idea is as absurd as Ron Paul’s gold standard crankiness. Ditto for the Heritage Foundation, AEI, the Wall Street Journal editorial page, etc. etc. Deviate from the party line, as Bruce Bartlett has, and you’re quickly excommunicated.
Liberals agree on lots of things, but I just can’t think of anything that’s enforced quite as ruthlessly as the conservative party line on tax cuts. Any ideas?