Daniel J. Mitchell

Two of my favorite things in life are the Laffer Curve and the Georgia Bulldogs.

So you know I’m going to approve when an economics professor from the University of Georgia writes a column about the power of the Laffer Curve.

And since I’m a libertarian and the specific issue is about curtailing the foolish Drug War, it goes without saying that this is something that belongs on this blog. Especially when we get to celebrate some evidence that statists are acknowledging that tax rates matter!

Here are some excerpts from Jeffrey Dorfman’s column at Real Clear Markets.

Now that the state will let people legally purchase marijuana for recreational use (medicinal use was already legal), the state wants to collect tax revenue from the new industry. What is fascinating about this is that many people who have probably long argued against the concept of the Laffer Curve are suddenly embracing it. …the politicians in Colorado are openly discussing the fact that if they set the tax rate too high on marijuana, people will buy it on the illegal market and avoid the taxes. If the tax rate is set too low, potential tax revenue that is to be designated for school construction would be left on the table. They are searching for just the right tax rate that will bring in the most new tax revenue. In other words, they have accepted the Laffer Curve. The exact same arguments apply to income taxes. If too high a tax rate is levied, people will search for ways around it (loopholes, less work effort, and outright tax fraud). Taxes too low will not produce sufficient tax revenue to fund government. The ideal income tax rate is in the middle somewhere.

I have to interrupt at this point. Professor Dorfman isn’t saying that the goal is to maximize revenue, but I’m worried some people may jump to the wrong conclusion.

Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.