Arthur Laffer and supply-side economics

In the 1980s, the ideas of Arthur Laffer  were embraced by Ronald Reagan and became the guiding theory behind conservative economic policy. Now, according to Stateline, Laffer’s supply-side economics is staging a comeback in state politics.

The Laffer CurveWe might review the “Laffer curve” if it’s back in fashion. The basic argument is that current tax rates are too high and that cutting back taxes would encourage people to work harder and invest more. The resulting increase in productivity would mean that the government would be taking in more revenue even though it was taxing at a lower rate. This theory is often referred to as “supply-side” economics because it increases the incentives for producers (suppliers) of goods rather than demand-side (consumers).

Of course, this is controversial. Fortunately for Laffer and his supply-side friends, tax cuts are pretty easy to sell.


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