There’s nothing particularly complicated about the Laffer Curve. In fact, it’s so easy to grasp, the man who came up with it in the 1970s, economist Arthur Laffer (pictured with Ronald Reagan), first sketched it out on a cocktail napkin.
It may be simple, yet the Laffer Curve has been credited with inspiring Reaganomics – the economic policies of American president Ronald Reagan – and British prime minister Margaret Thatcher in the 1980s. The theory behind the Laffer Curve goes like this: the higher you set tax rates, the more you will receive in tax revenues – until you hit a certain point. Thereafter, tax revenues will dwindle as tax payers lose the will to work harder.
Quite where the tipping point that maximises tax revenue lies has always been up for debate. Laffer would cut the top rate of income tax in America from 40% to 28% if he could, says Josh Glancy in The Sunday Times. In any case, the victory of tax-slasher Donald Trump has brought Laffer back into fashion. While he isn’t prepared to get involved personally with Trump’s administration, despite the president-elect coming to him for advice during the Republican primary, that’s not to say he now intends to bow out.
“Even at 76, he fizzes with enthusiasm and is delighted his theories are back in fashion. It’s like 1980 again,” says Glancy. He sees the coming of Trump as the revival of the Reagan era. “We won the election, the Republicans have the House and the Senate. And so it’s one of those very rare times in history where all the stars are aligned. It makes me very excited for how things are going to go.”