The Laffer Curve is simply the idea that there are tax rates which are so high that they reduce revenue collected. The implications of this being that lower rates will collect more revenue. That it’s a curve also tells us that there are rates low enough that more revenue can be collected by raising said rates. It’s really not a complex nor complicated idea.
The difficulty comes in determining what that peak of the curve is. Short term rates will be rather higher than long term, as elasticities always decrease over time - but that’s to go off into complexity.
A more general contention made by those who don’t like the idea that there’s an upper limit to useful taxation is to insist that even if the idea is correct it has no relevance to our world. The peak of the curve is simply so high that it’ll never be a relevant consideration. At which point we should - we who think that it is relevant, that the relevant rates might even be lower than our current taxation rates - dance and shout and point when we see that curve in action in the wild. As we are here:
Tighter limits on pension savings “pose a direct threat to patient care” according to Britain’s most senior medical staff, who have called on MPs to intervene to avoid a feared 40pc drop in hospital specialists.
Consultants are receiving sudden tax bills of as much as £100,000 or effective rates of 100pc. In response, they are refusing requests to work extra shifts to meet patient demand, or retiring early. One in 10 hospital doctor roles is vacant.
MPs are being called on to launch an inquiry into the effect of pension tax on the NHS. The Government is under pressure to overhaul contribution limits for all savers to avoid an exodus of experienced staff across sectors.
If you tax people enough they’ll stop working and thus the Laffer Curve is true. It’s relevant because we’re already over those tax rates in some parts of our economy. We’ll all be richer by having lower tax rates - at least in places and at times.
Another way to put this is that there really is a limit to the amount of tax that can be dunned out of the better off among us. Politics has to be adjusted to this simple fact.