The curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (T*) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (the far right of the curve), then all people would choose not to work because everything they earned would go to the government.
The Conspiracy to Keep You Poor and Stupid blog discusses the facts that personal withheld tax revenues are up 7.3% compared to last year, and since the recession bottom in the fourth quarter of 2001, real GDP has grown 12.0%.
non withheld individual income tax receipts have increased by 34% fiscal year to date compared to last year. This is mostly capital gains and dividend related tax collections.
Blame it on the Laffer curve. But then there’s also Karl Rove
Rove is basically a free-market supply sider, who has consistently spoken out against raising the payroll wage-cap tax, has been a strong supporter social security reform through personal savings accdounts and lower marginal tax rates, as well as making the Bush tax cuts permanent. Rove would also love to abolish the estate tax.
In this sense, the Rove story is not merely a political story, it has economic and stock market consequences as well. If Rove is fired, pro-growth free-marketers and supply-siders lose an important advocate in the high policy councils of the White House. The stock market would lose a good friend: not only does Rove support tax cuts, he has long been a devotee of the Investor Class. More than anyone else in presidential politics in either political party, Rove knows that investors turn out heavily (2 of every three presidential votes cast come from investors) and that they vote their portfolios, for low taxes on dividends, capital gains, estates, tax free- savings accounts, and other means that would boost wealth creation.
New Jersey could use a Karl Rove or two.