Aug 10, 2026 · 33 min · 8 segments
Send us Fan Mail Recent research suggests that the Laffer curve is less curve-like than originally thought. Jeff and Scott talk with Jared Walczak from the Tax Foundation about the Laffer Curve, and…
Jeff HoopesHostScott DyrengHostIf even on the uphill side of the curve we see economic distortion, how would one ever determine using the curve whether or not tax rates are too high
or too low? I think fundamentally that's a prudential question where policymakers will disagree because we are in the realm of trade-offs, but where economic data can help us is telling us functionally how much additional revenue are you generating and how much economic harm are you creating in doing that.
Then ultimately a policymaker still has to decide if that trade-off is worthwhile and different people are going to disagree about that, but it's better to be operating with data.
I think the part is like any level of taxation, taxation will always create distortions.
Unless it's like some kind of head taxes, like what if an income tax, if you just think about like the labor leisure decision, if somebody is going to work or not, the whole point is, is a zero, a 0% tax.
If you go to 1%, somebody might decide, well, I'm going to go from 40 hours to like 39.8.
And so the whole point of the revenue maximization is not that like you're you're not creating any economic distortion until you get to the top you're always creating distortion it's just are you creating so much distortion that a little bit more distortion actually lead to less revenue instead of more because at some point uh you know you'll force somebody to stop working so much less through taxes that the amount of labor the lower labor that they provide will provide less labor income even at a higher tax rate
And to me, that's the really interesting thing to think about here, right? So I think we would all agree any amount of tax pretty much usually creates some amount of distortion.
And that's kind of the whole point of the tax system is we need to provide public goods.
So we are willing to incur the cost of these economic distortions in order to have a government.
um what is interesting is thinking about the relevance of this curve to those distortions and jared said i think if i understood you correctly that your opinion jared is that the kind of right amount of tax would be pretty far left of the peak of that curve did i hear you correctly
And as a policy prescription, yes, I would prefer it to be relatively far left of that peak.
If even on the uphill side of the curve we see economic distortion, how would one ever determine using the curve whether or not tax rates are too high
or too low? I think fundamentally that's a prudential question where policymakers will disagree because we are in the realm of trade-offs, but where economic data can help us is telling us functionally how much additional revenue are you generating and how much economic harm are you creating in doing that.
Then ultimately a policymaker still has to decide if that trade-off is worthwhile and different people are going to disagree about that, but it's better to be operating with data.
I think the part is like any level of taxation, taxation will always create distortions.
Unless it's like some kind of head taxes, like what if an income tax, if you just think about like the labor leisure decision, if somebody is going to work or not, the whole point is, is a zero, a 0% tax.
If you go to 1%, somebody might decide, well, I'm going to go from 40 hours to like 39.8.
And so the whole point of the revenue maximization is not that like you're you're not creating any economic distortion until you get to the top you're always creating distortion it's just are you creating so much distortion that a little bit more distortion actually lead to less revenue instead of more because at some point uh you know you'll force somebody to stop working so much less through taxes that the amount of labor the lower labor that they provide will provide less labor income even at a higher tax rate
And to me, that's the really interesting thing to think about here, right? So I think we would all agree any amount of tax pretty much usually creates some amount of distortion.
And that's kind of the whole point of the tax system is we need to provide public goods.
So we are willing to incur the cost of these economic distortions in order to have a government.
um what is interesting is thinking about the relevance of this curve to those distortions and jared said i think if i understood you correctly that your opinion jared is that the kind of right amount of tax would be pretty far left of the peak of that curve did i hear you correctly
And as a policy prescription, yes, I would prefer it to be relatively far left of that peak.
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