Sinclair Davidson rediscovers the Laffer hypothesis
In today’s Fin (subscription required), Sinclair Davidson, author of a recent Centre for Independent Studies monograph on income tax, restates the hypothesis , most famously associated with Arthur Laffer, that governments could reduce revenue by raising tax rates. He claims that his own calculations have revealed that revenue would be maximized with a marginal tax rate of 35 per cent.
Does the CIS endorse this claim? I don’t recall seeing it in the monograph. But the article refers to Davidson as the author of the CIS monograph, and this piece is associated with a broader campaign by the CIS on this issue, which has included a number of policy monographs and opinion pieces, including a recent attack on me by Peter Saunders. In the absence of some specific disclaimer, I think it’s reasonable to take this piece as part of the CIS campaign.
I commented previously that the Davidson monograph represented an alarming lapse in quality control on the part of the CIS, but I’m now coming to think that the problem may be more systemic.
fn1. It is common to refer to the Laffer curve, but the idea behind the curve is obvious, and had been observed by many writers before Laffer. Laffer’s justified claim to fame is the assertion that the US in the early 1980s was on the declining section of the curve. This was one of the arguments supporting the Reagan tax cut. Of course, revenue fell after the Reagan tax cut and Reagan partially reversed it.
fn2. Of course the CIS doesn’t have an official set of policy positions. But it seems reasonable to speak of a CIS viewpoint and to regard Davidson as being representative of that viewpoint as regards tax policy.