From the Wall Street Journal no less. Take a look at this one! The curve doesn't "fit" the data at all. Given just a bunch of points, would you intuitively draw that curve in?!The Laffer Curve is used by supply-siders to explain how lowering (well, it could be raising but you'll rarely hear it from them) tax rates will actually raise tax revenue. The idea is that if you tax people at 0%, you obviously won't collect any revenue, and if you tax people at 100% you won't collect any either (nobody would work). So (0,0) and (100,0) are points on your curve and somewhere along the tax-rate axis gives you a rate that would maximize revenue.
This is a case of forcing your point. Manipulate the data so that you can prove the point you've set out to want to. This regression curve suggests that governments can maximize revenue by taxing corporations at about 28%...sort of like Norway has been doing!
Now if we were all swimming in oil like the Norwegians, we probably wouldn't really be worrying about government spending.
Knowing that (0,0) and (100,0) must be on the curve, I could make a better case that we could be taxed much more heavily than we are now to raise more revenue without having to resort to such a terrible curve with just a little effort.
2 comments:
If I didn't think the whole graph would just confuse them, I would print this out and bring it into my class in December when we start talking about types of graphs and misleading graphs. Thanks.
Good grief, math teacher... it's obviously an empirical question, isn't it? The question is where the optimum peak should be. Then you get into corporate vs. personal, you get into compassionate relief for the poor (the lower 50 percent are not taxed via the Federal income tax in the US), and all kinds of REAL questions.
If you want to look at the abuse of statistics, check out the the "poverty level" (always a drifting target at 12% of the income distribution, and therefore poverty can never be "solved"), the whole notion of income DISPARITY as opposed to income (absolute) which suggests that politicians don't understand subtraction, and the whole notiong of budget "cuts" vs. "decrements" in expected increases. Statistical tomfoolery pervades the media, and at a much more primitive level than this.
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