Page 167 - TrumpsEconEra_Flat

Trump’s Economic Era

THE LAFFER CURVE

What effect will a tax increase have on
government revenue? The answer depends on where the
economy is on the Laffer Curve. When the government
increases taxes starting from zero, government revenues
will increase because citizens will see the benefits and
not experience much pain. However, beyond a certain
level of taxes government revenues will decrease
because the incentives to work, save, and invest
diminish. Beyond a certain level, people will avoid
taxes by legal or illegal means; they will escape to other
countries, work less, cheat, or go underground resulting
in less revenue for the government.

TAXES
The government foresaw a collection problem in
1942 when it doubled income taxes. In those days,
taxpayers mailed their annual tax payments directly to
Washington. However, as spring arrived in 1943,
Henry Morgenthau, the Treasury secretary, was
concerned about tax evasion.
Now meet Beardsley Ruml, a man of ideas who
observed that people preferred installment payments.
Instead of citizens paying their annual taxes all at once,
the government could make businesses collect taxes
from each paycheck and forward the funds directly to
Washington. No longer would the employee have to
face his tax bill square in the eye.

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