You can’t tax an economy into prosperity

[Free Market Capitalist]

The title quote, which is from Arthur Laffer, is dedicated to all of you who are envious and resentful, who spend your lives criticizing the rich instead of using that energy to enrich yourselves.

The idea for this title came to me when I saw The Telegraph's interview with him:

Reeves needs a lesson on tax - legendary economist Arthur Laffer | The Daily T

In it, he discusses various economic issues in connection with his new book, "Prosperity Through Growth". However, the lesson I want to bring up here today is not from that book, but from the previous one: "Taxes Have Consequences: An Income Tax History of the United States."

In it, he showed that every time the US raised taxes on the wealthiest, tax revenue from the rich fell, as did total tax revenue, and the poor were negatively affected by lower economic activity and fewer opportunities. Conversely, every time taxes on the rich were reduced, tax revenue from that group increased, as did total tax revenue, and the poor benefited.

If anyone doubts whether he had enough data to support his position, here is what ChatGPT tells me:

n Taxes Have Consequences, Arthur Laffer and his co-authors based their conclusions on an extensive historical data study, covering the entire history of the U.S. federal income tax system — from its introduction in 1913 through the 21st century.

Here’s a breakdown of the basis of that study and how they built their argument:

🔹 1. Data Sources

The authors relied mainly on:

Internal Revenue Service (IRS) Statistics of Income (SOI) — annual data on income, tax returns, and tax paid by income brackets since 1916.

Historical Statistics of the United States — for GDP, national income, and population figures.

Congressional Budget Office (CBO) and Treasury Department archives.

Supplementary data from Bureau of Economic Analysis (BEA) and Bureau of Labor Statistics (BLS) to adjust for inflation and GDP changes.

They essentially assembled a century-long dataset that allowed them to track:

Marginal and average income tax rates,

Reported taxable income,

Total revenue from different income groups (especially the top 1% and 10%),

The share of tax revenue paid by each group,

Broader economic indicators (growth, unemployment, investment).

🔹 2. Scope of Analysis

Their analysis covered:

Every major tax regime in U.S. history — including the high-rate 1930s–1970s era, and the major tax cuts in the 1920s, 1960s, and 1980s.

The top marginal income tax rate as the key variable.

The response of high-income taxpayers in terms of reported income and effective tax paid.

They then correlated those tax changes with economic and fiscal outcomes.

🔹 3. Key Statistical Finding

From this long-run data, they found a consistent inverse relationship:

As top marginal tax rates went up, the reported taxable income of top earners fell disproportionately.
When top marginal tax rates went down, reported income and total tax receipts from the wealthy rose sharply.

They called this the Laffer effect in historical context, arguing that the pattern repeated itself through:

The Mellon cuts (1920s),

The Kennedy cuts (1960s),

The Reagan cuts (1980s),

Even the Bush cuts (2000s).

The reasoning: people change behaviour when incentives change — shifting income into or out of taxable forms depending on rates.

And this last point, my dear friends, is what socialists fail to understand: that the economy works through incentives. Well, some socialist politicians do understand this, but what they want is absolute power through control of the population and impoverishing everybody, so they will not allow an economy in which people get rich through incentives and hard work because then those people will stop voting for them.

[DubemIfedigbo001]

The idea for this title came to me when I saw The Telegraph's interview with him:

Reeves needs a lesson on tax - legendary economist Arthur Laffer | The Daily T

This is a very rich video. Part of the principles I loved that he mentioned is
If you tax people who are working to pay those who are not working then in no distant time you'll have more people not working. This is very true, I've seen in my country some areas who are oil producing, their people are very lazy because government pays them free money while they're not working so it breeds an environment of no productivity among them and serious over dependence on the government. Funny enough their population is growing and their young are maintaining the status quo of not working and getting free money.

Secondly tax revenue increases as tax rate is reduced and vice versa. This is true too because when the tax rates are high, companies find it difficult to remain very productive, some even fold up because they wouldn't get consumers to buy their products at much increased prices to meet up with the tax rates and remain profitable. and some even get smarter at avoiding paying taxes thereby reducing the revenue generated by the government. This is very practical. In my country there is a new tax rate to be implemented by January which is very much on the high side despite the hardship ravaging the country and almost everybody is now looking for ways to escape paying the high taxes which includes clinging to the use of crypto for transactions. This paints a familiar story with the principle above which is that the government would receive far less revenue than it has intended when passing the tax bill into law.

[Alpha Marine]

The title quote, which is from Arthur Laffer, is dedicated to all of you who are envious and resentful, who spend your lives criticizing the rich instead of using that energy to enrich yourselves.

I have never been against capitalism. The alternatives are never better, especially in a large setting like a country, but rich people are not above criticism. People are allowed to call them out when they're doing unethical things, even though they're not illegal. People are allowed to disagree with them. If I call out a billionaire today, it doesn't mean I am doing it simply because I'm envious of him or just want socialism.
Even as a kid, when I didn't fully understand capitalism and socialism, I have always argued that people should be given the freedom to make money how they want as long as it's legal and ethical.

Our society survives because there is a system of checks and balances. If a person can no longer be checked, there is every chance they will abuse whatever power they have. It is because of this that I believe billionaires should be criticised and called out when they're wrong, no matter the impact they have on the economy.

There is a reason America is the country it is today, and there is a reason over 40 of the top 50 richest people are from capitalist countries. The arguments people use against capitalism are never consistent because when they argue against capitalism, they only focus on the negatives and portray only the positives of socialism, which creates a very one-sided view.

[Synchronice]

In it, he showed that every time the US raised taxes on the wealthiest, tax revenue from the rich fell, as did total tax revenue, and the poor were negatively affected by lower economic activity and fewer opportunities. Conversely, every time taxes on the rich were reduced, tax revenue from that group increased, as did total tax revenue, and the poor benefited.

If anyone doubts whether he had enough data to support his position, here is what ChatGPT tells me:

That makes perfect sense. When you earn a tiny amount of money, big % does not look that big because in the end, the amount of money is not big but when you earn millions, even a 3% higher tax rate makes a huge difference, so, if there is a possibility to pay lower taxes, that's the way to go. When you set high taxes to rich people, they'll find a way to avoid paying it via various mechanisms but if you keep taxes very low, they simply won't try to waste time and resources to avoid paying a tiny amount of taxes. That's why every time taxes were reduced, the tax revenue increased.

[Eternad]

Rich people just charge the taxes on the poor through the goods and services they are offering to the market by raising the price just to adjust by this tax increase while poor salary is still the same.

Rich can hire their accountant to find loophole on their taxes while poor suffer from the higher tax alone.

This is the problem on my country which we have an EVAT to all the goods we are purchasing while rich is not affected.

[mindrust]

It is meaningless to pay any taxes till they stop the inflation completely because inflation itself is also a tax. What we really need is less government spending. Smaller governments, less taxes on the individuals and corporations. It is the governments that make everything worse. Any step they take to fix something breaks something else and they are getting paid to fix stuff but in the end they do more harm than good. In this equation I say the smaller they are, the better it is for everyone.

Did you know the US didn’t have any income tax for the individuals till the 1940’s? Yes the US passed the individual income tax act only in 1944. Then a few decades later they removed the gold dollar peg and everything has been going down hill ever since.

[Marvelockg]

In it, he showed that every time the US raised taxes on the wealthiest, tax revenue from the rich fell, as did total tax revenue, and the poor were negatively affected by lower economic activity and fewer opportunities. Conversely, every time taxes on the rich were reduced, tax revenue from that group increased, as did total tax revenue, and the poor benefited.

i don't know how this works in the united states but an high taxation from the rich seems to suggest that it will lead to a high government revenue that if used to provide things for the state will be of more advantage to the poor. most times, the rich have their way of avoiding being overly taxed in developing countries while the middle class and the poor struggles the more from over taxation which most times is not calculated the way it is presented theoretically. tax implementation is ineffective in most part of the world and the fact that it is not used to do any reasonable thing makes it worthless.

[BlackHatCoiner]

I think the biggest error in the socialist thought process, is that they view the economy as a lever, where you can increase tax on X by 5%, and you'll get 10% of Y as an outcome. The truth is that obviously, the economy is not a lever. People aren't just chess pieces that you move on a board, with their desires ignored. Enforcing a certain tax, does not mean that everyone will just passively accept it. Some will leave the country, others will evade their tax, or increase prices on Z, etc. The economy is so complicated that thinking you can "manage it" is a sign of complete arrogance.  

[Agbamoni]

This is a very rich video. Part of the principles I loved that he mentioned is
If you tax people who are working to pay those who are not working then in no distant time you'll have more people not working. This is very true, I've seen in my country some areas who are oil producing, their people are very lazy because government pays them free money while they're not working so it breeds an environment of no productivity among them and serious over dependence on the government. Funny enough their population is growing and their young are maintaining the status quo of not working and getting free money.

If they are not working, then who drill the oil, process it and turn into finished product for exchange? Are they not indigenes or the indigenes of that area are willing to let outsiders take the opportunity that are open. Irrespective of the fact that only qualified people are supposed to be employed in such areas. If you surf the community there are indigenes that are very qualified to work in those sectors, and sometimes the slots are limited. I dont know why anyone will be willing to take peanut than work for better money. It is not clear to me.

[Findingnemo]

The government can have a favourable tax rate to the rich people which actually encourages them to invest in more inside the country, which will increase employment opportunities, tax collection from the salaries paid, and help with the circulation of money in the economy. However the taxes on the middle class should not be unbearable, let's say if a country tax 30% as income tax even if someone is earning median salary is a crime that will force him to bear heavy tax burden, it can be 15% or even less than 10% with some relaxations or something with tax exemption if he invest that money back.

[slapper]

The title quote, which is from Arthur Laffer, is dedicated to all of you who are envious and resentful, who spend your lives criticizing the rich instead of using that energy to enrich yourselves.

I have never been against capitalism. The alternatives are never better, especially in a large setting like a country, but rich people are not above criticism. People are allowed to call them out when they're doing unethical things, even though they're not illegal. People are allowed to disagree with them. If I call out a billionaire today, it doesn't mean I am doing it simply because I'm envious of him or just want socialism.
Even as a kid, when I didn't fully understand capitalism and socialism, I have always argued that people should be given the freedom to make money how they want as long as it's legal and ethical.

Our society survives because there is a system of checks and balances. If a person can no longer be checked, there is every chance they will abuse whatever power they have. It is because of this that I believe billionaires should be criticised and called out when they're wrong, no matter the impact they have on the economy.

There is a reason America is the country it is today, and there is a reason over 40 of the top 50 richest people are from capitalist countries. The arguments people use against capitalism are never consistent because when they argue against capitalism, they only focus on the negatives and portray only the positives of socialism, which creates a very one-sided view.

It is one of those rare takes that does not feel unbalanced. You are not anti-capitalist, you are anti-blindness. You understand it is not about the money. Pretending that money is equal to virtue is Human beings forget that capitalism is not self-cleaning. It is effective because individuals would push away when it goes off track. When rich people evade criticism behind the "you're just jealous" defense, it kills that feedback loop. We need people that can both admire innovation and question excess

You may believe in free enterprise and still say, "Hey, this part does not fit right here, this part does not fit there". That is the way societies become grown. Not by tearing down success, but by reminding it that success still answers to someone

[Berry2d]

The government can have a favourable tax rate to the rich people which actually encourages them to invest in more inside the country, which will increase employment opportunities, tax collection from the salaries paid, and help with the circulation of money in the economy. However the taxes on the middle class should not be unbearable, let's say if a country tax 30% as income tax even if someone is earning median salary is a crime that will force him to bear heavy tax burden, it can be 15% or even less than 10% with some relaxations or something with tax exemption if he invest that money back.

Such moderate tax paying is just practically possible in countries with vision, hope and believe to help spread wealth instead of creating a society of poor people except for those that fight there way out of poverty. Some countries with moderate tax payment are portugal, hungary, bulgeria, Switzerland and others, this individual moderate tax payment polices helps reduces high poverty rate among citizens and spreads wealth to the entire nation.

Some African countries experience high tax payment practice making it difficult for the middle class citizens to survive and increase the countries poverty rate. Although high tax payment polices is not only the reasons for poverty but it should be controlled to help reduce stress to low level citizens

[Free Market Capitalist]

This is a very rich video. Part of the principles I loved that he mentioned is

Wow. It is very unusual for someone to watch such a long video before commenting. Kudos for that. You make good points on that subject.

I have never been against capitalism. The alternatives are never better, especially in a large setting like a country, but rich people are not above criticism.

That's for sure. Also, there are rich people who are scum. But in this thread, I am talking about what Laffer says, that the narrative being sold that the solution to everyone's problems is to raise taxes on the rich is simply false. It does not match the data.

It is the governments that make everything worse.

While some of them manage to persuade people that the solution to problems is more government. More intervention. More taxes.

If they are not working, then who drill the oil, process it and turn into finished product for exchange?

Look at what's happening in Venezuela. They have the largest oil reserves in the world and they don't take advantage of them, making it one of the poorest countries. It all started when Chavez came to power, nationalizing companies and putting his friends in power, while paying people not to work or to work very little.

Some oil is extracted in Venezuela, but far less than could be extracted in a more free-market economy.

[AVE5]

It is meaningless to pay any taxes till they stop the inflation completely because inflation itself is also a tax. What we really need is less government spending. Smaller governments, less taxes on the individuals and corporations. It is the governments that make everything worse. Any step they take to fix something breaks something else and they are getting paid to fix stuff but in the end they do more harm than good. In this equation I say the smaller they are, the better it is for everyone.

Did you know the US didn’t have any income tax for the individuals till the 1940’s? Yes the US passed the individual income tax act only in 1944. Then a few decades later they removed the gold dollar peg and everything has been going down hill ever since.

Inflation is outrageous and we're diluted to tolerate it like it's a natural occurrence even while obvious that it's being manipulated by those who regulates the system.
Inflation isn't helping matters in the trade firm or the entire economy sectors rather, it's a sentimental driving skill that's projected to provide revenues to those at the top through which the governments indirectly extort the wealthy entreprises and industries who're core production suppliers then spikes high cost on purchase and makes affordability tougher for demands and consumers.
That's a tax in different dimension because, the masses will be deemed to pay extra cost before they can afford it.

The truth is that these top authorities has lobbied down to the local sectors just to cover large scales of representatives working hand to hands for more enrichment while hold the masses handicapped. Otherwise, inflations isn't a natural thing.

[Reatim]

The idea for this title came to me when I saw The Telegraph's interview with him:

Reeves needs a lesson on tax - legendary economist Arthur Laffer | The Daily T

This is a very rich video. Part of the principles I loved that he mentioned is
If you tax people who are working to pay those who are not working then in no distant time you'll have more people not working. This is very true, I've seen in my country some areas who are oil producing, their people are very lazy because government pays them free money while they're not working so it breeds an environment of no productivity among them and serious over dependence on the government. Funny enough their population is growing and their young are maintaining the status quo of not working and getting free money.

do you know why they don’t work? because if they work, they will have less money than they were unemployed i watched this from a TedSd video of why is it so hard to escape poverty and it talked about the cycle wherein unemployed people get benefits from the government but the moment they start working, no matter how small their salary is just yet they will be excluded from government programs making it harder to work and make ends meet

why work and pay tax when you can live with the bare minimum you receive from the government?

[Iamgoat]

If they are not working, then who drill the oil, process it and turn into finished product for exchange? Are they not indigenes or the indigenes of that area are willing to let outsiders take the opportunity that are open. Irrespective of the fact that only qualified people are supposed to be employed in such areas. If you surf the community there are indigenes that are very qualified to work in those sectors, and sometimes the slots are limited. I dont know why anyone will be willing to take peanut than work for better money. It is not clear to me.

The truth is, many of those communities actually have those who are capable and educated to work in those industries but the problem is always bigger than what's on the surface, it is more of the mentality of the people and the system and not just about the qualifications. Most of the time you will find out those people are not motivated to work hard even when the opportunities to land those jobs exists, they have already gotten so comfortable with the free money they enjoy.

[uneng]

Most of the time you will find out those people are not motivated to work hard even when the opportunities to land those jobs exists, they have already gotten so comfortable with the free money they enjoy.

It's hard to keep motivated in a country where the government charges expensive taxes, as you will be working to feed the government, while having access to low quality products in exchange. Companies decrease quality as maximum as possible to lower costs, while keeping the prices expensive to maintain their profit and to pay the taxes demanded by the government in counterpart.

In Brazil people work almost 05 months yearly only to pay taxes to the government (at least that is what official data claims, because on practice it looks much worse). Almost half of your life is spent on working for the government. And what is offered in exchange? Corruption, endorsement to ignorance and populism, waste of public funds on spots of jobs which shouldn't even exist.

The more the individual thinks about this situation, more demotivated he will feel and consequently, less prone to work. There aren't many perspectives of thriving and prospering. We have to be really strong mentally, while making sacrifices to break those chains and overcome this wicked system.

[Findingnemo]

~
Such moderate tax paying is just practically possible in countries with vision, hope and believe to help spread wealth instead of creating a society of poor people except for those that fight there way out of poverty. Some countries with moderate tax payment are portugal, hungary, bulgeria, Switzerland and others, this individual moderate tax payment polices helps reduces high poverty rate among citizens and spreads wealth to the entire nation.

And it is not just tax rate because if it were then Japan is one of the country with high income tax rate but still their people are happy to pay those taxes because they trust their government with their money and seeing that whatever the tax paid coming back to them in one or the other way whereas in some countries the government just collect tax and does nothing in return which makes the people to evade taxes.

[Wiwo]

 Its a known fact that whenever there is a tax increase, the poor are negatively affected, that is why we often time see cases of tax invasion and arrests but let say a country tax income tax on business and the business people receive those tax but shift the tax burden on the people this give them the relief on tax increase but at the same time the consumer's have alot to face in terms of tax.

[Agbamoni]

The truth is, many of those communities actually have those who are capable and educated to work in those industries but the problem is always bigger than what's on the surface, it is more of the mentality of the people and the system and not just about the qualifications. Most of the time you will find out those people are not motivated to work hard even when the opportunities to land those jobs exists, they have already gotten so comfortable with the free money they enjoy.

The oil sector pay huge right? What mindset or mentality that will make anyone not to make money? I dont just understand...well like you said, the problem might be bigger than what we think. And if I'm to guess, it has to be from people in charge of giving those positions out. The corruption that happens these days is high. People who prefer to place someone without any skill because they are related, rather than put the right person in that position.