The Wall Street Journal says Kevin Hassett has discovered the Laffer curve, but I think these data might say something else ... The blue line is supposed to be the Laffer curve, but this is far from compelling. Since it looks like all that's been done here is to draw a line through an outlier, Norway (an outlier that in other contexts we are told to ignore because it is an outlier, e.g. see below), and since this is clearly not the best fitting line to these data, here's another possibility ... I haven't actually run the regression, but it looks clear to me that revenues rise with tax rates, and the fit also looks better than in the first graph. Toss out Norway, and the fit looks even betterA lot of people had a lot of fun pointing out how dumb this graph was including Kevin Drum:
And one more thing. Just for laughs, take a look at what the Journal’s barmy graph drawing implies: Norway, with a corporate tax rate of about 29%, generates enormous amounts of corporate tax revenue. But then, since it’s the only way to get an upside-down U out of the data, the graph goes nearly vertical. Even the Journal’s editorial writers, normally a pretty barefaced bunch, were apparently too embarrassed about this economic singularity to follow the right side of their graph to its logical conclusion, but we can: at a rate of about 33% corporate taxes produce no revenue at all. An increase of a mere four percentage points destroys tax revenue entirely! Mirabile dictu! A junior high school geometry student would be embarrassed to produce work like this. But not the Wall Street Journal editorial page. Or the American Enterprise Institute, which created it in the first place. They apparently think their readers are too dumb to see what they’re doing.Of course Donald Luskin tried to defend Hassett’s nonsense. As Kevin Drum does remind us, however, that Norway “generates enormous amounts of corporate tax revenue” even though its corporate tax rate is less than 30%. But this is incomplete as Oliver Milman reminds us:
In Norway, companies drilling for North Sea oil pay a 78% tax rate on income, compared with a corporate tax rate of 28%.Norway produces and exports a lot oil. President Trump is also hoping we can export a lot of natural gas, coal, and oil. Maybe the right thing to do is to follow Norway’s lead and raise the tax rate on these profits.