taxation, public-policyColumbia Business School’s Charles Calomiris argues on Bloomberg that “the academic literature on tax policy is clear” that lowering marginal tax-rates, broadening the tax base, and not taxing capital income would drive growth.
In particular, prof Calomiris claims that higher marginal rates and increased taxes on capital gains would have a negative effect on savings and investment. Is the academic literature really this definitive (in an economy where resources are not fully utilized)?
Professor Charles Calomiris, and his boss, Dean Glenn Hubbard, are members of the so-called “supply side” school of economic thought. Its founders included Arthur Laffer, George Gilder, and Jude Wanniski.
Arthur Laffer was the creator of the “Laffer curve,” a somewhat misunderstood construct. It posited that there was an optimal tax rate that maximized tax revenue. Go below this rate, and you sacrifice revenue. Go above it, and you “disincentivize” people.
Since tax rates were historically high in the late 1970s when this theory came out, the implication was that taxes should be cut. That was true at the time, this isn’t always the case; an “optimal” tax rate works “both ways.” But “supply side economics” became known for its argument to keep taxes low.
Unfortunately, Laffer, Gilder and Wanniski made most of their arguments in periodicals, rather than books. The best-selling book produced by any of them was Gilder’s Wealth and Poverty.
http://www.nytimes.com/1981/02/01/books/a-guide-to-capitalism.html?pagewanted=all
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