The napkin sketch that made Arthur Laffer's name, and its critics
In 1974 an economist reportedly grabbed a napkin during an afternoon meeting with Dick Cheney and Donald Rumsfeld and drew a simple hump. Tax nothing and you raise nothing; tax everything and nobody bothers working, so you raise nothing again. Somewhere between lies a peak. The drawing became famous as the Laffer curve.
Arthur Laffer, born in Youngstown, Ohio, in 1940 and trained at Yale and Stanford, never claimed the idea as his own. He says he learned it from the medieval scholar Ibn Khaldun and from John Maynard Keynes. The label came from the journalist Jude Wanniski, who was at that meeting. What Laffer added was a bolder claim: that the revenue-maximising rate was far lower than people assumed, low enough that American rates sat above it, so cutting them could bring in more money.
That argument carried him far. He was the first chief economist at the Office of Management and Budget, helped push California's Proposition 13 property tax cut in 1978, and advised Ronald Reagan across both terms. Decades later Donald Trump awarded him the Presidential Medal of Freedom, in 2019.
Most economists accept the curve and reject his reading of it. In a 2012 University of Chicago survey, not one economist agreed that cutting federal income tax rates would raise total revenue within five years, and 71 percent disagreed. The economist John Quiggin summed it up neatly: the curve was correct but unoriginal, while Laffer's claim about where America sat on it was original but incorrect. Greg Mankiw of Harvard argued that US rates were probably below the peak, not above it.
The sharpest real-world test came in Kansas. Laffer was paid 75,000 dollars to help design Governor Sam Brownback's 2012 tax cuts, which he called truly revolutionary. The state swung from surplus to a deficit of about 200 million dollars that year, cut school and road funding, and trailed its neighbours. In 2017 lawmakers from both parties repealed the cuts over Brownback's veto.
Source: Arthur Laffer
