Friday, November 21, 2008

Why Settle for a Theoretical Estimate...

...of the Laffer Curve, when you can have the real thing? The author of the first-linked item suggests that the amount of income remaining in private hands is maximized at an overall tax rate of 25 percent. My empirically-based estimate (second link) puts the private-income maximizing tax rate at 15 percent. The latter figure is a practical minimum:
The normal peacetime burden of government spending between the end of the Civil War and the eve of the Great Depression ranged from 5 to 10 percent of GDP,1 enough to maintain law and order and to provide minimal "social services." To that I would add 5 to 10 percent for the kind of defense that we need in these parlous times. (See this post, for example.)
You can't have a vibrant economy without law, order, and defense from foreign enemies.