"It's not like the current payoff is motivating everybody to take risks," he said. "We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn't indicate to me that risk takers, as a whole, are overpaid. Quite the opposite." The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them.Conard's philosophy of motivation has been falsified over the last 40 years, as Peter Diamond and Emanuel Saez have pointed out:
The share of pre-tax income accruing to the top 1% of earners in the U.S. has more than doubled to about 20% in 2010 from less than 10% in the 1970s. At the same time, the average federal income tax rate on top earners has declined significantly.Diamond and Saez also note that the Laffer Curve is aptly named:
According to our analysis of current tax rates and their elasticity, the revenue-maximizing top federal marginal income tax rate would be in or near the range of 50%-70% (taking into account that individuals face additional taxes from Medicare and state and local taxes). Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s. To reduce tax avoidance opportunities, tax rates on capital gains and dividends should increase along with the basic rate. Closing loopholes and stepping up enforcement would further limit tax avoidance and evasion.Bruce Bartlett also makes a more general observation about taxes and the economy:
According to the Congressional Budget Office, federal revenues will be 15.8 percent of G.D.P. this year. The postwar average is about 18.5 percent, and taxes averaged 18.2 percent during the Reagan administration; indeed, at their lowest point in 1984, federal revenues were 1.5 percent of G.D.P. higher than they are now.Bartlett also provided international data that supports his claim that the Laffer Curve is BS. Jared Bernstein made a nice graph of the data:
The reason that unemployment is high clearly has nothing to do with taxes. Consequently, there is no reason to think that reducing taxes further will do anything to raise employment by reducing the tax wedge.
The "Tax wedge" is the "difference between the cost to an employer of employing a worker and the after-tax reward that the employee receives" and conservatives think the a larger wedge results in larger unemployment, another FAIL.