As for the AMT, it too has been a factor contributing to the increase in tax revenues as more and more people are hit by it, but so far the effect has been small, only a few billions of dollars of this years increase can be attributed to it. For the coming years however, it will start to have a larger effect as is illustrated in this testimony (the projected decline after 2010 is likely because of the expiration of the remaining Bush tax cuts).

Georgist: I can’t see why a absolute monarch would necessarily want to maximize tax revenues, but I can definitly see why a democratic politician would. He would presumably only want tax revenues if he thinks he can come up with a way to use it that is better than letting his subjects keep it. And since tax increases always hurt the economy even if it increases tax revenues a monarch would likely be inclined to keep taxes below the Laffer point. A democratic politician would however be very inclined to maximize tax revenues since that would allow him to bribe a maximum number of voters into voting for him (Although of course he has to be careful to collect taxes in a way which upsets as few people as possible).

And empirically it certainly is the case that tax rate increases will result in tax revenue increases as long as they stay away from extreme levels like the 83% top income tax and 98(!)% capital gains tax that Britain had before Thatcher came to power. Some tax bases like corporate investments that are better able to move has however a lower Laffer point than income taxes on employees(particularly low- and middle income employees).

But still it is clearly the case that tax revenues up to very high levels with most taxes and up to somewhat lower levels with highly moveable tax bases increase with higher tax rates. While they lower economic growth they do not lower it enough to cancel out the effect of the increased portion of GDP it will collect.
Per capita tax revenues are in fact highest in Western European welfare states like Sweden, Denmark and France and the United States has higher per capita tax revenues than relatively low tax Hong Kong and Singapore.

Thanks for the fine posting and especially analysis. Along the lines of Bruno Panetta’s comments, how about a position at the New York Times or the Wall Street Journal. I hear the weather is sunnier in New York than in London.

I have a question regarding the impact of Bush’s modest cuts in the marginal income tax rates. Have you come across any studies that attempt to estimate how much of the reduction in marginal tax rates may have been offset by the increasing impact of the Alternative Minimum Tax?

Georgist, I too agree that the Laffer Curve is essentially correct in its assumption that whatever is taxed will decrease (at least in a form where it can be taxed) and that at some point therefore a tax rate increase will lead to lower tax revenues. However, I am skeptical to the claim of many “supply-siders” that a tax cut from the current more moderate tax rates will increase tax revenues. They seem to misinterpret the Laffer curve as implying that any tax rate cut will increase revenue, even though one can see on that curve that at fairly low tax rates, tax rate cuts will decrease revenues. And the legitimacy of the Laffer Curve does not depend on what empirical point tax rate changes will have the opposite effects on revenues.