Laffer Curve (Score 1)

The idea behind Reagan's scheme was the following: The Laffer Curve shows the correlation between tax revenues and tax rates. If the rate is at 0% or at 100% revenues will be zero. If you don't charge any taxes, you don't get any revenues. If the tax rate is too high, it gets more and more attractive to hide your earnings from the state. If the rate is at 100% everything gets taken away. SO why should you work or declare your earnings? Now somewhere, unfortunately unknown, there is a point where you get the highest revenues. This is where the extra revenues by a tax rate hike just outweigh the loss of revenues through not declaring them. Reagan thought that the US was way past that point, and that if he were to lower the taxes he'd get more revenues, since it would be less attractive to hide your earnings from the state. Well, Reagan was proven wrong. The US wasn't past the point of max revenues. So revenues dropped and the deficit soared. -- Sometimes my two cents aren't even worth a penny