March 15, 2007

The Smashing Success of an Island Economy with Supply-side Econ

Filed under: Economy,Taxes & Government — Tom @ 7:48 am

BESIDES Hong Kong and Ireland, from a Wall Street Journal editorial (requires subscription):

The benefits of low taxes are on full display in Iceland, which provides an almost perfect demonstration of the Laffer Curve. From 1991 to 2001, as the corporate-tax rate fell gradually to 18% from 45%, tax revenues tripled to 9.1 billion kronas ($134 million in today’s exchange rate) from just above 3 billion kronas. Revenues have more than tripled again since 2001 to an estimated 33 billion kronas last year. Personal income-tax rates were cut gradually as well, to a flat rate of 22.75% this year from 33% in 1995. Meanwhile, the economy has averaged annual growth of about 4% over the past decade.

It seems pretty obvious that the relevant range where tax cuts will increase tax revenues is well below our current 35% top individual and corporate rates. Yet we in the US are worried about merely keeping those rates from increasing, while there are object lessons aplenty (Hong Kong, Ireland, Iceland, and Australia, to name a few) that we should be lowering rates to grow the economy more quickly, and possibly get over the long-term deficit hump we face down the road.

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