04/03.14 Reagonomics/ Laffer Curve

• Supply- side economics. AKA Reagonomics
• Tends to believe that the A Curve will determine levels of inflation, unemployment and economic growth. 
• To increase economy, shift AS curve to the right.
• Focus on marginal tax rate amount of tax paid on an additional dollar of income. 
• By reducing marginal tax rates, it will encourage more people to work together.
• High marginal ax rates may end up reducing savings since when you save money, you are then taxed at a higher rate on your profit or interest.
• Laffer Curve
• Inverse relationship
• The higher the tax rate, the less government tax revenue is.
• Progressive tax: Increasing tax
• Curve is 'u' shaped because trying to maximize government revenue.
• As tax rates increase from 0, tax revenues increase from 0 to some maximum total.
• 3 Criticism of the Laffer Curve
1. Where the economy is actually located on the curve is difficult to determine.
2. Tax cuts also increase demand, which can fuel inflation and demand may exceed supply.
3. Research states that tax rates impact people incentive, to work, invest, and save.