Thursday, September 16, 2010

Hate the Laffer Curve? Try Woodhill's

Louis Woodhill, an engineer and software entrepreneur, is on the Leadership Council of the Club for Growth. In a nutshell, reduce taxes and revenues will increase, with the added advantage of a robust economy and jobs.

The principle behind the Woodhill Curve can be stated as follows: "There are an infinite number of combinations of "tax take" (Federal revenues as a percent of GDP) and average annual real economic growth rate that will yield the same present value (PV) of future Federal revenues." While the shape of the Laffer Curve is a matter for speculation, it is possible to quantify the shape of the Woodhill Curve. As it happens, the results of the calculations are very bad news for liberal tax hikers, but very good news for supply-side tax cutters.

Obviously, shoring up Federal finances is not our only important economic objective. We have 34.5 million unemployed and underemployed citizens who need jobs, and many more who need a pay raise. Prosperity is possible, but to get to prosperity from here we need a "growth spurt" -a sustained period of very high GDP growth. Eliminating the corporate income tax, the capital gains tax, and the death/gift tax should produce the economic boom that we need. It is likely that these tax cuts would support a real annual growth rate in excess of 5% for many years.

Let's get rid of the taxes that are holding our economy down. Don't worry about the Federal budget. The Woodhill Curve shows that the tax cuts will pay for themselves, and then some.
Hate the Laffer Curve? Try Woodhill's

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