No Laffing Matter | Eastern North Carolina Now

    Publisher's note: The author of this post is Mitch Kokai, who is an associate editor for the Carolina Journal, John Hood Publisher.

    RALEIGH  -  One of the more irritating features of popular political discourse involves the common problem of pundits and prognosticators fixating on a single fact or data point while ignoring broader, more important issues.

    It happens every day. During recent debates about North Carolina's public education funding levels, for instance, attention has focused almost exclusively on the amount of money spent on public schools, either in total or on a per pupil basis.

    Left-of-center critics have claimed that North Carolina's new state budget "cuts" education spending. Conservative responses have pointed out that it's impossible for the education budget to have been cut when an apples-to-apples comparison shows that spending increases from 2012-13 to the current budget year.

    While it has been important to correct the record, the numbers debate has done nothing to address a more critical issue: the merits of higher or lower spending levels. Leftists proceed with the assumption that higher spending levels are necessarily better. While pointing out the flawed calculations, conservative critics have said little about the relevance of that spending statistic.

    They have spent little time reminding the audience that no debate about education spending should omit a discussion of "bang for the buck": how much educational achievement results from a given amount of money devoted to education programs.

    The same problem pervades the global warming debate. Before the global surface temperature stopped rising more than a decade ago (an "inconvenient truth" for climate alarmists), some advocates treated a higher temperature reading as an automatic justification for carbon taxes, cap-and-trade schemes, new vehicle emission standards, and other policies designed to cool an "overheated" planet.

    But temperature readings offer just one set of facts. Other no less critical pieces of information would be needed before launching a "wrenching transformation" of the American economy. Wise policymakers asked for that type of information. (With even more wisdom, North Carolina legislators might have avoided adopting overly burdensome policies inspired by global warming alarmism, such as the 2007 state renewable energy mandate.)

    Beyond individual data points, entire theories can be subject to misplaced fixation. This is true even for relatively simple, straightforward ideas. Take the Laffer Curve. Named for economist Arthur Laffer, and supported by a nearly 40-year-old back story involving Dick Cheney, the curve basically says that government will collect no revenue at tax rates of either zero percent or 100 percent. There is no tax to collect with a rate of zero percent, and no one will choose to work if she cannot keep even a fraction of a penny from her labor at a tax rate of 100 percent.

    Offer no more specifics than this, and the idea is sound. A critic would have a hard time disputing that logic.

    Here's the problem: That basic concept offers little practical guidance for policymakers considering the best tax rates to meet particular goals.

    Don't get me wrong. The Laffer Curve provides a useful tool for debunking the notion that doubling a tax rate will necessarily double tax revenue. It also illustrates the important fact that cutting an overly high tax rate can, under the right conditions, increase the amount of tax revenue flowing into a government's treasury.

    But applying the Laffer Curve to specific cases is difficult at best. Too many people on the political right argue reflexively that cutting tax rates will increase revenues, citing the Laffer Curve as their evidence.

    If you cut the top marginal income tax rate from 99 percent to 95 percent, will tax revenue go up? What about cutting the top rate from 95 to 70 percent? It's likely that the answer is yes in both cases of extraordinarily high tax rates. But what about a cut from 50 percent to 40 percent? From 40 percent to 30 percent?

    Researchers have filled many jargon-filled pages with calculations designed to label a "sweet spot" on the Laffer Curve, the point beyond which tax revenues are likely to fall rather than rise. Their goal is to use the curve to justify cuts from overly inflated tax rates.

    But you don't have to be a liberal with an inherent distaste for tax cuts to see that historical data offer only a limited guide about "ideal" tax rates. The overall health of an economy, the impact of other government policies, national and worldwide political events, and other factors all play a role in determining the amount of government revenue. The economy is not a vacuum-sealed controlled experiment. It never will be.

    In addition, fixation on the relationship between tax rates and government revenue tells us nothing about the merits of lower or higher government spending levels.

    If we could identify an ideal tax rate associated with the Laffer Curve, would it make sense to employ that rate? Is maximizing government revenue a worthy goal?

    No. The goal is a better society, emphasizing policies that maximize personal freedom, individual responsibility, and a limited government that provides the best "bang for the buck." Data and theories help to the extent that they can guide policymakers toward that goal.