Monday, March 12, 2007

"Iceland's Laffer Curve"

From today's Wall Street Journal:

"...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...."

To top it off, Iceland's government is now considering a reduction of its corporate-tax rate to ten percent. That would beat Ireland's low corporate tax rate by over 2 percent.

Meanwhile, the prevailing 35 percent corporate tax rate here in the U.S. continues to take monster bites from all U.S. businesses.

As I've written before:

"Corporate profits are a vital form of capital and capital is the key ingredient in capitalism. If the latter is to work and expand prosperity, then the former must be saved. In fact, corporate profits shouldn’t be taxed at all...Profits are the seed corn of economic growth. Eliminating the tax burden on profits will reap a record harvest of jobs and prosperity."