The Laffer Curve illustrates the basic idea that changes in tax rates have two effects on tax revenues: the arithmetic effect and the economic effect.
Let me just try to give you sort of the intuitive one here on the stimulus funds. If you have a two-person economy - let's imagine we have two farms, and that's the whole world, just two farms. If one of those farmers gets unemployment benefits, who do you think pays for him? Am I going way over your heads today?
The trade deficit is the capital surplus and don't ever think of having a capital surplus as being a bad thing for our country.
California is the highest-tax state in the nation and has been for a long time. It has the highest-paid teachers in the nation, by far - $400 a month more than New Jersey - and yet California is the third lowest state on test scores for fourth and eighth grade English and math in the nation, and has been at the low level for a long, long time.
I used the so-called Laffer Curve all the time in my classes and with anyone else who would listen to me to illustrate the trade-off between tax rates and tax revenues.
And you can't have a prosperous economy when the government is way overspending, raising tax rates, printing too much money, over regulating and restricting free trade. It just can't be done.
