Raising taxes too much actually garners less revenue. Who knew? |
Gov. Gavin Newsom of California delivers his State of the State address at the Capitol in Sacramento on Jan. 8.MAX WHITTAKER/The New York Times
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
If you went to business school, you probably remember the Laffer curve, an economic theory floated by Yale economist and U.S. presidential adviser Arthur Laffer that looks at the relationship between taxes and government revenue.
In simple terms, it suggests that raising tax rates beyond a certain point can decrease revenue by disincentivizing work and investment, while cutting rates from a high level can increase revenue by stimulating economic activity. It’s all about finding the right balance.
Last week, California Governor Gavin Newsom had his own Laffer curve moment when he pushed back on a proposed new state wealth tax on billionaires that he said is “really damaging” and “doesn’t make sense” because it is driving them, their businesses, jobs – and tax revenue – out of the state.
The proposed new tax seems to have put the state at the inflection point on Mr. Laffer’s arc, where the higher tax rates would be on track to generate lower revenue, because there would be fewer people to pay them.
Toronto’s 2026 budget proposes property tax hike of 2.2%