This curve starts at the lower-left corner, and then heads to Norway, ignoring half the data. Then, for no apparent reason, it dives down into the midst of the data on the right-hand side of the graph.

Pure BS on a whole set of levels. But we knew that from the facts that (a) AEI made it and (b) the WSJ editorial page printed it.

No: even the graph’s author must have realized that the curve would look stupid plunging to zero revenue at a 33% tax rate. So he decided to stop drawing the curve, in order to avoid drawing readers’ eyes towards the error.

I think that’s enough to establish—-what’s it called? “substantial capacity”? “consciousness of guilt”?

If they had done that, they could have made their little point, and no one would have noticed, or seen their curve-fitting as terribly dishonest.

Here, they have sacrificed their point on the altar or stupidity.

One possible reason this graph is so worthlessly messy is that it uses the wrong variable for it’s horizontal scale. Rather than using the regulation tax rate on corporations, it should use the empirical effective tax rate after deductions and the like. Maybe it should use average tax revenue as a fraction of a company’s net income. One way or another, any serious attempt to express tax law on a single dimension needs to take into consideration more than the prescribed tax rate on profits – like qualifying expenses and deductions for example.

But beyond this, how would a Laffer curve be relevant to cross-national data of the kind presented here? The Laffer ‘curve’ describes diminishing returns within a given tax system. WSJ has apples and oranges on their curve. I haven’t seen the WSJ editorial, but do they really think the optimal corp. tax rate is 29% across all countries? Their own graph does not provide much support for that—the UK has roughly the same rate as Norway but gets far less corp. tax revenue as a % of GDP.

As for Norway, in 2001 Norway partially privatized its state-owned oil company, Statoil. Nineteen percent is currently publicly traded. Statoil pays 78% tax on profits (28% regular corporate tax and 50% oil company surcharge). Because it’s such a big part of the economy, the tax on Statoil pushes up the corporate tax/percentage of GDP ratio. (Of course, 81% of the remaining profits also belong to the state, but these aren’t considered corporate tax.)