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Unleash Prosperity Hotline Issue #1574
08/10/2026
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1) Is the Laffer Curve Real?

We consulted with one of the popular AI platforms and asked whether the Laffer Curve is real or not. Here is the answer we received.

We think we will give Claude a B grade on this economic test:
Claude logo

Prompt:

Is there a Laffer Curve?

Partly yes, partly no.

Arthur Laffer's core insight has been proven correct: there is some tax rate at which higher taxes begin to reduce tax revenue because people change their behavior, work less, invest less, shift income, or avoid taxes. Economists across the political spectrum generally accept that a "Laffer Curve" exists in principle.

What Laffer got right
* At a 0% tax rate, government revenue is zero.
* At a 100% tax rate, revenue would also tend toward zero because there would be little incentive to earn taxable income.
* Therefore, some revenue-maximizing rate must exist between those extremes.

This basic concept is widely accepted in public finance and economics auditing accounting.

Where the debate lies

During the Reagan era, some advocates argued that U.S. tax rates were so high that cutting them would largely or completely pay for themselves through faster growth and higher taxable income.

Most empirical research since then has found:
* Tax cuts can boost economic activity to some extent.
* Tax cuts recover some of the lost revenue through growth.
* But tax cuts usually do not recover all of the lost revenue, particularly when starting tax rates are already moderate rather than extremely high.

Bottom line

If the question is"Was Laffer correct that excessively high tax rates can reduce revenue?", the answer is yes, and that is broadly accepted economic theory.

If the question is: Was Laffer correct that major U.S. tax cuts would generally pay for themselves through higher growth?", the evidence is much weaker. The mainstream view is that tax cuts may offset part of their revenue cost, but generally not all of it.

So historically, economists tend to conclude that the Laffer Curve is real, but supply-side advocates often overestimated how close the United States was to the revenue-maximizing tax rate.

Claude also generated this graphic for this item specifically.
The Ai graphic, "Is there a Laffer Curve?"

What do you think?

One important nuanced point that AI got wrong: because cutting tax rates increases work and investment, the total tax take of the government often rises even though revenues from the specific tax that has been cut will fall. That happened in the 1980s after the Reagan tax cuts and after the Trump tax cuts.
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2) The Real Capital Gains Tax for Many Investments Is 50%

The statutory cap gains rate is 23.8%. But this fails to take account of the inflation tax. The Laffer Center calculates that an asset with a 5% yield that is held over the past five years and then is sold, pays a rate double that after adjusting for inflation - the red line. Notice also in the 1970s because of the inflation tax, the real cap gains rate rose above 100%!
A chart, "Capital gains tax rate: nominal & real."

The inflation tax is especially punitive now because of the 21% increases in prices over the Biden years – i.e., Bidenflation. This inflation tax reduces the real rate of return on assets/businesses and is a disincentive to invest. And it’s a disincentive to sell a home or stock (the lock-in effect). This means the tax may never get collected.

Conservatives should add indexing capital gains tax for inflation in their budget bill.
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3) If at First You Don’t Succeed, Try, Try Again

Everyone - or nearly everyone stumbles and fails at some point in their life. Even Jamie Dimon was fired as an executive at Citigroup after 15 years. Soon thereafter he was appointed CEO of JP Morgan and became a billionaire. See the video.
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This reminds us of a memorable scene in the movie Wall Street when Bud Fox (played by Charlie Sheen) is about to be arrested and taken to jail in handcuffs by the Feds for some shady trades, and his boss Hal Holbrook puts his arm around him and says: “Bud, in everyone’s life a man looks into the abyss, there’s nothing staring back at him. At that moment, a man finds his character. And that is what keeps him out of the abyss.”
A quote from Hal Holbrook.

There is NO shame in failing. We learn from our failures. There is only shame in never trying. Be sure to tell your kids or grandkids.
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4) 250 Years Later a Wage and Price Controls Lesson Many Still Haven’t Learned

We love when readers send us material and ideas. Here’s an amazing and timely free-market history lesson that even we weren’t aware of:

With inflation above the Fed’s 2% target and consumers still feeling the painful effects of the Biden 21% rise in the price level, Congress and even some in the White House want to impose price controls on energy, health care, and credit cards, to name a few.

Here is a resolution that the Continental Congress passed on June 4, 1778, recommending that the states repeal all price controls:
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Here’s to hoping our present day pols have the wisdom to steer away from these “evil consequences.”
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5) We Have Not Taught Our Children Well

Arguably, the three most important values to pass on to our children are love of God, country and family.

But as this survey data from 2024 and compiled by Bruce Mehlman show us, Boomers have failed miserably in this task. The Gen Z youngsters may be the least patriotic and God-fearing generation in American history. Ironically, these are the young adults that will inherit some $50 trillion in wealth over the next couple of decades and they don’t believe in the socio-economic structure that helped create this wealth in the first place.

Maybe instead of pouting and complaining, these youngsters should also think about learning another virtue: GRATITUDE.
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6) How “The Science” Evolved
"2020" The science is settled, 2021: Trust the science, 2022: Sorry you lost your job for not trusting the science, 2023: e have recalled the science from the market, 2026: The science pleads the 5th."

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