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The Wrong Side of the Laffer Curve

Read an article in the WSJ opinion section on Friday about how the United States is on the wrong side of the Laffer Curve. The Laffer curve represents the concept of taxable income elasticity - i.e. how there is an optimal level of taxation via a tax rate that would maximize tax revenue. The article in the Journal highlighted how the United States has one of the highest corporate tax rates in the world - at 39.3%. That 39.3% tax rate generates around 2.5% of GDP in tax revenue. Compare that to Ireland which has a 12.5% corporate tax rate but generates 3.6% of GDP in tax revenue. How can this be? The reason is that companies have an incentive to move more of their operations overseas (e.g. to the Cayman Islands) to avoid the IRS's ridiculous tax rate. It's self-fulfilling in a way. The higher the tax rate, the more companies move their operations overseas to avoid that high tax rate, which means you need an even higher tax rate to make up for the loss in revenue. If you instead just slashed the tax rate, you could bring more of those companies back domestically and actually increase your tax revenue.
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