How a Napkin Sketch Reshaped Global Tax Policy

In 1974, inside a Washington, D.C. restaurant, a group of economists and politicians were arguing about taxes over drinks when economist Arthur Laffer grabbed a napkin. On it, he drew a simple curve: a hill-shaped graph showing that beyond a certain point, raising tax rates would actually decrease total government revenue. What became known as the “Laffer Curve” would soon underpin massive tax cuts in the U.S. and abroad, turning a bar napkin into one of the most controversial diagrams in economic history.Laffer’s argument was elegantly simple: at a 0% tax rate, the government collects no revenue. But at a 100% rate, people have no incentive to work or invest, so revenue would also fall to zero. Somewhere in between lies a “sweet spot” where tax rates maximize revenue. The curve’s simplicity made it powerful, and its implications were irresistible to advocates of tax cuts.The Laffer Curve vaulted into prominence during Ronald Reagan’s presidency, fueling the case for sweeping tax reforms in the 1980s. The idea promised a win-win: lower taxes and higher government revenue. While some tax cuts appeared to boost economic activity, the promised revenue surges didn’t always materialize, leading critics to dismiss the curve as wishful thinking dressed as economics. Still, the idea lived on, influencing policies from George W. Bush’s tax reforms to corporate tax debates in Europe.

The napkin now sits in the National Museum of American History, as the Laffer Curve remains a symbol. Economists generally agree the curve is theoretically valid, but its real-world “peak” is hard to pinpoint and varies by country, time, and economic conditions. Whether you see it as visionary or oversimplified, the Laffer Curve shows how one sketch can redraw the lines of public debate for generations.

Craving more? Check out the source behind this Brain Snack!