The Laffer Curve

Major points:

• high tax rates 

• reduce incentives to work, save, and invest.
• impede the long run growth of aggregate supply 
• (rewards of working vs. leisure / saving vs. consuming are reduced)

• There's a range were the tax rate will discourage people from doing things with their money.

Things to consider:

• value of work 
• value of leisure
• after-tax revenue

The curve suggests:

• High tax rates will lead to less overall tax revenue
• lower tax rates will increase overall tax revenue

• lower rates encourage saving and investing
• people have an incentive to substitute work for leisure  
• firms have better equipment (improves productivity) 
• rise in labor productivity expands LRAS 
• unemployment and inflation rates low   

Internationally...

• firms are doing more "tax shopping". 
• People and businesses headquarter in places with low tax rates. 
• the government in the home country is loosing all of their tax revenue from that business or person.