Analysis · Taxation · Counter-intuition
Taxing at 0% raises €0. Taxing at 100% also raises €0. In between, revenues rise, peak, then fall. France has passed that peak — on some taxes. This isn't a liberal opinion: it's arithmetic.
There are two tax rates that raise exactly zero euros for the state. The first, 0%, is obvious. The second, 100%, is mechanical: nobody works if the state takes everything. In between, revenues form a curve — rising, peaking, then falling. That's the Laffer curve, sketched on a restaurant napkin in 1974.
What's less obvious: the peak is not the same for every tax. VAT has its peak. Corporate tax has its own — lower, because companies can relocate. A minimum wage worker can't move to Switzerland overnight; a multinational can. The more mobile the tax base, the lower the peak.
The Laffer curve doesn't fall from the sky. It emerges from human behaviour. When the state takes a growing share of each additional euro earned — this is the marginal rate: not an average across all your income, but what disappears on your next euro — people find exits. Not through fraud, but through elementary logic. Working an extra hour to keep 28 cents is no longer worth it.
These adaptations have precise names — and figures. They're not abstract theories. They're rational responses to perverse incentives, documented, measured, repeated every time levies exceed the profitability threshold of effort.
You cut taxes — and revenues increase. It seems absurd. Yet that's exactly what France experienced between 2017 and 2022: corporate tax was cut from 33% to 25%. Revenues jumped by €7 billion (+21%). Companies declared more profits in France, because tax arbitrage to Ireland or Luxembourg had become less profitable. At 33%, France was past the Laffer peak for this tax. By cutting the rate, it recovered the base that had fled.
This isn't a French exception. In the UK, corporate tax was cut from 28% to 19% between 2010 and 2016 — revenues rose. Ireland has maintained a 12.5% rate since 2003 and collects proportionally more corporate tax than France. And the 2013–2014 75% tax provided the reverse demonstration: target €1 billion per year, result €130 million. Quietly abandoned after two years. Same curve, same mechanisms — in both directions.
The Laffer curve is often misunderstood, even by its supporters. Some conclude: "we just need to find the right rate — the one that maximises revenues." But for a liberal, this reasoning inverts the priorities. Maximising tax revenues is not an end in itself. It's optimising extraction, not freedom. A state seeking the Laffer peak seeks to take the maximum possible without killing the base. That's not the same as seeking to leave people free to make their own choices.
There's also a practical reason. The Laffer peak is a moving target — it shifts with capital mobility and international tax competition. A state chasing this peak only manages to chase an illusion. And even if it reached it: at the "peak," the rate is still high, investment still penalised, entrepreneurial risk still poorly rewarded. Maximum tax revenue is not maximum prosperity. These are two different curves — and they don't cross at the same point.
The Laffer curve has a bad reputation on the left — associated with Reagan, the rich, endless tax cuts. Some criticisms are legitimate. Others describe exactly what's already happening in the current system. Here are the four main ones.
The Laffer curve doesn't say taxes should be low. It says they can't be infinite. What politicians call "tax compliance" is often the logical response to a 68% marginal rate. The problem isn't the taxpayer who adapts — it's the rate that forces them to. And when they leave, they take the tax base with them.