In today’s Wall Street Journal, University of Chicago professor of finance John Cochrane has an article called “America Needs an Alternative Maximum Tax.” The case made in the article is moderately interesting and probably worth looking into. But what is particularly disturbing is the premise behind the following question which Cochrane asks near the beginning of the article: “When do taxes indisputably start to harm the economy and produce less revenue—when government takes 50% of people’s income? 60%? 70%?” The problem is that harming the economy and producing less revenue are not the same thing, unless, of course, you equate the economy with the government.

The fact is that the economy is “indisputably” harmed when the the government takes 1% or 1/2% of people’s income. The idea behind the famous Laffer Curve, which Cochrane seems to be invoking, is not that the economy is harmed by higher income tax rates at the point where the Treasury begins to  bring in less revenue. The assumption behind the curve is that the economy is increasingly harmed as rates rise from 0 to 100%. This causes the tax base to continuously shrink. Tax revenues begin to fall when the percentage decline in the base (incomes) outstrips the percentage increase in taxes. I find it difficult to believe that a University of Chicago finance professor wouldn’t understand all this. But the alternative conclusion might actually be less flattering, namely that professor Cochrane truly believes that what’s good for the U.S. Treasury is good for the economy.