What is the Laffer curve?

The Laffer Curve is a theoretical construct that shows the relationship between tax rates and the tax revenue that is actually collected by the government. The curve shows the optimal amount of taxation for any given society so the government gets the most amount of revenue collected from the taxes.

If tax rates are too high, members of society will refuse to work because too much of their money goes to taxes. If the tax rate is too low, the government will not collect enough revenue to sustain itself. The Laffer Curve shows where the tax rate is at a balance.