Art Laffer, righter than ever.(Arthur Laffer, American economist)

IT was the most famous dinner in the history of economics. Back in 1974, Arthur Laffer, Jude Wanniski, Dick Cheney, and Donald Rumsfeld met at the Washington Hotel, in the nation's capital. As legend has it, when the conversation turned to tax policy, Laffer drew a graph on a napkin to illustrate that higher tax rates do not always lead to higher tax revenue. At some point, higher rates kill economic activity, driving down revenue.

Wanniski expanded on Laffer's point in a 1978 article in The Public Interest, calling the relationship between tax rates and tax revenue the "Laffer curve." The curve became canonical to some, but others treated it as a bunch of voodoo.

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It's odd that the curve caused so much controversy, given that Laffer's point is perhaps the most ancient in economics. Indeed, as Laffer himself has noted, Ibn Khaldun, the great Muslim writer, alluded to the same dynamic in his epic 14th-century work The Muqaddimah. And in the 1800s, French scholar Jules Dupuit made the point with such precision that many economists today refer to the "Dupuit-Laffer curve."

Perhaps the curve provokes controversy because, although its hypothetical existence is not disputed, whether it characterizes our economy at any given moment is another question. The problem appears to be that the benefits of tax cuts are gradual. Reductions in capital-gains taxes are the only cuts that indisputably have increased revenue immediately, and they may be a special case in which reductions release an avalanche of pent-up gains.

Which makes it all the more noteworthy ...