I have spent my career working in Finance and helping make these decisions for a Fortune 100 company. If you couldn’t already guess the answer to number 3, it should be “yes.”

Now let me illustrate. Let’s say that you have the opportunity to bet on the outcome of a coin toss. If you guess correctly, you win $120. If you guess incorrectly, you lose $100. Since the expected return is 0.5 * 120 + 0.5 * (100), or $10, a rational person would take this bet over and over until he/she was supremely wealthy. Now, let’s add taxes into this decision. If we tax the winnings at 25%, then the expected return drops to 0.5 * 120 * (1-.25) + 0.5 * (100) = (10). Now, you expect to lose $10 every time you take this bet, so you make the decision NOT to invest in this opportunity.
Now, rather than thinking of this as a coin flip, let’s think of it as the decision to expand manufacturing capacity in a region. This decision will have similar expected returns, but multiplied by $10MM–and this project is expected to create 100 new jobs if we do it. If the payouts and taxes are the same, you don’t do the project. However, if taxes are reduced to 10%, then you make the investment because your expected return is once again positive.

If you still can’t see how this illustrates the Laffer curve, then I’ll break it down even more simply so the nay sayers can understand it. If taxes are 25%, how much tax revenue is collected from this project? The answer = $0, because the project is not undertaken. If the tax rate = 0%, then you also collect $0 in taxes. However, if the tax rate is 10%, then your expected tax revenue = $10MM * (0.5*120*+0.5*-100) = $100MM * .25 = $25MM + the tax that you receive from the income on the 100 new jobs. Hey, (0%,$0), (10%, $40MM+), (25%, $0)–if you plot those coordinates on a graph, you actually get a Laffer curve.

I hate to disappoint you academics and people who have never worked in the real world, but this is actually how investment decisions are made and it supports the theory of supply side economics. This example applies to personal tax rates and corporate tax rates. High personal tax rates discourage investment by small business owners (many of whom report business income as personal income). So the next time you wonder why those 100 people are out on the street and looking for work, maybe you should think about cutting tax rates on corporations and individuals who make these decisions–because that’s how you will incentivize these people to take the risks that will create jobs.