I had the opportunity to spend some time in Las Vegas with one of the giants of the economics field, Dr. Art Laffer. Initially I expected to maybe ask Dr. Laffer a few quick questions but after learning that I was a University of Michigan graduate he took the opportunity to razz me about Ohio State’s recent dominance of my alma mater’s football team (Laffer is an Ohio native). This led to a much longer conversation, and during it we talked about President Obama’s agenda, the similarities between Laffer’s hometown of Youngstown, Ohio and mine of Flint, Michigan.
Laffer feels strongly that the nation’s tax policy is both part of the problem and fixing it could be a significant step towards a real recovery. Dr. Laffer said “The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems.” When I asked him how we could take concrete steps to repair the national economy he said “We know how to fix it, by the way, a low rate flat tax, spending restraint, sound money, free trade.”
“Have you ever heard of a poor man spending himself into prosperity? It`s just dumb on the outset. Government spending, as [economist] Milton Friedman always said, is taxation,” he continued. “Government doesn`t create resources, it redistributes resources. And this government spending stuff is why we had the great recession.”
Laffer declined to lay all the blame on President Barack Obama, noting that former President George W. Bush started the spending binge, which he said led to the so-called “great recession” beginning in 2008. (President George W. Bush) did just as bad a job as did Obama [President Barack Obama], but Obama has continued that bad job for four straight years. And this is the result,” he added.
Laffer stressed the importance of a low tax policy, one less onerous, in helping to stimulate the econo- my while increasing government revenues at the same time.
Recalling his years as one of President Reagan’s top economic advisers, Laffer said Reagan actually cut the highest tax rates. He said “we made a mistake” by phasing in the cuts, which he said caused the 1981-82 recession. But he said the economy took off in 1983 when the cuts went into full effect.
“This place just went like a rocket ship,” he said. “I think we had 7.5 percent growth in 1983 and 5.5 growth in 1984, just this boom that lasted for years and years.”
“We have the highest corporate tax rates in the world and one of the lowest corporate tax revenues as a share of GDP in the world. Go figure. It’s just you`re taxing them out of business.”
Laffer said the economy last year grew by about 2.1 percent, a poor performance that he described as “the worst single recovery in the history of the U.S.”
When I asked Dr. Laffer about the pros- pects for turning around rust belt cities like Flint, Detroit, and his own hometown of Youngstown he said , “It’s amazing, isn`t it? We spent $5.8 trillion in the last couple of years, and this is what we get for it? It’s tragic.”
Arthur B. Laffer’s economic acumen and influence in triggering a world-wide tax-cutting movement in the 1980s have earned him the distinction in many publications as “The Father of Supply-Side Economics.” The Laffer Curve is one of the main theoretical constructs of supply-side economics, illustrating the tradeoff between tax rates and actual tax revenues.
Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989). He was a member of the Executive Committee of the Reagan/ Bush Finance Committee in 1984 and was a founding member of the Reagan Executive Advisory Committee for the presidential race of 1980. He also advised Prime Minister Margaret Thatcher on fiscal policy in the U.K. during the 1980s.
A 1999 Time Magazine cover sto- ry “The Century’s Greatest Minds” deemed the Laffer Curve one of “a few advances that powered this extraordinary century.”
–Gary L. Fisher, MSA, LUTCF, CLTC, CFEd
The opinions voiced in this material are for gen- eral info only and are not intended to provide specific advice or recommendations for any individual.