Arthur Laffer: Demo Win Would Lead To ‘Fiscal Crisis’
Tax-cutting economist Arthur B. Laffer, creator of the “Laffer curve” and the father of supply-side economics, isn’t really a partisan guy. He was an adviser to Ronald Reagan, sure, but he also voted for Bill Clinton twice and calls JFK “as great a president as we ever had.” That said, Laffer predicts that if Barack Obama or Hillary Clinton is elected president this year, we’re in for “one of the biggest fiscal crises of my lifetime. … We will face what they call in Hawaii ‘the Big Kahuna,’ because we will be changing the face of America very dramatically.” Jump now to find out why.
Laffer, who spoke today in Dallas at a luncheon sponsored by Frost Bank, said he’s expecting the worst because all the Democratic presidential candidates have advocated raising taxes on the rich–the top 1% of taxpayers–while lowering them for the poor and middle class, or 80% of taxpayers. While that sounds admirable–he might even espouse the same, Laffer said, if not for the laws of economics–doing so will lead to less, not more, revenue for the federal government.
Here’s why (and close your eyes if you’re not into tax economics): Hiking the top rates–from 35% to 39.6% on income, for example, from 15% to 20% or even 28% on capital gains, from zero to as much as 55% on the estate tax–will simply cause the top earners to change their economic behavior in order to avoid paying more taxes, Laffer contends. They might throw up their hands and close their businesses, say, or move their operations offshore, or rejigger their compensation packages, or take any number of other steps, as they always do.
“If you raise tax rates on the rich, you ain’t gonna get the money,” Laffer said. “In fact, you’re gonna lose money. If you lower rates on the middle class and the poor, you will lose money for sure. And you will see a huge reduction in tax receipts.” Simply put, he added: “You cannot make the poor better off by making the rich worse off.”
On other subjects, Laffer told a crowd of several hundred people at the Lakewood Country Club that:
– Rolling back NAFTA, as Obama and Hillary Clinton both have advocated, would be a misstep, because free trade is a necessary cornerstone of our economy. “Give me a break!” Laffer said. “Without China, there is no Wal-Mart.”
–”Poor monetary policy” by the Federal Reserve is responsible for the current economic slowdown. “The Fed did not respond quickly enough” to the subprime/debt crunch last year, he said, and it hasn’t expanded the monetary base quickly enough. However: “Pretty soon we’ll be out of this problem … next year, plus.”
–Illegal immigration is good for our economy. “I know they’re breaking the law, but the law is wrong,” Laffer said. “These people really hustle. They’re wonderful people.”
Laffer recently moved from Southern California to Nashville, where he lives not far from Al Gore. The two have visited some, he said, and may even collaborate on some future projects.
14 Comments to “Arthur Laffer: Demo Win Would Lead To ‘Fiscal Crisis’”
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In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the… Anyone? Anyone?… the Great Depression, passed the… Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or lowered?… raised tariffs, in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. “Voodoo” economics
Yawn .. so the Dems will create deficits by reducing tax revenue while increasing spending on domestic programs, similar to the Repubs reducing tax revenue via tax cuts while increasing spending on domestic programs (Medicare Part D) AND waging foreign wars.
Excuse me while I yawn again.
the rich that are paying taxes now are doing so willingly. those that aren’t have already offshored everything.
“Hiking the top rates–from 35% to 39.6% on income, for example, from 15% to 20% or even 28% on capital gains, from zero to as much as 55% on the estate tax–will simply cause the top earners to change their economic behavior in order to avoid paying more taxes, Laffer contends. They might throw up their hands and close their businesses,”
This is the same argument that Bushie used to LOWER taxes on the superwealthy years ago. And look where we are now…they STILL moved their companies overseas, and we have a humongous deficit.
Honestly, sometimes I think guys like Laffer think we are all a bunch of ****** out here.
Vote 4 Huckabee - National Sales Tax - no class warfare - tax everyone when they spend their money, not when they earn it - rebate to US citizens only to create a “zero” tax bracket
Let’s do some math, shall we?
According to the IRS, the top 5% of taxpayers pay over half of the total personal income tax paid (59.67%), and this has increased from only 44% in 1990, and 56% in 2000. (The more you lower taxes, the more people pay. Wow, what a novel idea.) This kind of flies right in the face of Brian’s idea that people with money are offshoring it, huh?
http://answers.yahoo.com/quest.....125AAvUc6r
The top 50% of incomes pay 96.93% of the personal income taxes paid. So half the country pays for pretty much all of the governmental services.
What should really make your head explode is that Exxon, the most evil of companies, paid $30 billion in income tax for 2007(at an effective rate of 42.49%). The entire bottom half of personal incomes in the United States, half the population, paid only $27 billion in taxes (effective rate of 3%). The United States has the second highest corporate income tax rates in the world, behind only Japan, but I’m sure that you think it should be higher…
http://seekingalpha.com/articl.....tors_picks
http://www.taxfoundation.org/blog/show/1471.html
We have half the population of our country that pays virtually no income taxes, receive far more benefits from government, yet whine the most about non-existent conspiracy theories and “offshored” tax shelters.
“sometimes I think guys like Laffer think we are all a bunch of ****** out here”
Julie you are. The Bush tax cuts resulted in increased tax revenues. The deficit is a result of out of control spending by the Congress. Think earmarks.
the classic example of the rich changing their habits when taxes go up occurred when the Congress (a Democratic controlled one) decided that they needed to pass a luxury tax so that they could get more money from the rich. At that time a lot of yachts were under construction. the tax was on items that were over $100K. The yachts were for that amount or higher. IIRC the tax was a flat 10% add-on. The “rich” looked at it and cancelled their yacht orders. End result hundreds of boatyards closed up because there was no one wanting to buy what they could build. The Democrats were shocked because they thought the rich would willingly pay the price.
I’ll give an example from Texas. 20 years ago or so lots of folks in Texas were getting personalized license plates. They only cost about $28.00 The legislature said lets raise the price to $50 and we’ll get twice as much revenue. Wrong! folks looked at it and decided not to renew their personalized plates. End result? it was a revenue neutral increase. The state collected the same amount of money as they did before the price increase. they just sold fewer plates.
Isn’t it a Communistic theory of government that says, “From each according to his ability, to each according to his need”? I believe Karl Marx said this. Isn’t this EXACTLY what the Democrats are asking for in the tax code. The rich produce more so we take more of their money. Of course, they use the lame “percentage of income” argument. Well, if you take that pathetic reason to it’s logical conclusion, then McDonalds should charge a rich man $1000 for a burger because of the “percentage” of their income this burger price represents.
Which do you prefer, 1) working for a company that stays in America because it’s good business for them, or 2) receiving a gov’t handout that was provided by taxes on that same company that moved offshore because it’s good business for them?
You ARE an ***** if you think you can gain more revenue by raising taxes on the producers (ie the “rich”)!
It wasn’t marx it was louis blanc.
I do believe I phrased it as “said” and not “came up with”. Karl Marx DID say it. Therefore, you’re not “alwaysright”.
Julie, this is for you and all who don’t understand we need to leave the ‘rich business owners’ alone so they can afford to employ the rest of us.
Tax Cuts - A Simple Lesson In Economics
Let’s put tax cuts in terms everyone can understand.
Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18
The tenth man (the richest) would pay $59.
So, that’s what they decided to do.
The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw
them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.” So, now dinner for the ten only cost $80.
The group still wanted to pay their bill the way we pay our taxes. So, the first four men were unaffected They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his ‘fair share’?
The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man
and the sixth man would each end up being ‘PAID’ to eat their meal.
So, the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded
to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before And the first four continued to eat for free. But once outside the restaurant,
the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man “but he got $10!” “Yeah, that’s right,”
exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than me!” “That’s true!!”
shouted the seventh man. “Why should he get $10 back when I got only $2? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay
the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.
David R. Kamerschen, Ph.D.
Distinguished Professor of Economics
University of Georgia
Finally an article under ‘politics’ tag, that discusses actual programs, not perceived “freshness” and appeal of candidates, - and comments brilliantly illustrating Laffer Curve!
Lately it seemed that Frontburner turned itself into an endless Ode to Obama.
Backer - That was actually a really, really good post. Thanks,
DPG
So here it is just 17 days after the great man’s warnings about crisis if the Democrats win and, oh, about 8 months before they will and, guess what? Looks like the crisis arrived just a little bit ahead of time.
I wonder if he ever paid his bet to Peter Schiff.
What a shame for the greatest economy in history that our economists forgot what Henry Ford knew - if you don’t pay your workers enough to buy your products, everybody loses.
And, Brian, if the richest Americans, those who have benefited most from our system, choose to off-shore their wealth, then they should be firmly invited to off-shore their citizenship also, beginning with confiscation of their U.S. Passports.