“It’s kind of like Minnesota trying to become banana-independent from Costa Rica,” Laffer joked with an audience in Dallas today. Even though the sellers of foreign oil may be “bad guys,” he went on, that’s no reason to shun their natural resources.
“You use political weapons to solve political problems,” Laffer said. “You should never use trade as a weapon, because it has all sorts of unintended consequences. Take North Korea; that’s really worked well! Or Cuba; that’s really worked, too! Economic tools do not work to solve political problems.”
Laffer, an economist, rose to fame in the Reagan Administration, when his so-called “Laffer Curve” was used to justify lowering federal tax rates. The Curve basically holds that while excessively high rates lead to lower revenue, cutting rates generates economic growth and, thus, more tax revenue.
These days Laffer’s enjoying something of a comeback, advising governors in states like Indiana, Kansas, Oklahoma and Ohio about how to jump-start growth by cutting rates and passing right-to-work laws, for example.
In a free-wheeling luncheon talk presented by Frost Bank–he’s a consultant for the bank–Laffer made a number of provocative points:
–Higher tax rates don’t work because rich people, unlike others, have the wherewithal to get around them, he said. They’ll simply hire lawyers, accountants and others to help them avoid the higher rate by changing the location of their income or by changing its timing, volume and composition.
–In contrast to the Obama Administration’s demonization of the wealthy, Laffer said, “There’s nothing wrong with rich people. Rich people are cool! It’s poor people who have the problem. There’s also nothing wrong with privilege. We want to extend privilege to everyone.”
–Today’s politics are marked by a “clear-cut dichotomy” between the major parties, Laffer said. Democrats believe that stimulus spending helps the economy while Republicans believe it hurts, because every dollar that’s given to someone (via tax transfers) has to be taken from someone else.
–Until the last few years excessive spending was a problem with both parties, he said: “W was not a good presidency. It’s not that he was a bad person. You can’t do that type of spending with other people’s money and think it’s gonna work.” After his luncheon talk, Laffer added that the spending problem leading to the recession “was W and Obama; it was bipartisan ignorance of the first order. Now we find ourselves with a lot of debt and high unemployment.”
–In contrast to the way Obamacare was passed, with only Democratic votes, Ronald Reagan insisted that every major bill have bipartisan co-sponsors and support, Laffer said. The 1981 tax cut passed the Senate by an 89-11 vote, he said; the one in ’86 passed by 97-3 and included supporters like Bill Bradley, Al Gore, Chris Dodd, Ted Kennedy and Joe Biden.
–”We’re at the beginning of a new era,” Laffer concluded. “Everyone knows they’d never run the family budget the way the country’s business is being run,” so changes are afoot. He sees the Republicans capturing the White House and the Senate and retaining the House, ushering in a “bipartisan era” marked by a low-rate flat tax, the comeback of sound money, freer trade and the repeal of Obamacare. Of course, Laffer cautioned, “I’m a lot better at forecasting the past than I am the future. But, the best is yet to come.”