What ALEC’s Arthur Laffer Wants to Do To Your Tax Code
Arthur Laffer might just be the Doctor Nick of taxes—all that's missing is a degree from Upstairs Economics College.
Earlier this month, we reported on the “Brownback Experiment,” a wild plan by Gov. Sam Brownback (R-Kan.) to cut the state’s income tax. Brownback said he would make up the lost revenue through higher sales taxes and eliminating various tax credits, but many skeptics see the state facing enormous budget shortfalls in the near future. Similar proposals are afoot in several other states.
"Arthur Laffer has been very active in a lot of state tax debates," said Carl Davis, senior policy analyst at the Institute on Taxation and Economic Policy. In Kansas, Oklahoma, North Carolina, and Tennessee, Laffer has provided governors with studies that claim to demonstrate the economic integrity of cutting taxes.
His ideas may have been dubbed an “experiment” in Kansas, but they have been tested before, with disastrous results.
Laffer rose to fame as an advisor to the now late President Ronald Reagan; he is now on the Board of Scholars of the noxious American Legislative Exchange Council (ALEC). His main contribution to economics is the Laffer Curve, which theorizes that increased tax rates can sometimes decrease government revenue, or vice versa. The concept itself is not controversial, but determining the curve's sweet spot is: What tax rate leads to the maximum amount of government revenue?
Laffer argues that the ideal rate is very low, and therefore tax cuts of the type proposed in Kansas will not just stimulate GDP growth, but stimulate it enough to make up for the revenue lost from tax cuts.
But history belies those claims. Laffer-inspired tax cuts led to a tripling of the national debt under President Reagan, and a similar set of cuts initiated by George W. Bush further amplified our federal budget troubles.
In Kansas and elsewhere, Laffer continues to peddle the same set of spurious ideas. "The analyses that he's using to make these very specific job growth and economic growth claims are incredibly flawed. They could never survive the peer review process," Davis told Campus Progress.
The governors taking advice from Laffer would do well to learn from history, lest they be doomed to repeat it. "If you don't have millions of barrels of oil you can tax instead of your residents' income, it's going to require big cuts in public services, and it's going to put the state's economy in a much worse position," Davis said.
Chris Lewis is a reporter at Campus Progress. Follow him on Twitter @chris_lewis_.