October 15, 2013

Politico: Arthur Laffer is back as GOP tax man

media mention

 

By RACHAEL BADE | 10/14/13 11:03 PM EDT
Four decades ago at the Washington Hotel, a quirky economist made a pitch on the back of a napkin to Ford administration officials Dick Cheney and Donald Rumsfeld: Cutting taxes would create an economic boom.
Back then, many Republicans opposed tax cuts, but that famous “Laffer curve” chart made young Arthur Laffer a conservative legend and spawned a generation of tax-cutting revolutionaries — while Laffer went on to make a fortune in the private sector.
Now, Laffer is back. The 73-year-old helped Gov. Sam Brownback (R-Kan.) sell his tax reform idea to Kansas, pushed Republican Tennessee Gov. Bill Haslam to ditch the estate tax and gave momentum to North Carolina lawmakers desperate to slash rates. All told, Laffer has advised about a dozen GOP-run states on taxes in the past couple of years.
Texas Gov. Rick Perry attributed his state’s economic success to “a formula based upon the sound principles outlined by Dr. Arthur Laffer,” while Wyoming Gov. Matt Mead wrote that Laffer’s work helps states “up their economic game.”
“Laffer is certainly experiencing a renaissance in his popularity,” said Jonathan Williams of the conservative American Legislative Exchange Council, who occasionally works with Laffer. “He’s just as effective today as he was 30 years ago.”
He still has his critics, of course; there are entire websites devoted to “debunking Laffer.” Still, he seems to have found a new sweet spot. While tax reform is stuck in neutral in Washington, one-party-controlled state capitals throughout the country are looking to cut rates.
“Art Laffer is one of the most influential economists in the business,” said Vice President Joe Biden’s former chief economist Jared Bernstein. “If you ask a lot of people how relevant he is today, they’d say: ‘He’s an ’80s story.’ They’re wrong. … If you have any doubt about that, listen to the economic plans of Mitt Romney and Paul Ryan — very much supply-side, trickle-down Laffer-esque ideas.”
Bernstein and other critics say Laffer’s theories don’t hold up under scrutiny, pointing, for example, to deficits after President Ronald Reagan’s tax cuts.
Other critics say he is running a business, pure and simple.
“He’s got a shtick where he’s able to get right-wingers, wealthy people, investment managers to pay him a lot of money to be an entertainer and tell them what they want to hear — that they are vital to the economy and their taxes must be reduced,” complained former Reagan adviser Bruce Bartlett, who worked with Laffer on the 1981 tax cuts but is now disenchanted with supply-side ideas he says don’t fit today’s economic reality.
1970’s “greatest minds”
A Youngstown, Ohio, native, Laffer is a pack-rat antique collector who’s raised 130-pound African tortoises, Arctic foxes, water deer with fangs and all sorts of odd animals at his multithousand-acre homes.
Laffer explained his controversial theories to POLITICO a few weeks ago in Nashville: “If you raise taxes, … some people may actually leave your state. Some people … leave the labor force and stay home. Others may choose to not employ people, so unemployment rates go higher.”
That’s the basis of the Laffer curve: Tax increases have behavioral effects that can mean less money for Uncle Sam. The theory also holds the impact is bad for the needy. “If you tax the rich, you hurt the poor,” he argued, amid an office scattered with Chinese art and bobble heads of himself but no computer.
When first introduced, the GOP resisted tax cuts for fear they would increase the deficit.
Many mocked his rosy budget projections when he first came to Washington around 1970 to work at the Office of Management and Budget. The New York Times editorial board printed a famous cartoon-poem duo mocking “Laffer’s new magical money machine.”
But his supply-side ideas caught on, inspiring California’s Proposition 13, the landmark 1978 ballot initiative to limit property taxes. Reagan hired him as an economic adviser, and he helped Reagan slash top income rates nearly 60 percent. His reputation eventually spread across the pond, where British Prime Minister Margaret Thatcher called on him to help her lower rates there.
Laffer disappeared from political life for a time during the 1990s. The reason, he tells POLITICO, is because someone — never caught or identified — “butchered” his exotic pets and laid their bodies on his front porch with death threats.
Despite removing himself from the limelight, his theories lived on as “tax cuts” became the GOP mantra.
By 1999, Time magazine featured Laffer’s work in an issue dubbed “The Century’s Greatest Minds.”
Laffer today runs an economic consulting firm based in Tennessee, a state with no income tax — the reason he moved from California.
Linked, often financially, with about a half-dozen conservative groups beyond his own, he’s getting calls from officials around the country to justify tax cuts.
Laffer answers the calls armed with the same sorts of talking points that catapulted him to popularity in the 1970s.
“If you look at the nine states with no income tax, they just beat the living bejeebers out of those states with the highest income tax rate,” he says, pointing to his annual report, “Rich States, Poor States.” The report argues that the nine states with no income taxes — including Texas, Wyoming and Florida — see more economic, population and job growth than those with the highest tax rates such as New York and California.
“Laffer is the academic front-man,” said Meg Wiehe, tax policy director at the left-of-center Institute on Taxation and Economic Policy. “Laffer’s reports allow conservatives to use his academic credentials to validate their claims for a conclusion they already wanted.”
Brownback last year paid Laffer, a personal friend, $75,000 to spend three days in the Sunflower State to help construct a tax plan and then sell it to lawmakers in hearings.
“His presence there just calmed any fear and apprehension because it was a big change in tax policy,” said Republican state Senate Majority Leader Terry Bruce, noting that some worried about losing needed revenue. Rooms were packed to listen.
Laffer also co-authored a report recommending Oklahoma phase out its income tax — an idea later endorsed by Republican Gov. Mary Fallin. Local economists who came out strongly against it sank the idea quickly.
In Tennessee, Laffer co-authored a report arguing that repeal of the estate tax would have created 220,000 jobs in 2010. That plan made it into law last year after Laffer testified before lawmakers.
Governors and top officials in Missouri, Wisconsin, Kentucky, Ohio and South Carolina have also requested his help in recent years.
In North Carolina, all it took was Laffer’s name to give a tax reform proposal by the conservative Civitas Institute a push. Laffer never wrote a word of it, though he went on to stump for a version of the plan, pitching about 50 state lawmakers on the idea earlier this year. By mid-summer, Gov. Pat McCrory (R-N.C.) had signed one the state’s biggest income and corporate tax reductions in recent history.
“Voodoo economics”
Critics say Laffer’s economic advice leaves huge holes in states’ budgets, pointing to Kansas’s $700 million shortfall following the tax cuts as a warning.
The poor often pay the price, critics say.
“If Art was correct, you wouldn’t need to offset his tax cuts because you would generate enough revenue through the magical fairy dust of supply-side effects, but … because the dynamics don’t work, you then have to go cut spending on the poor,” Bernstein said.
Williams says critics pigeonhole Laffer, taking his arguments out of context and to extremes.
“All he’s saying is tax policy matters for incentives and incentives matter for growth, … not that all tax cuts pay for themselves,” he said.
ITEP keeps a webpage called “Debunking Laffer” showing more per capita economic growth in high-tax states compared with no-income-tax states.
Laffer insists he can’t be typecast, pointing to his support for ideas most Republicans run from: taxing dividends and capital gains as ordinary income rates, for example.
He recently went up against anti-tax guru Grover Norquist, advocating on Capitol Hill for an expansion of the online sales tax. He went waving his newest report showing it would be smart economics — a study paid for by a business group supporting the tax.
Laffer also said he’s good friends with Al Gore, writing an introduction in the former vice president’s latest book.
“I don’t consider myself a conservative,” he says, though he’s a registered Republican. “I voted for Jimmy Carter. I voted for Bill Clinton twice. I’m a Kennedy Democrat.”

(Original Post)

By RACHAEL BADE | 10/14/13 11:03 PM EDT

Four decades ago at the Washington Hotel, a quirky economist made a pitch on the back of a napkin to Ford administration officials Dick Cheney and Donald Rumsfeld: Cutting taxes would create an economic boom.

Back then, many Republicans opposed tax cuts, but that famous “Laffer curve” chart made young Arthur Laffer a conservative legend and spawned a generation of tax-cutting revolutionaries — while Laffer went on to make a fortune in the private sector.

Now, Laffer is back. The 73-year-old helped Gov. Sam Brownback (R-Kan.) sell his tax reform idea to Kansas, pushed Republican Tennessee Gov. Bill Haslam to ditch the estate tax and gave momentum to North Carolina lawmakers desperate to slash rates. All told, Laffer has advised about a dozen GOP-run states on taxes in the past couple of years.

Texas Gov. Rick Perry attributed his state’s economic success to “a formula based upon the sound principles outlined by Dr. Arthur Laffer,” while Wyoming Gov. Matt Mead wrote that Laffer’s work helps states “up their economic game.”

“Laffer is certainly experiencing a renaissance in his popularity,” said Jonathan Williams of the conservative American Legislative Exchange Council, who occasionally works with Laffer. “He’s just as effective today as he was 30 years ago.”

He still has his critics, of course; there are entire websites devoted to “debunking Laffer.” Still, he seems to have found a new sweet spot. While tax reform is stuck in neutral in Washington, one-party-controlled state capitals throughout the country are looking to cut rates.

“Art Laffer is one of the most influential economists in the business,” said Vice President Joe Biden’s former chief economist Jared Bernstein. “If you ask a lot of people how relevant he is today, they’d say: ‘He’s an ’80s story.’ They’re wrong. … If you have any doubt about that, listen to the economic plans of Mitt Romney and Paul Ryan — very much supply-side, trickle-down Laffer-esque ideas.”

Bernstein and other critics say Laffer’s theories don’t hold up under scrutiny, pointing, for example, to deficits after President Ronald Reagan’s tax cuts.

Other critics say he is running a business, pure and simple.

“He’s got a shtick where he’s able to get right-wingers, wealthy people, investment managers to pay him a lot of money to be an entertainer and tell them what they want to hear — that they are vital to the economy and their taxes must be reduced,” complained former Reagan adviser Bruce Bartlett, who worked with Laffer on the 1981 tax cuts but is now disenchanted with supply-side ideas he says don’t fit today’s economic reality.

1970’s “greatest minds”

A Youngstown, Ohio, native, Laffer is a pack-rat antique collector who’s raised 130-pound African tortoises, Arctic foxes, water deer with fangs and all sorts of odd animals at his multithousand-acre homes.

Laffer explained his controversial theories to POLITICO a few weeks ago in Nashville: “If you raise taxes, … some people may actually leave your state. Some people … leave the labor force and stay home. Others may choose to not employ people, so unemployment rates go higher.”

That’s the basis of the Laffer curve: Tax increases have behavioral effects that can mean less money for Uncle Sam. The theory also holds the impact is bad for the needy. “If you tax the rich, you hurt the poor,” he argued, amid an office scattered with Chinese art and bobble heads of himself but no computer.

When first introduced, the GOP resisted tax cuts for fear they would increase the deficit.

Many mocked his rosy budget projections when he first came to Washington around 1970 to work at the Office of Management and Budget. The New York Times editorial board printed a famous cartoon-poem duo mocking “Laffer’s new magical money machine.”

But his supply-side ideas caught on, inspiring California’s Proposition 13, the landmark 1978 ballot initiative to limit property taxes. Reagan hired him as an economic adviser, and he helped Reagan slash top income rates nearly 60 percent. His reputation eventually spread across the pond, where British Prime Minister Margaret Thatcher called on him to help her lower rates there.

Laffer disappeared from political life for a time during the 1990s. The reason, he tells POLITICO, is because someone — never caught or identified — “butchered” his exotic pets and laid their bodies on his front porch with death threats.

Despite removing himself from the limelight, his theories lived on as “tax cuts” became the GOP mantra.

By 1999, Time magazine featured Laffer’s work in an issue dubbed “The Century’s Greatest Minds.”

Laffer today runs an economic consulting firm based in Tennessee, a state with no income tax — the reason he moved from California.

Linked, often financially, with about a half-dozen conservative groups beyond his own, he’s getting calls from officials around the country to justify tax cuts.

Laffer answers the calls armed with the same sorts of talking points that catapulted him to popularity in the 1970s.

“If you look at the nine states with no income tax, they just beat the living bejeebers out of those states with the highest income tax rate,” he says, pointing to his annual report, “Rich States, Poor States.” The report argues that the nine states with no income taxes — including Texas, Wyoming and Florida — see more economic, population and job growth than those with the highest tax rates such as New York and California.

“Laffer is the academic front-man,” said Meg Wiehe, tax policy director at the left-of-center Institute on Taxation and Economic Policy. “Laffer’s reports allow conservatives to use his academic credentials to validate their claims for a conclusion they already wanted.”

Brownback last year paid Laffer, a personal friend, $75,000 to spend three days in the Sunflower State to help construct a tax plan and then sell it to lawmakers in hearings.

“His presence there just calmed any fear and apprehension because it was a big change in tax policy,” said Republican state Senate Majority Leader Terry Bruce, noting that some worried about losing needed revenue. Rooms were packed to listen.

Laffer also co-authored a report recommending Oklahoma phase out its income tax — an idea later endorsed by Republican Gov. Mary Fallin. Local economists who came out strongly against it sank the idea quickly.

In Tennessee, Laffer co-authored a report arguing that repeal of the estate tax would have created 220,000 jobs in 2010. That plan made it into law last year after Laffer testified before lawmakers.

Governors and top officials in Missouri, Wisconsin, Kentucky, Ohio and South Carolina have also requested his help in recent years.

In North Carolina, all it took was Laffer’s name to give a tax reform proposal by the conservative Civitas Institute a push. Laffer never wrote a word of it, though he went on to stump for a version of the plan, pitching about 50 state lawmakers on the idea earlier this year. By mid-summer, Gov. Pat McCrory (R-N.C.) had signed one the state’s biggest income and corporate tax reductions in recent history.

“Voodoo economics”

Critics say Laffer’s economic advice leaves huge holes in states’ budgets, pointing to Kansas’s $700 million shortfall following the tax cuts as a warning.

The poor often pay the price, critics say.

“If Art was correct, you wouldn’t need to offset his tax cuts because you would generate enough revenue through the magical fairy dust of supply-side effects, but … because the dynamics don’t work, you then have to go cut spending on the poor,” Bernstein said.

Williams says critics pigeonhole Laffer, taking his arguments out of context and to extremes.

“All he’s saying is tax policy matters for incentives and incentives matter for growth, … not that all tax cuts pay for themselves,” he said.

ITEP keeps a webpage called “Debunking Laffer” showing more per capita economic growth in high-tax states compared with no-income-tax states.

Laffer insists he can’t be typecast, pointing to his support for ideas most Republicans run from: taxing dividends and capital gains as ordinary income rates, for example.

He recently went up against anti-tax guru Grover Norquist, advocating on Capitol Hill for an expansion of the online sales tax. He went waving his newest report showing it would be smart economics — a study paid for by a business group supporting the tax.

Laffer also said he’s good friends with Al Gore, writing an introduction in the former vice president’s latest book.

“I don’t consider myself a conservative,” he says, though he’s a registered Republican. “I voted for Jimmy Carter. I voted for Bill Clinton twice. I’m a Kennedy Democrat.”

 


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