Meet the Grandfather of the Fiscal Cliff: He Works for ALEC
Photo of Texas Governor Rick Perry and Dr. Arthur Laffer before the launch of the Laffer Center for Supply-Side Economics as a part of the Texas Public Policy Foundation (TPPF) at the Four Seasons in Austin, Texas on April 18th, 2011.
Photo Credit: Office of the Governor, State of Texas
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On January 19 of this year, Kansas state Sen. Julia Lynn offered an exuberant greeting to renowned tax-cutting enthusiast Arthur Laffer. “What an honor and privilege to have you here in Kansas,” Lynn said, welcoming the fabled former Reagan economic advisor to an informational meeting of the senate’s assessment and taxation committee. Les Donovan, the committee chair, raised the roof for their “special guest who has proven expertise in the field of economics going back decades.”
Basking in the dynamic glow of Laffer’s supply-side prestige, Lynn, Donovan, and their Republican colleagues hoped he would offer his blessing for a plan that would slash income taxes and eliminate a number of tax credits and deductions, per the wishes of Gov. Sam Brownback.
But Democrats like Kansas Sen. Tom Holland weren’t buying it. Holland didn’t think it made much sense to compare Kansas’ untapped economic potential to that of other no-income-tax states like Texas and Alaska—the sort of analytical flourish typical of Laffer. “I think it’s a false analogy,” said Holland during the hearing, which was reported on at the time by the Wichita Eagle. “I think trying to make this argument that we can wean ourselves off of an income tax and expect these types of growth, that are in fact driven by resources that are outside of our control, I think that’s a pure fallacy.” Donovan quickly shut him down. “I don’t want any more of those” kinds of questions, he said. “We’ve had this discussion but that’s the last one I’m going to allow.”
Through his work for the American Legislative Exchange Council (ALEC) and a host of other outlets, Laffer’s prescriptions have gained purchase in several tax debates around the country, including in Missouri, Oklahoma and Tennessee.
The godfather of supply-side economics, Arthur Laffer’s core conviction is simple: high tax rates discourage entrepreneurs from investing and growing the economy, ultimately depressing tax revenues. His legendary, eponymously named Laffer curve suggests a simple solution: tax cuts that, in the words of the Laffer Center For Supply-Side Economics, “may increase taxed activity and raise more revenue than otherwise predicted.” The Laffer Center says that it’s “possible” the economic effects of a tax cut, especially when tax rates were previously very high, will cause “an actual increase in tax revenue.” But Laffer does acknowledge that the theory does not mean that “all tax cuts pay for themselves.”
Meanwhile, the Congressional Research Service recently reissued a report—initially pulled after complaints from Congressional Republicans—finding that reductions in the top tax rate have little impact on economic growth, saving, investment, or productivity growth. And as the now-ostracized former Republican budget official Bruce Bartlett has argued, riding the Laffer curve to the extreme—lowering taxes in every circumstance regardless of their current rate—is a favorite pastime for fiscal conservatives. “While no economist denies the theoretical possibility of a revenue-raising tax cut or revenue-losing tax increase, Republicans talk as if the United States is always on the high side of the Laffer curve—no matter what the tax rates are—so every tax cut will pay for itself and no tax increase could possibly ever raise net revenue and thus reduce the deficit,” Bartlett wrote earlier this year.
Conflicting evidence notwithstanding, Laffer is enmeshed with state policy, co-authoring think tank reports and testifying before legislatures to promote low tax, loophole-closing plans. He evangelizes his policy ideas through several bodies, including the non-profit Laffer Center; Laffer Associates and Arduin, Laffer, and Moore Econometrics, a pair of economics research firms; ALEC; and the opinion pages of the Wall Street Journal.