Meet the Grandfather of the Fiscal Cliff: He Works for ALEC
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Laffer also made a splash in Oklahoma, albeit with less success. There, his econometrics firm—Arduin, Laffer & Moore—partnered with the conservative Oklahoma Council of Public Affairs to author a detailed plan that served as the basis for several tax-cutting bills.
David Blatt, the director of the progressive Oklahoma Policy Institute, says that local business councils, the state Republican caucus, and Gov. Mary Fallin—who wrote the foreword to the most recent edition of Rich States, Poor States—all initially accepted Laffer’s two-part plan “hook, line, and sinker.” The first stage would have reset the top rate from 5.25 to 3 percent, paying for it by zeroing out all individual income tax exemptions, deductions, and credits, including those that benefit the working poor. The second phase would be rolled out gradually, lowering the top rate an additional quarter of a percent each year, eventually eliminating the income tax entirely by 2022. According to the proposal, “Due to the greater economic incentives directly attributable to the tax reform, the total revenue losses to the state would not be as large as static revenue estimates would indicate.”
The idea proved influential, with four Oklahoma senators co-authoring legislation “to implement the plan proposed by legendary economist Dr. Arthur Laffer.” Gov. Fallin’s own plan resembled Laffer’s, cutting the top rate to 3.5 percent in 2013, condensing the number of brackets from seven to three, and zeroing out or lowering income taxes for couples with a combined annual salary of up to $70,000. Her plan also eliminated $200 million worth of tax credits. Eventually, Fallin’s plan would have eliminated the state’s income tax entirely.
Despite bearing Laffer’s imprimatur, the plans failed to win passage. In a poll conducted in May for the Oklahoma Policy Institute, 42 percent of voters opposed decreasing the state income tax and paying for it by eliminating tax credits, including the child tax credit and the sales tax relief tax credit. Opposition climbed to 70 percent when voters were told that the plan could increase taxes for most families with children and seniors earning less than $50,00 a year. Fifty-nine percent of Republicans in the state also strongly opposed such a plan.
“That’s where a combination of Midwestern common sense and pretty strong pushback from other economists … basically called bullshit on that sort of trend,” Blatt said, adding that Fallin invested significant political capital pushing the tax cuts through last year, and isn’t in the best shape to revisit the issue this year. “We expect that that she will talk about income tax cuts, but we don’t know how seriously she’s going to pursue it,” Blatt says.
The Oklahoma Council of Public Affairs, meanwhile, remains committed to tax reform. In an email to The American Independent, Tina Korbe, the group’s policy impact director, writes that the state income tax is destructive, and that killing it will help grow the state’s economy. “The approach within the state legislature on the tax cut issue may change from year to year. But we will keep pushing the idea that any steps to truly lower the tax burden on Oklahoma citizens and job creators will work out positively for our state,” she adds, noting that OCPA’s collaboration with Laffer has paid big dividends. “We take great pride in our association with Dr. Laffer and are optimistic that his involvement in our state will continue.”
Just last month, the business-subsidy tracking group Good Jobs First teamed up with the progressive Iowa Policy Project to test Laffer and ALEC’s claims. Their study argued that Laffer’s policy prescriptions frequently failed to stimulate job markets. The study also provided further support to the argument that people do not relocate based on tax rates.