Monday, April 13, 2015

Laffer is not Funny

I see that Art Laffer has surfaced again as a trusted economic advisor to Governor Brownback of Kansas and a variety of Republican candidates for the presidency.  According to a headline and first two sentences of an article somewhere on the web, he’s confident about where Kansas is headed, certain that economic prosperity is just around the corner.  Amazing!

Back in 1974 he popularized the idea that revenue from taxation could be demonstrated on a curve that showed increasing revenue from increasing tax rates up to a certain point.  That point being the one where rates are deemed to have become confiscatory, dampening economic incentive, and resulting in declining revenue.  It seems to make sense.  The people I worked for at the time believed that no matter what the tax rate was, it was always on the downward slope, so the key to raising needed revenue for public purposes would be lower tax rates always and everywhere.  At least that was what they said.  I don’t think it is what they meant.

For one thing, no one knew, or knows, what the shape of the curve actually is, or even if there is a curve at all.  Moreover, no one knew, or knows, what the optimum tax rate is for any given tax, or for taxes taken cumulatively.  Neither objection really matters because the underlying intent of the argument was then, and remains today, to reduce government by depriving it of revenue.  After all, as the libertarian argument goes, there are far fewer legitimate public purposes than people think there are; government is essentially wasteful anyway; and whatever government does in the name of the public interest is actually an unwarranted restriction on individual freedoms.  

The goofy thing is that it plays into a secular version of Jesus’ admonition that those who want to keep their life will lose it, and those who are willing to lose their life will gain it.  The desire to preserve individual freedom by choking government to death can only result in a more brutal economic and political environment in which oligarchical power is likely to have dominant control over limited resources and opportunity.  On the other hand, recognizing the value of a robust, well financed, government bound by constraints on its power and committed to universality of opportunity and treatment under the law, will lead in the direction of economic well being for many and an equitable distribution of power and influence.  I think the so called founding fathers, especially those who wrote The Federalist Papers, had as solid an understanding of that as an eighteenth century person could be expected to have. 


The Laffer gang has it wrong.  They have always had it wrong.  

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