Whenever the Laffer idea takes hold, as it did in 1980 and 2001, taxes are generally cut to a level below their ability to keep up with actual costs of government. The result is a combination of easy money and a mountain of public debt.
By Greg Moses / The Rag Blog / April 14, 2009
As legend has it, the economic history of the USA was changed on the day that economist Art Laffer drew his famous “Laffer Curve” upon a napkin in order to convince Dick Cheney and Don Rumsfeld that President Gerald Ford’s tax hikes would be a mistake. What the curve intends to teach us is that taxes can be too high.
Laffer’s rationaliztions for low taxes became very popular as banners for the Reagan counter-revolution. And the results of the Laffer idea can be seen quite clearly in a chart of the national debt posted at usgovernmentspending.com. Whenever the Laffer idea takes hold, as it did in 1980 and 2001, taxes are generally cut to a level below their ability to keep up with actual costs of government. The result is a combination of easy money and a mountain of public debt.
Now that the Laffer idea has been run out of town by the current federal administration, you can’t say he didn’t see it coming. In a series of policy studies, some of them done for Texas clients, Laffer has been sandbagging his case for low taxes and small government.
In the latest installment of the Laffer attack, the Texas Public Policy Foundation (TPPF) paid the Laffer associates to produce a rationalization for the state of Texas to send back federal money that was to be funnelled through state agencies. Here’s a link to the pdf at the TPPF website, texaspolicy.com, which, if you have the Netcraft toolbar, you can see is hosted on a server in Canada.
Now the most charming thing about Laffer is that he gets along well with Larry Kudlow, the financial evangelist who can be seen preaching the gospel of wealth most days at CNBC. It’s difficult not to like Kudlow, even when he’s shouting over his liberal guests. But you’d have to get up very early in the morning to find cable news shows these days where the host does not shout over the guest, so in this context the shouting doesn’t seem to harm Kudlow’s charm (that is, until he starts trying to shout over the host of the show that comes after his).
Furthermore, I think we should agree that there is a kernel of truth to the gospel of wealth. If there is such a thing as an American spirit then the gospel of wealth was there at its birth, if only to insist on a quick c-section to get the thing done.
But what happens when the gospel of wealth meets the Laffer Curve is that you get something like the Laffer Cathedral Arch. Instead of placing the curve into a complex field of economic and social analysis, you get led to a place where you have to face private wealth and bow down every time.
On Monday night the Texas Governor, Rick Perry, appeared as a guest on the Kudlow show. True to form for a member of the Laffer posse, the Governor denounced federal stimulus money as counterproductive to state’s rights and private property. The Governor has been speaking in Lafferese most earnestly since he found out that he will have a real fight for re-election against incumbent US Senator Kay Bailey Hutchison. He is pulling what is known in Texas as the Gramm maneuver, which positions each and every opponent as a big-spending liberal.
So these days the Texas Governor is all about the kind of state’s rights that come heavily backed by private wealth. And yes, this is the same Governor who loyally hosted Operation Close the Border or whatever it was called when National Guard troops on Pentagon orders came marching from up North, out West, and back East on down to the Rio Grande. Press two for English if you want to know how that operation worked out.
According to the Governor’s lingo, the stimulus money can only serve to keep more people unemployed longer. And you can see his point insofar as the federal money will not be delivered to some payroll office where it could get right to work making a fortune. What the Governor prefers to brag about is the money he gives directly to entrepreneurs for capital that “creates jobs.” Of course he has to tax somebody to raise that capital. Then the person he gives the money to taxes a bunch of workers, calls it profit, and you have real freedom in the making, not some dreary social oatmeal.
The annoying thing about the Laffer posse is not that they are completely wrong, but that they are so single minded. You give them a chart with a curve on it and they turn it into your one and only train of thought.
In the hands of charming Kudlow, who cannot hide his kitty-cat heart, the Laffer curve can be a healthy counterpoint to big spending liberalism. There is a line we all need to watch. But when the only line that can never be moved is the tax that needs to be paid to do the people’s business, then what we’ll get is more Reaganesque-Bush2 growth that does not, in the words of Mary McLeod Bethune, “Lift as we climb.”
[Greg Moses is editor of the Texas Civil Rights Review and author of Revolution of Conscience: Martin Luther King, Jr. and the Philosophy of Nonviolence. He is a regular contributor to The Rag Blog.]