The GOP Heads Straight for the Laffer Curve
The Laffer curve is somewhat like Intelligent design - even though it’s pseudo economics and has been shown to be incorrect in Laffer’s specific assumptions, the more extreme members of the GOP keep hauling it out to justify tax cuts for the rich, just as they haul out ID to try to justify religion in science class. There certainly is a sweet spot for taxes vs revenue, but we sure aren’t there right now.
The Bush tax cuts have been in place for quite a while, yet we are in economic doldrums that clearly started on his watch, during the tax cuts. If the Laffer curve worked as touted for taxes on the super rich income, we wouldn’t be holding the debt ceiling debate right now in congress, instead we should have excess revenue. Clearly there is something wrong with the economic snake oil Laffer is peddling on the right to protect the super rich and justify raping lower income classes.
Some of the would-be Presidents even flirt with the most extreme strain of Lafferism: The idea that tax cuts generate so much added growth that they pay for themselves. It’s a view that has been rejected by economists of both parties. Austan Goolsbee, chairman of the President’s Council of Economic Advisers, authored a 1999 paper disputing the Laffer Curve. He calls its resurgence “a way to claim there’s not a budgetary impact from cutting taxes for high-income people.”
In the late 1970s, the Laffer Curve popularized the theory that if the top marginal tax rate were above its optimal point, a tax cut would increase total revenue. In practice, the 1981 Reagan tax cuts left revenues about 30 percent below where they would have been if rates hadn’t changed, says Lawrence B. Lindsey, director of the National Economic Council in the Bush Administration. The Bush tax cuts cost $1.5 trillion in lost revenue over 10 years, the Congressional Budget Office estimated last year. “The notion that a broad decrease in tax rates raises revenue was never taken seriously by professional economists,” says Alan D. Viard, who worked for the Treasury Dept. on tax issues in the George W. Bush Administration and is now at the American Enterprise Institute in Washington.
Given to occasional overstatement, Laffer is as much salesman as scholar. The former University of Chicago professor and part-time economic adviser to Reagan told People magazine in 1979 that unless income taxes were reduced by one-third, “our kids will be living in the equivalent of Ethiopia.” Yet sometimes the hyperbole falls away, and Laffer seems to acknowledge the danger of politicians running too far with his simple insight. “The Laffer Curve is really a pedagogic device,” he says. “It’s not something to be too literal.”