Saturday, August 13, 2011

Report Perry Meets with Arthur Laffer

Rick Perry has met with the one-trick pony economist Arthur Laffer. Will this be a key Perry advisor?

Laffer is known for his promotion of the Laffer curve, and little else. In his construction of the Curve, as taxes go up, government revenues go down because there is less incentive to work.

Murray Rothbard explained the problems with Laffer's theory:
It is true that if tax rates are 99%, and they are cut to 95%, tax revenue will go up. But there is no reason to assume such simple connections at any other time. In fact, this relationship works much better for a local excise tax than for a national income tax. A few years ago, the government of the District of Columbia decided to procure some revenue by sharply raising the District's gasoline tax. But, then, drivers could simply nip over the border to Virginia or Maryland and fill up at a much cheaper price. D.C. gasoline tax revenues fell, and much to the chagrin and confusion of D.C. bureaucrats, they had to repeal the tax.

But this is not likely to happen with the income tax. People are not going to stop working or leave the country because of a relatively small tax hike, or do the reverse because of a tax cut. 

There are some other problems with the Laffer curve. The amount of time it is supposed to take for the Laffer effect to work is never specified. But still more important: Laffer assumes that what all of us want is to maximize tax revenue to the government. If--a big if--we are really at the upper half of the Laffer Curve, we should then all want to set tax rates at that "optimum" point. But why? Why should it be the objective of every one of us to maximize government revenue? To push to the maximum, in short, the share of private product that gets siphoned off to the activities of government? I should think we would be more interested in minimizing government revenue by pushing tax rates far, far below whatever the Laffer Optimum might happen to be.
The curve is a sneaky way of keeping government spending at current levels. As Rothbard points out:
 It was advanced as a means of allowing politicians to square the circle; to come out for tax cuts, keeping spending at the current level, and balance the budget all at the same time. In that way, the public would enjoy its tax cut, be happy at the balanced budget, and still receive the same level of subsidies from the government.
In other words, no need to cut government spending, since tax cuts will increase revenues and result in a balanced budget. This is just putting lipstick on Keynesian economics that will allow the Keynesian big government model to grow. Tax cuts are fine, but the big governmnet pig needs to be cut and turned in to bacon.


  1. I recall a few recent articles by Laffer in the WSJ that were pretty good. No mention of the "curve".

  2. A classic Laffer laugher.

    And classic Laffer BS.

    People with no shame are much harder to watch than people who are just plain stupid.

  3. Arthur Laffer, isn't funny.

  4. It never gets old seeing Peter Schiff take him to the house

  5. Did Laffer ever pay Schiff back the penny he owes him?