August 14, 2006

Laffer All The Way To The Bank

Arthur Laffer Sr., considered the father of "supply side" economics (the academic foundation for tax cuts ever since the Reagan era), is moving his consulting firm from San Diego to Nashville. The Tennessean has the details. Laffer is the father of the "Laffer Curve," an illustration demonstrating that lower tax rates can sometimes generate higher tax revenues than higher tax rates, and his economic theories laid the foundation for the Reagan tax cuts and resulting economic boom (and explosion in federal tax revenues). But he isn't the the father of the economic theory that leads to lowering taxes to spur ecoomic and revenue growth. Students of American history know that President John F. Kennedy followed a very similar economic course as Reagan - cutting personal and corporate taxes to spur the economy.

That's right. Reaganomics was really just a repeat of the economics of Camelot.

Which was really just a repeat of 14th Century Muslim economics, as Laffer explained in an article published by the Heritage Foundation in 2004:

The Laffer Curve, by the way, was not invented by me. For example, Ibn Khaldun, a 14th century Muslim philosopher, wrote in his work The Muqaddimah: "It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments."

Over the past 100 years, there have been three major periods of tax-rate cuts in the U.S.: the Harding-Coolidge cuts of the mid-1920s; the Kennedy cuts of the mid-1960s; and the Reagan cuts of the early 1980s. Each of these periods of tax cuts was remarkably successful as measured by virtually any public policy metric.

Wrote Laffer:

States with high rates of taxation tended to have greater problems than states with lower tax rates. California, New Jersey, and New York--three large states with relatively high tax rates--were among those states with the largest budget gaps. In contrast, Florida and Texas--two large states with no personal income tax at all--somehow found themselves with relatively few fiscal problems when preparing their budgets.

Welcome to Tennessee, Mr. Laffer. Our state's economic policies will be better for your influence.