It is a truism in Washington that being wrong does not preclude one from wielding influence. There are, however, some pundits who are so egregiously wrong that it boggles the mind to find policymakers taking their advice.
Laffer, an economist most famous for developing consequential fiscal policy on the back of cocktail napkins, is the father of supply-side economics. If you’re unfamiliar with the term, it basically means that cutting taxes for the wealthy will create a rising economic tide that lifts all boats. Three decades of empirical research says this notion is false.
And yet here is Art Laffer, barnstorming the country to spread the gospel of tax cuts to red-state governors, with predictably disastrous results. Not content to have started a bender of deficit spending and ill-advised tax cuts during the Reagan years, Laffer and his associates have turned their sights on state budgets. Recent news from the states that have fallen for their shenanigans tell the tale.
First up is Kansas, where Governor Sam Brownback and the legislature pushed through what is widely acknowledged to be the worst tax “reform” measure in recent years. No only did state officials follow Laffer’s advice and slash marginal tax rates, they also put Kansas on a glide path to eliminating its personal income tax altogether. And while most Kansans will pay less in taxes (though the poorest will pay considerably more), budget shortfalls have been so great that the legislature was forced to dip into reserve funds, causing a downgrade of the state’s credit rating. Ominously, the reserves are expected to run dry by the middle of next year.
Middle-class families in Kansas after the
Next, North Carolina. Following Laffer’s advice and promises of economic nirvana, Republican lawmakers slashed taxes for the rich and hiked them on many poor and middle-class families. The result, unsurprisingly, was a hole in the budget you could drive a semi truck through. Worse, the promised jobs and economic growth have yet to materialize, and lawmakers are left with little cash to fund much-needed priorities like teacher pay raises and healthcare for low-income families. Lawmakers have responded to the revenue shortage with a variety of gimmicks. One proposal would pay teachers’ salaries by enticing more people to play the state lottery; another idea is just hoping North Carolinians opt to pay higher income taxes voluntarily. Maybe next they can just replace all high school economics classes with Intro to Panhandling, and have the kids pay their own way.
And finally, we come to Indiana, where Governor Mike Pence recently convened a conference of “leading tax reform thinkers” to simplify Indiana’s tax code and make the state more competitive. The luminaries included Grover Norquist and Art Laffer, who delivered the keynote. Not present at the conference were members of the general public, who will bear the brunt of the draconian cuts Laffer no doubt suggested.
It remains to be seen if Indiana will follow in the footsteps of Kansas and North Carolina – in many cases, state officials are wise enough to know gutting their revenues is foolhardy public policy. A sense of self-preservation (if not public duty) is enough to prevent many governors and legislatures from adopting Laffer’s proposals. But when dealing with hardliners, you just never know.
Until his reemergence in Indiana last month, Laffer had been noticeably absent from the public stage. But lest you think a profound sense of shame had begun to weigh on him, think again! Apparently he was busy writing a book to squeeze a few more pennies from a bankrupt ideology. Old habits do indeed die hard.