Famed economist Arthur Laffer provided real-world economic solutions at the Civitas legislative training session last week.
First, though he is best known for advising President Reagan, he’s not about party or ideology, he said. “It’s economics.” And it’s the economic facts, not just theory. He reviewed the actual history of how the right tax mix can boost the economy — and opportunities for all people.
The U.S. economy boomed after tax cuts by Presidents Kennedy and Reagan. It floundered under the economic policies of most of the other recent chief executives. Laffer reviewed his research comparing no-income tax states with high progressive income tax states, over five decades. “There is no ambiguity,” he said. The data shows that “the no-tax states way outperform the high tax states — period.”
“There was not one year in which the no-income tax states out-perform the high-tax states,” he concluded.
So cutting income taxes is not just theory, it’s a fact that has been proved all over the nation.
Also, he emphasized that economics must be based on real human behavior. “The reason to change tax rates is to change behavior,” he said. “People respond to incentives.”
Sadly, too many experts base their theories on the assumption that taxes don’t change behavior. As Laffer said, the game of dodgeball would be easy — if the other players didn’t duck. But they do.
People react to tax policy. “Taxes are a negative incentive,” he said. “They tell people not to report taxable income” — or to stop working, or move to another state.
Most of all, Laffer presented an upbeat and impassioned vision of how fair taxes help everyone by creating wealth and jobs. He quoted President Kennedy: “The best form of welfare is a good, high-paying job.”
That’s why the North Carolina tax modernization fight is so important, he said. “You can win this fight. It’s your obligation, it’s your destiny.”