Home » Best & Worst States » 2015 Best & Worst States » Arthur Laffer: Taking On Taxes

Arthur Laffer: Taking On Taxes

Back in the ’80s, Arthur Laffer became known as the father of “supply-side economics” and the intellectual inspiration for much of the domestic Reagan Revolution. Nowadays, the 75-year-old iconoclastic economist is preaching the gospel of tax cuts at the state level as the ticket for regional and national prosperity.

LafferLaffer, who heads the Nashville-based consulting firm Laffer Associates, is exulting in the 2015 action in statehouses around the country, where several governors—newly elected or chastened by last fall’s election results—have been taking the chopping block to taxes in their grand plans for this year and beyond. “Republicans now have 31 governorships and 30 state legislatures and flipped 12 houses in the states in the last election,” he enthuses. “Every Republican governor won re-election, and three of six tax-increasing [Democratic] governors got their tushes handed to them.”

Laffer has made a career out of prodding governments to slash taxes to spur enduring economic growth,” but he isn’t satisfied just yet. “If I were a governor, I would initiate zero income tax, no sales tax, a broad-based tax and no exemptions, and go take a vacation for the next three years while my economy grew,” he says. Over the 10 years ended in 2010, he points out, average job growth in the nine states without income taxes was 5.5 percent versus a decline of 1.6 percent in the highest-tax states.

“Every Republican governor won re-election, and three of six tax-increasing [Democratic] governors got their tushes handed to them.”

Laffer serves on the board of advisors of the American Legislative Exchange Council, and also tends a state competitiveness index with the group and co-writes “Rich States/Poor States,” its annual evaluation of tax positions. The newest edition noted that pro-growth tax reform was a key theme last year even before the elections, with 14 states making “significant pro-growth tax changes.”

Despite this validation, however, Laffer’s counsel can be controversial. In 2012, for example, he was paid by Kansas Governor Sam Brownback to consult on a huge tax-cut plan that included repealing the state’s top individual income-tax bracket of 6.45 percent, lowering its bottom two brackets and exempting from taxation all income earned by pass-through entities. Working from Laffer’s playbook, Brownback promised that the cuts would spur economic development, investment and a lot of job creation. Laffer backed him up, virtually guaranteeing “enormous prosperity.”

However, Kansas’s economy is stagnating, the deficit has grown, the state’s bond ratings have been downgraded and it is facing a budget crisis, with a gap of more than $1 billion projected in the current and next budget years. Laffer is unbowed. He notes that Kansas politicians misforecast taxes from unearned income, which left a $300-million hole in the budget that “had nothing to do with tax-cut forecasts.”

He also points out that success “takes some time. When you raise tax rates or lower tax rates, very few people can move in the first seven seconds. You really have to look over the course of a decade at such moves, because then you capture the whole effect.” Once Kansas’ growth spurred by tax cuts kicks in, expect Laffer to be there to document it.

About Dale Buss

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.