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Thursday, December 29, 2011

Arthur Laffler Endorses Newt

     We can also say, exposes him, for obviously you have to have a pretty regressive tax plan to get Laffler’s vote.

      Laffler really likes Newt’s 15% flat tax-with a 12.5% corporate tax rate. And you have to love flat taxes-they are very simple; simple to understand, even more they are simply awful.

      “The purpose of economic policy is growth, jobs, and prosperity,” supply-side founder Art Laffer told me Wednesday. As such, Laffer has endorsed Newt Gingrich and the Gingrich 15 percent flat-tax plan, which includes the 12.5 percent corporate-tax reform. “It’s nothing against the other candidates,” Laffer said. “But Newt’s plan is right, and therefore endorsing him is the right thing to do.”

       Sure Laffler says that now, but would this plan be the rightest if Cain were still in the race? Of course not as Cain’s was even more regressive. And indeed, Laffler previously endorsed Cain’s 9-9-9 plan.

       Not suprisingly, Laffler thought 9-9-9 was “a wonderful plan”

      with the kind of tax increases he can “wholeheartedly support.”

       “This is the type of tax increase I wholeheartedly support. I support collecting more in taxes from people with high incomes who choose to actually pay taxes at lower tax rates than use lawyers and accountants to avoid taxes at higher tax rates. Some tax revenues at low tax rates is a heckuva lot better than no tax revenues at high tax rates.”

      It certainly was the type of increase he could support but not for the reason he gave-that lower rates will inspire the rich to stop evading taxes. Rather because it was a wholly “demand side” tax hike hitting the non-rich very hard while giving the rich a pass, which is what a sales tax by definition is, a tax on demand.

     After all Laffer’s curve is all about the idea that we should tax the poor and not tax the rich. Of course he doesn’t quite put it this way declaring  peevishly that,

     “It used to be that the sole purpose of the tax code was to raise the necessary funds to run government. But in today’s world the tax mandate has many more facets. These include income redistribution, encouraging favored industries, and discouraging unfavorable behavior.”

     In reality the idea that we should simply write a tax code that raises the necessary funds of government without a view towards income redistribution is a red herring. The issue of income tax distribution is always part of it. Any tax code you can ever hope to draw up will benefit some and disbenefit others. The tax cuts of Laffer’s Reaganites were about redistribution from the non-rich to the rich that disbenefitted everyone except the top 1%.

    And he can he complain about taxes to discourage unfavorable behaviour as his own curve supposedly discourages the rich from evading taxes by making them low? Anyway Newt has arrived. If you need any more clues that his tax plan is awful here it is.

    In a way both Cain and Newt’s plans are of regressive beauty, but the virtue of each resides elsewhere. Cain’s would raise taxes most egregiously on the non-rich but for all that it could plausibly be revenue neutral or close to it.

    Even here not necessarily. For why I say this listen to Laffler’s praise:

     “Mr. Cain’s 9-9-9 plan was designed to be what economists call “static revenue neutral,” which means that if people didn’t change what they do under his plan, total tax revenues would be the same as they are under our current tax code. I believe his plan would indeed be static revenue neutral, and with the boost it would give to economic growth it would bring in even more revenue than expected.”

     The trouble is that I don’t agree it would have been static revenue neutral. If you suddenly hit the country as Cain wanted with effectively a 30% sales tax why would you assume that it wouldn’t force many to cut back on their consumption? If it did then it would be less revenue neutral than it first appears.

      Newt’s plan on the other hand shows absolutely no concern for his own party’s obsession over deficits-perhaps Newt is a Dick Cheney conservative, as there is no sign in this plan that deficits matter at all; to be sure, what Dick Cheney meant was deficits don’t matter only when there’s a Republican President.

     Newt’s plan is decidedly not neutral but actually raises the deficit by close to $1 trillion in 2014 alone. The beauty of Cain’s is it takes the tax burden off the wealthy by placing it square on the shoulders of the non-rich. The beauty of Newt’s plan is it takes the burden of the rich and doesn’t seem to place it on the non-rich but rather simply allows it to explode the deficit.

     However under a President Gingrich the hit on the non-rich would come when he got to put through a proposal to the Republican Congress to make up for the huge deficits his own tax plan caused by “paying for it” by cutting government spending for the amount.  Tough choice for Mr. Laffler.



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