When President Trump announced he was awarding the Presidential Medal of Freedom to economist Arthur Laffer, there were groans of dismay in Washington, especially in the world of professional, academic, and government economists.
Their reaction was hardly a surprise. Laffer is everything they don’t like in an economist. He’s an evangelist for tax cuts. He believes slashing tax rates is the key to economic growth and prosperity. And more often than not, he’s been right about this.
Laffer emerged as an influential figure in the 1970s as the champion of reducing income tax rates. He was a key player in the Reagan cuts of 1981 that touched off an economic boom lasting two decades. He struck again in 2017 by helping to shape Trump’s tax cut.
A week before the Senate was scheduled to vote, the issue of whether the cuts should be phased in gradually or go into effect immediately was undecided. Laffer told Republican senators he’d oppose the bill if they opted for spreading out the cuts.
The Reagan tax cut had been phased in over three years and Laffer felt this was a costly mistake. It allowed the economic downturn to continue through 1982 before the tax cut could spur a recovery. In 2017, the Senate wisely took Laffer’s advice and rejected a phase-in.
There’s a broader issue in all this that explains why Laffer, 78, is not a favorite of conventional, predominantly liberal economists. Tax cuts leave the job of economic growth to the private sector. Liberal economists prefer to give government that job. Tax cuts are not on their agenda. Tax hikes are.
One can evaluate the effect of the two approaches by looking at the Obama and Trump administrations. Obama was not a tax cutter. He killed the tax cut on upper incomes proposed by President George W. Bush. Growth in the Trump era has been a percentage point higher than under Obama, meaning faster growth and more jobs.
There’s also a personal issue: envy. Laffer is a highly visible participant in national affairs and a frequent guest on TV news shows. He’s been a friend of presidents and an adviser to former Rep. Jack Kemp, whose tax plan was the model for the Reagan cuts. Trump enjoys Laffer’s company. “They’re both upbeat and positive,” says Stephen Moore, who knows them both.
His critics would never admit to Laffer envy. But they show it by paying attention to what he says and to whom he’s affiliated. They rush to criticize him at any opportunity.
According to Slate, “There may be no man alive who has done more damage to America’s understanding of economics than Art Laffer.” Slate disputed the White House press release that called Laffer “the father of supply side economics.” The “intellectual force” behind that movement was Nobel Prize-winning economist Robert Mundell.
Laffer’s detractors focus on the Laffer Curve and the claim that tax cuts can generate enough tax revenue to offset the cuts. “Economists tend to roll their eyes when the Laffer curve is mentioned,” sociology professor Elizabeth Popp Berman wrote in the Washington Post. It’s sad but true that tax cuts often don’t lead to matching or greater tax revenue. But that’s a minor issue, not the overriding purpose of cutting taxes in the first place. The goal is economic growth and prosperity. And that’s what the major tax bills of 1981, 1986, and 2017 produced.
Oddly enough, state and local taxes benefit from cuts in federal tax rates too. That’s because a boost in economic growth will lead to an increase in nonfederal tax revenue at no cost to the state treasury.
I had dinner with Laffer in the spring of 2016. At the time, Trump had locked up the Republican presidential nomination, and Laffer was predicting he would win the presidency. It wasn’t a mere hunch on his part. Nor was it based on polls or demographics. Laffer based Trump’s defeat of Hillary Clinton in November on history. He cited six historical parallels, comparisons, or developments that pointed to Trump’s victory. Laffer gave me pages of tables, records, and charts to buttress his case.
The first parallel was 1979-1980 as the Reagan Revolution was beginning. Reagan wasn’t loved by his party’s establishment. “It seems a lot like the Trump story,” Laffer says. The second was the weak economy at the Obama administration’s end, like Carter’s in 1980 and making it “almost impossible” for his party to win. The mood of the country was third. Voters were unhappy, and Clinton would be blamed like Obama.
The surge in Republican turnout in the primaries was the fourth parallel. Democratic voting was down. Advantage: Trump. The fifth was political fire flaming from the bottom, with Republicans having won the House, Senate, governorships, and state legislatures. Winning the White House would be the “final coup.” Sixth and last was Trump’s limited political exposure. There was little to attack.
Laffer was right, just as he’s been right about tax cuts and prosperity.
Fred Barnes, a Washington Examiner senior columnist, was a founder and executive editor of the Weekly Standard.
