I.O.U.S.A - Addison Wiggin [117]
It ’ s, what, the fi fth smallest budget defi cit in the last 45 years?
When you have prosperity and economic growth you should pay down the debt or at least let it grow much more slowly than the economy. But I thought the Clinton/Bush era was perfect from the standpoint of economics.
Q: The defi cit has gotten out of control. We just crossed the $ 9
trillion mark. You now have a wave of populous support for tax cuts. What would happen to the defi cit if you raised taxes?
Arthur Laffer: You ’ ve got a national debt of $ 9 trillion. Bill Safi re ’ s comment on this, he called these numbers megonumbers. He spelled it M - E - G - O, which he claimed stood for My Eyes Glaze Over. That ’ s a lot of money.
Would you like to see that number start coming down again? Of course you would. There are two ways that we talk about doing that today: number one, by controlling government spending, and number two, by raising tax rates. Controlling government spending has lost favor in the Congress. You have a Democratic House. You have a Democratic Senate. You have all of these national health schemes. They aren ’ t really willing to address the spending issue, which is what really needs to be brought down.
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Interviews
So they are talking about raising tax rates, especially tax rates on the rich.
I ’ m going to use Sir Robert Peel ’ s phrase here: If they raise tax rates on the rich, they are going to be thwarted in their expectations of revenues. There are no tax rates that I can think of that fi t more into the prohibitive range of the Laffer curve than tax rates on the rich. Capital gains, upper income brackets, dividends, inheritance taxes: If you raise those, not only will you not reduce the defi cit, you ’ re going to explode the defi cit. You ’ ll cause people to be unemployed. You ’ re going to cause huge amounts of harm, hardship, and suffering in the U.S., and you ’ re not going to reduce the defi cit. These people are on such a bad path.
The way you bring the defi cit under control is not by raising tax rates. The way you bring it under control is by controlling spending, and, unfortunately, in the last eight years, the U.S. has lost its direction in trying to be economical in government spending.
These guys are going to come in and try to increase spending and raise taxes on the rich and, if they do that, mark my words, you are going to see a tragedy in the U.S. economy of biblical proportions.
Balancing the budget by cutting spending is wonderful. Trying to balance it by raising tax rates on the rich is ridiculous and is pandering.
Q: Is there a time when tax cuts are bad things?
Arthur Laffer: Sure. There are lots of times when tax cuts are a bad thing. You need to have tax rates suffi cient to collect the requisite revenues to provide government services. You need defense, you need welfare, and you need all of these other programs. You do need them, I think. I ’ m not a Libertarian. All tax, except for sin taxes, do damage. Sin taxes are good because they exist not so much to collect revenues as they do to stop you from doing things like alcohol and tobacco. Those taxes don ’ t hurt the economy, but all other taxes hurt the economy. All taxes are bad so, in a tax system, you want to collect the requisite revenues while doing the least possible damage you can to the economy. You want to develop a tax code that ’ s the least harmful tax code.
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To my way of thinking, that ’ s a true fl at tax. That