Was Published

2 days ago

News Source: theguardian.com
Why Are We Still Pretending 'trickle-down' Economics Work?
godfather theory

Why Are We Still Pretending 'trickle-down' Economics Work?

Next Wednesday, Donald Trump will award the Presidential Medal of Freedom to the arch-conservative economist Art Laffer.

Sadly, Laffer’s career has been heavy on punditry, light in academic rigor, and absolutely destructive for the average American and the long-term health and sustainability of our economy.

A number of economists have already dismissed Laffer’s signature supply-side economics theory as pure nonsense. For his dubious role as the “godfather” of Reaganomics, Slate dubbed him World’s Worst Economist. He’s been called a key part of the “Intellectual Rot of the Republican Party”. Esquire suggested that Laffer’s turn as the architect of disastrous Brownback tax experiment in Kansas should hang “like a dead possum” around his neck for the rest of his days.

So why exactly is Trump awarding such a man with the nation’s highest civilian honor? Maybe it’s because he recently wrote a book, Trumponomics, praising the president’s economic agenda.

Most likely, it’s because Laffer’s theory just so happens to serve as the basis for every terrible tax cut that Trump and the Republican party have passed for decades.

It all began in 1974, when Laffer walked into a bar with Dick Cheney and Donald Rumsfeld, who were working for the Ford administration at the time. Out of it came the “Laffer curve,” a U-shaped graph illustrating the relationship between tax rates and revenue.

The ends of the curve are basic enough – at a tax rate of 0, the government will raise $0 in revenue, and at a tax rate of 100, the government will still raise $0 in revenue because people won’t work without take-home pay.

At the extremes, the Laffer curve is correct, but that doesn’t tell us anything about the points in the middle. Laffer’s idea, however, was that a “tipping point” existed on the continuum in between, where people’s incentives to work and invest decreased because tax rates were too onerous.

From Laffer’s graph, Republicans had the academic justification to justify slashing tax rates for corporations and the rich.

President Ronald Reagan adopted Laffer’s supply-side theory wholesale in his deregulatory and low-tax agenda. In the decades since, Laffer has clung to relevancy, appearing on cable news to vehemently defend the alleged benefits of slashing taxes, even when the evidence proved otherwise.

More recently, in Kansas, where an extreme version of Laffer’s theory was implemented and tax rates were cut by nearly a third, the state suffered one of the worst fiscal disasters in recent history.

The Laffer curve has done immense damage to the US economy in the 40 years since its inception. It also ignores a fundamental reality: tax cuts for the rich don’t work.

Each and every time state or federal governments have tested Laffer’s trickle-down theory, deficits balloon, rich folks hoard their wealth at the top, and average Americans suffer.

The greatest periods of growth in our country, such as the 1950s and 1990s, have coincided with decisions to raise taxes on wealthy individuals and corporations.

If we want to return to those periods of prosperity, instead of letting inequality continue to rise unchecked, we must demand our elected leaders acknowledge that trickle-down economic policies don’t work.

Modern-day Republicans seem to be hell-bent on perpetually ignoring basic economics in order to cut taxes for their rich friends, but that doesn’t mean the rest of us have to acquiesce.

Laffer is a man whose sole Medal of Freedom-worthy achievement appears to be uniting staunchly conservative and ardently progressive economists against him. It’s high time that we leave “Laffernomics”, and all the failed experiments it has inspired, to the footnotes of history books.

Morris Pearl is chair of Patriotic Millionaires, which focuses on promoting public policy solutions that encourage political equality, guarantee a sustaining wage for working Americans, and ensure that wealthy individuals and corporations pay their fair share of taxes. He previously was a managing director at BlackRock, one of the world’s largest investment firms.