Economist: Cut taxes in W.Va.

DAVID GUTMAN | Gazette-Mail
Economist Arthur Laffer was the keynote speaker at the first day of the West Virginia Chamber of Commerce’s annual business summit at The Greenbrier resort.

WHITE SULPHUR SPRINGS, W.Va. — Conservative economist Arthur Laffer, during a speech to members of the West Virginia Chamber of Commerce on Wednesday, urged the state to cut its top individual income tax rates as soon as possible, saying it is the best thing a state can do to stimulate growth.

Laffer repeatedly emphasized incentives in pushing for lower taxes on the wealthy and a smaller social safety net.

“If you tax rich people and give money to poor people, you’re going to get lots and lots of poor people and no rich people,” he said. “It’s all incentives; it’s all driven by that.”

Laffer has been making much the same argument for at least 35 years. He is something of an icon among Republican politicians.

Laffer is best known for the “Laffer Curve,” which attempts to explain the relationship between tax rates and tax revenue and which he famously (or apocryphally) scribbled on a napkin for Dick Cheney and Donald Rumsfeld when they worked for President Gerald Ford. He worked with President Ronald Reagan to cut taxes in the 1980s (on Wednesday he repeatedly referred to Reagan as “the real president”), knows 15 of the 17 current GOP presidential candidates (all but Donald Trump and Rick Santorum) and has consulted with several of them on economic plans.

In 1980, running against Reagan, former President George H.W. Bush dubbed Laffer’s idea that cutting tax rates could actually increase tax revenue as “voodoo economics.” Bush changed his tune and embraced Laffer’s ideas when he ran again, successfully, in 1988.

Since then, every Republican presidential nominee has run on a platform of economic ideas influenced by Laffer.

Despite his esteem among prominent Republicans, Laffer’s ideas lie largely outside the realm of mainstream economic thought.

In 2012, the University of Chicago asked a panel of 40 prominent economists, from across the political spectrum, if a cut in income tax rates would yield more tax revenue five years from now. Not one of them said it would.

But it’s all about incentives, he said Wednesday at the Chamber of Commerce’s annual business summit at The Greenbrier resort. Taxes discourage work, Laffer said, and less work means less wealth.

“Why do we fine people who speed?” he asked. “To get them to stop speeding. Why do we tax people who smoke? To get them to stop smoking. Why do you tax people who work and produce income? Be really careful what you do people.”

Laffer called the progressive income tax, in which wealthier people pay a higher tax rate, “the killer of all killers” and pushed for a flatter tax rate.

“I don’t know the details of West Virginia,” he said, “but if I had a wand I could wave, I’d get rid of the income tax now.”

The mostly Republican crowd at The Greenbrier, filled with business owners, lobbyists and politicians, was quick to applaud.

A survey of state Chamber of Commerce members found that 65 percent were Republicans or leaned Republican, while only 10 percent were Democrats or leaned Democratic. The Chamber’s political arm also spent $128,000 on the 2014 elections, almost exclusively to benefit Republican candidates.

“I would, right away,” Laffer continued, “drop the highest rates first. Drop the highest rates down, and then bring the lower rates [up].”

Delegate Eric Nelson, R-Kanawha, chairman of the House Finance Committee, said he would anticipate some similar ideas to emerge from the Legislature’s ongoing study of tax reform.

West Virginia has five individual income tax brackets, and the lowest one phases out at $10,000, an amount Nelson considers too low.

“I think that needs to come up,” Nelson said. “We bring the bottom up and the top down.”

Senate President Bill Cole, R-Mercer, a gubernatorial candidate, lauded Laffer’s ideas but stressed that the government would have to figure out a way to pay for it.

“There’s no question in my mind that, by itself, it could be the single biggest and largest economic driver that this state has ever seen,” Cole said, of a cut in the individual income tax. “I think he’s spot on. I think, virtually, everything he’s said has proven itself out in history.”

That’s not exactly the case.

In 2009, he made dire predictions that the actions of the Federal Reserve would lead to runaway inflation and soaring interest rates. That hasn’t happened.

In 2012, Laffer was a paid consultant to Kansas Gov. Sam Brownback when the state passed massive income tax cuts based on his models. Kansas has since faced annual budget deficits ranging from around $400 million up toward $1 billion.

Laffer, on Wednesday, said a number of other factors were to blame for the revenue shortfalls and said his policies eventually will be vindicated.

“These taxes work, they don’t work in 14 minutes,” he said. “Over any reasonable period of time, Kansas is much better off by having its tax cuts than by not having them.”

Democratic Gov. Earl Ray Tomblin, who spoke to the Chamber after Laffer, did not sound convinced.

Asked about Laffer’s proposals, Tomblin laughed. He cited several different taxes that recently have been cut. Those cuts have coincided with hundreds of millions of dollars in declining state revenue and also the nation’s highest unemployment rate, he said.

“We’re still feeling the effects of cutting our corporate net income tax,” Tomblin said.

Reach David Gutman at david.gutman@wvgazette.com, 304-348-5119 or follow @davidlgutman on Twitter.

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