Jared Bernstein — One more point about the KS legislature’s KO (Kansas Override) of supply-side tax cut

Not to be a downer, but I’ve have been pessimistic that DC R’s will learn from KS R’s. That’s partly because facts clearly can’t kill trickle-down mythology. The party’s donors want their tax cuts, and they’ll continue to sell snake oil to get them, facts and KS be damned.

But there’s another dynamic in play here which I haven’t seen mentioned: states have to balance their budgets while the federal government does not. So, if they’re willing to accept larger budget deficits, DC R’s can pass tax cuts and not worry about the consequences.

But R’s wouldn’t go that route because they disdain deficits and debt, right?

On the Economy
One more point about the KS legislature’s KO (Kansas Override) of supply-side tax cuts
Jared Bernstein | Senior Fellow at the Center on Budget and Policy Priorities and former Chief Economist and Economic Adviser to Vice President Joe Biden in the Obama Administration

Kenneth Thomas — Kansas Republicans abandon Brownback; raise taxes over his veto

Do I have to tell you that Laffer and Moore are the main advisers behind Trump’s tax plan, too?

Angry Bear
Kansas Republicans abandon Brownback; raise taxes over his veto
Kenneth Thomas | Professor of Political Science at the University of Missouri-St. Louis

Menzie Chinn — All the Governor’s Men (Economists)

Paul Krugman notes Governor Walker’s advisers on economics at a recent meeting are Larry Kudlow, Stephen Moore and Arthur Laffer. These folks make appearances in the Econbrowser archives.… 

I am ever thankful for the likes of Kudlow, Moore, Laffer and their like, even as they drag down the level of economic discourse. They just provide too many examples of how not to conduct serious analysis.

Econbrowser
All the Governor’s Men (Economists)
Menzie Chinn

Jordan Ellenberg — Math vs. Reaganomics: Why GOP’s anti-tax hysteria falls flat

There’s nothing wrong with the Laffer curve—only with the uses people put it to. Wanniski and the politicians who followed his panpipe fell prey to the oldest false syllogism in the book:

It could be the case that lowering taxes will increase government revenue;

I want it to be the case that lowering taxes will increase government revenue;

Therefore, it is the case that lowering taxes will increase government revenue.

Salon
Math vs. Reaganomics: Why GOP’s anti-tax hysteria falls flat
Jordan Ellenberg | Vilas Distinguished Achievement Professor of Mathematics, University of Wisconsin

Art Laffer's GOP MMT

There can be no doubt that Art Laffer understands the basics of Warren Mosler's "Soft Currency Economics" that lies at the heart of Modern Monetary Theory aka MMT. Warren wrote the article while employed at Laffer's firm.

Laffer is best known as the architect (along with Robert Mundell) of "supply side economics," which was popularized by Jude Wanniski. The argument was that the GOP was being hampered from its agenda of lower taxes by fear of deficits. The supply siders argued that deficits from lowering taxes should not be feared since it would stimulate investment and increase tax revenue, preventing debt from growing faster than GDP. Deficits from spending, however, result in unsustainable debt accumulation since government is doing the spending rather than firms, hence there is no addition to capital stock.

This was made famous by Dick Cheney's assertion that Ronald Reagan proved that deficits don't matter.

Grover Norquist's drive to force reduced taxation in order to force spending cuts is also part of the policy design.

Based on "Soft Currency Economics," Laffer would have realized that the function of taxation is to control inflation by reducing demand, so the most effective tax policy would be addressed at limiting consumption. Therefore, the most effective tax would be a consumption tax, which is familiar to all Americans as the sales tax.

True to form Art Laffer is now recommending that taxes be cut on "investment" and transferred to consumption by raising the sales tax. And sure enough, Nanette Byrnes of Reuters reports Income Tax Could Be Eliminated By Many Republican-Controlled States.

The kind of basic shift to sales tax from income tax being eyed by Republicans is informed partly by "trickle-down" or supply-side economics - embraced by Republicans 30 years ago and still a powerful force in the party. Laffer has advised some of the states' activists.

North Carolina's Rucho acknowledged the argument that the poor would be hit disproportionately by higher sales taxes. But he said new sales taxes on services would also hit higher-income taxpayers.

He said low-income people got more government assistance that could help offset higher tax costs. Also, he added, cutting income taxes would spur economic growth, a key supply-side tenet, helping everyone.

In an interview with Reuters, Laffer said states with lower income tax burdens outperformed those with higher taxes.

Some studies, from liberal and non-partisan think tanks, say just the opposite and cite the relative economic strength of high-tax states such as New York.

So next time someone claims that MMT is "left-wing," say, "Really?"

The supply side wing of the GOP, at least, wants to cut taxes on the rich and raise them on the poor, and there is a clear MMT-based rationale for doing so.

Steve Roth — Laffer: Laughable As Always

R Davis spends a whole lot of words (and numbers) explaining why Arthur Laffer’slatest WSJ editorial is false and ridiculous, but those who think about data — at all — really only need to read one line.

Laffer’s key error — which a high-school statistics student could spot — is to:

"compare growth in GDP rates with government spending as a percent of GDP. He is testing for a relationship between two variables but expressing one of them (spending) in terms of the other (GDP)."

Asymptosis
Laffer: Laughable As Always
Steve Roth

The Laffer Curve debunked

Read it at Angry Bear
Mike Kimel at Angry Bear has several nice posts on the "Laffer Curve"
Posted by Dan Crawford (Rdan)

Laffer assumed that tax revenue is zero at tax rates of 0 and 100%, but this is only true if the tax rate is 100% and not the marginal rate. The actual curve doesn't look at all like Laffer assumed.

Not only that, as one of Kimel's commenters, Robert Waldmann points out, we actually have experience with a country having a top marginal rate over 100%, Sweden in the 1970s. Contrary to Laffer, not only was tax revenue not equal to zero, in 1975, Sweden's tax revenue was 41.3% of gross domestic product! (OECD statistics, click on "data by theme," then "public sector, taxation, and market regulation," then "taxation," then "revenue statistics - OECD member countries," then "comparative tables") 21.2% was central government revenue, i.e. excluding subnational government and social security. Either way, a long way from zero.

Larry Kudlow: Cut gov't spending by $750bln and the economy will surge!

It's amazing how these people keep repeating stuff that is blatantly wrong and nobody even questions it.

Larry Kudlow says reducing government spending from 24% of GDP to 19% of GDP would "be like a tax cut for the economy."

Kudlow has this completely backward. Spending cuts are the fiscal equivalent of tax increases. A cut of that magnitude (approx $750 bln) equals the REMOVAL of exactly that amount of income from the economy. When the governmment removes income it's usually called a tax. I'm sure Kudlow would call it a tax. And by the way, why isn't growth in Europe exploding now as a result of all the government spending cuts?

Just so you know, a spendig cut of that size would also equate to a 5% shrinkage in GDP, which would put growth at about -3.0%. Unemployment would skyrocket to about 15%. Some tax cut.

Kudlow says that spending cuts "remove the burden of taxes" from the economy? What taxes? Spending as a % of GDP is now the largest in post WWII history and taxes as a % of GDP are at the lowest level we've seen in that time. And how does he explain the fact that the economy has expanded since the deficit has increased?

Most amusing of all is the fact that Kudlow is bringing on Art Laffer to support his argument. Art Laffer??? Wasn't he the Reagan Administration Supply Side guru? Under Reagan Government spending as a % of GDP surged. Some person to talk on behalf of spending cuts. Ha!

Kudlow is dead wrong on this.