Sunday, July 30, 2006

Heard in the Echo Chamber - Laffer Gets Last Laugh

Who is this man? And more importantly, what's up with his curve?

Well, it's no secret that we FITS gals get all hot and bothered at the mere mention of Keynesian economics or supply-side theory -particularly when accompanied by a warm bubble bath, a bottle of Kendall Jackson and the soothing sounds of Jack Johnson playing softly in the background.

Hmmmm. Sounds like a perfect Sunday night to us ...

And yes, we know that former Reagan economic advisor and Keynes' disciple Arthur B. Laffer is sixty-six years old, happily married and probably dyes his hair more often than Glenn McConnell, but there's just something inherently sexy about a man who, for a time at least, succeeded in convincing America that it's excessively high tax rates were actually costing us revenue.

That, and we just like the way he says "elasticity."

Anyway, Arthur's big theory was called the Laffer Curve, and its basic premise is this: When tax rates - particularly marginal income tax rates - are too high, you can actually create additional tax revenue by cutting them.

How, you may ask?

Well, cutting taxes means business can grow, expand and create jobs, while at the same time allowing consumers to spend more of their own money on the products and services that businesses offer. Growth spawns additional growth, which feeds government coffers and allows us to fund all the do-gooder social programs liberals are so fond of.

Of course, in addition to fueling growth in tax revenue, prosperity also helps reduce the number of people who rely on those social programs to begin with.

Sound like common sense to you? Of course it does.

It is common sense, which is why Dr. Laffer and his curve are routinely dismissed by simple-minded, status quo politicians (Bobby Harrell, Dan Cooper, Hugh Leatherman, Tommy Moore, etc.) who, like Karl Marx, would rather put the excess money our economy generates into more growth-draining, dependency-breeding, government-funded socialism.

But Laffer's getting the last laugh lately, at least among those who actually care about looking at hard data as opposed to swallowing the decades-old talking points proferred by the education lobby and other blind backers of big government.

Maybe you recall FITS referring you recently to New Mexico, where Democratic Governor Bill Richardson's supply-side income tax cut (currently in its third year of implementation) has resulted in soaring, double-digit income tax revenue growth, fueling an economic renaissance in that state.

Well now we've got some numbers from right here in South Cackilacky that we're sure Mr. Laffer would be pleased to see.

Turns out Gov. Mark Sanford's small business income tax cut - you know, the one he settled for when Tommy Moore, Hugh Leatherman, Jakie Knotts, Luke Rankin and other big spenders in the State Senate wouldn't pass a real economic stimulus package - is having precisely the same positive effect on our state's coffers.

Signed into law in early 2005, Sanford's small business tax cut has resulted in a twenty-one percent increase - that's right, a twenty-one percent increase - in small business revenue this fiscal year. Individual income tax revenues, comparatively, are up 7.7% and our sales tax revenues are up 7.9%.

As a result of these surging revenue numbers, the BEA recently added another $100 million on top of our state's already rosy revenue report, money the governor is wisely urging be refunded back to the taxpayers in the form of - you guessed it - income tax cuts.

The small business income tax cut remains to this day the lone example of an otherwise recalcitrant and backward General Assembly actually stopping to think for a few seconds, agreeing to put pork aside and trusting the governor's supply-side wisdom and handy-dandy charts and graphs.

Given the data now available, wouldn't it be common sense to add a little more fuel to our state's economic engine right about now? Particularly when our unemployment rate still ranks second in the nation? Shouldn't we pass the broader income tax cut the governor's been asking for these past four years and engage the economic recovery that's staring us in the face?

Democrats in Oklahoma and Rhode Island have recently done just that, following New Mexico's lead and injecting their surplus revenue back into the economy. Unfortunately, Republicans here can't seem to run out of new reasons to spend your money - and as a result have grown government by 22% in just two years.

Laffer's going to be laughing someplace, people. It might as well be here.


As if his incessant whining in support of the endless expansion of nanny-state government wasn't enough, now Brad Warthen wants to be your daddy ... in the blogosphere, anyway.

The State's editorial page editor devoted his Sunday column today to the lack of civility presently residing in South Carolina's little corner of Blogworld, and for reasons surpassing understanding somehow neglected to mention us here at FITS.

According to Warthen, nasty anonymous posts are the scourge of the new medium, and their persistent vitriol renders said medium "unsafe" for many readers.

By now you've no doubt realized we post just about anything you want to say here, even highly pernicious comments about members of our own staff. Sic Willie is usually the most frequent target, but one particular waste of sperm and eggs (to borrow an insult from the late Kurt Cobain) even called sweet little Heather S. an "airhead" last week.

So why do we allow all these posts? Why do we let these petty people say pretty much whatever the hell they want?

Because in the spirit of Supreme Court Justice Oliver Wendell Holmes, we believe in the marketplace of ideas, civil or not.

Truth is its own virtue, and it has a way of sooner or later rising to the top on the strength of its own merits. Stupidity, on the other hand, will always sink under its own crass, self-demeaning weight.

We don't need censorship to make us smarter, we just have to want to be smarter ourselves.


The FITS gals will get an up-close-and-personal look later this week at a number of potential Presidential candidates, all of whom will be in town for the National Governor's Association (NGA) Annual Meeting in Charleston, S.C.

NGA Chairman Gov. Mike Huckabee (Arkansas), Gov. George Pataki (New York) and Gov. Mitt Romney (Taxachusetts) will all be there, among others, so keep your browsers pointed right here for what we're sure will be a week of "good goobernatorial scoop."


Lee Bandy's Sunday column exposing the extreme wear apparent on the SCGOP's "tax-and-spend liberal" branding policy was right on the money, but "Bandito" missed the boat completely in singling out GOP Treasurer nominee Thomas Ravenel as one of the offending parties.

Ravenel has definitely landed some solid, issues-based jabs against incumbent Democrat Grady "Grandpa Simpson" Patterson, but they've all been specifically focused on his record of managing (or rather, mismanaging) our state's investment portfolio or his statutory failure to effectively communicate between our state's leaders and credit rating agencies in New York.

On the other hand, Patterson's campaign (now that Trav Robertson has quit campaigning on our dime from his perch in the Treasurer's Office, anyway) has repeatedly attacked Ravenel for - gasp - being single and - gasp, again - entertaining the possibility of a political future beyond the office he's currently seeking.

The bozos managing the campaigns of Ralph Norman and, regrettably, Mark Sanford are clearly the ones deserving of Bandito's thinly-disguised scorn on this front, not T-Rav, who to his credit is sticking to the issues and handling the attacks that have come his way with discipline and class.

Until next week ... be heard.


Anonymous Anonymous said...

Blease Graham, Neil Thigppen, Lee Bandy…when is the last time they had an original thought…or predicted anything beyond that the sky would rise in the east? These characters give “blandness” a bad name. When, oh when dear Mr. Folks, will the media powers that be latch on to a sentient and knowledgeable group of political commentators?

Keep up the good work…


8:44 PM

Blogger Habele.org said...

In paragraph two you say "Keynesian" and then you mention Keynes again in paragraph four. All you other info is factually correct (and your conclusions logically follow) but John Maynard Keynes was actually an opponent to liberal or neoclassical economics, and he was in favor of a "mixed" public / private marketplace. You simply need to insert Ludwig von Mises, Friedrich Hayek or Milton Friedman where you wrote "Keynes."

9:25 PM

Anonymous Uncle Milton said...

The Laffer curve does not say tax cuts always raise tax revenue.

Dr. Laffer's theory does say say there is some tax rate "t" between 0 (no taxes at all) and 1 (the government takes confiscates everything) where tax revenue is maximized. What you are referring to is the economic effect of a tax cut, which results when people change their behavior in response to changes in the tax code.

The most recent round of tax cuts on dividends and capital gains did, upon further review, raise more revenue than the arithmetic "cost" of the tax cuts (a good reason why they should have been extended too). But it is a common misstatement of Dr. Laffer's theory that any tax cut always increases tax revenues.

9:54 PM

Blogger faithinsound said...

Habele and Uncle Milton-

You both raise excellent points, and thanks for taking the time to visit as well as comment.

We threw John Maynard in there because Laffer himself specifically credited Keynes with original authorship of his famous "curve."

And yes, Laffer's curve does indeed demonstrate an "optimal" level of taxation that "maximizes revenue." There are clearly instances where lowering taxes would result in diminished revenues and obviously, taxing nothing would result in no revenue.

Our point is simply that with the highest effective income tax in the entire Southeast, South Carolina is missing out on enhanced income tax revenue generation due to excessive income taxation. In other words, we're taxing at a level above the "maximum revenue" point on the curve.

Of course, our state's chief economist, Bill Gillespie, never factored in the stimulative, dare we say Laffer-esque effects of a broader income tax cut - choosing instead to deliberately mislead and frighten our poor (and simple-minded) legislators with a doom and gloom scenario built only around what it would cost, not what it would grow. Worse still, his boss John Rainey was either too stupid or too liberal to see the flaws in Gillespie's estimates.

Regrettably, ours is a state that seems doomed to insist on "revenue neutral" tax cuts, which at the end of the day really aren't tax cuts at all.

Anyway, thanks for the informative comments.


11:42 PM

Blogger Laurin Manning said...

How could you discuss the Laffer Curve without mentioning Ben Stein's (Nixon's former speechwriter) lesson on it in "Ferris Bueller's Day Off"? :)

It's hard to make economic decisions on the basis of the Laffer Curve because it's purely theoretical. There's no scientific way to measure where the top of the curve is -- that is, where taxes are at the optimal point at which revenue doesn't begin to diminish as people are taxed.

I don't dispute that the increase in revenue in SC and NM were both a result of tax cuts. However, it should be noted that, as the Laffer curve is a curve shaped like an upside-down "U", there is a point after which revenue doesn't continue to increase as taxes decrease.

The hard part is figuring out the perfect balance.

Ack! I wrote all this before reading the comments. Uncle Milton beat me to the point. Hey, at least I still brought Ferris Bueller to the table first. :)

7:12 AM

Anonymous Anonymous said...

anyone? anyone?
D - O - O economics
voodoo economics.

11:05 AM

Anonymous Anonymous said...

Aha, I see Ms. Addams footprints in the DOO. Thanks for bringing Leisure Suit Larry's real life kin to the surface. It is VooDoo to the crew that expects our eyes to glaze over at the uttering of the incantations of economics, as though sitting in an 8AM Calculus class before the third cup of coffee has registered with the brain.

Next let's raise the minimum wage and skip the fact that it will drive inflation up another few notches.

12:46 PM


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