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Arthur Betz Laffer, Sr. (born August 14, 1940) is a supply side economist who became influential during the Reagan administration as a member of Reagan's Economic Policy Advisory Board (1981-1989). Laffer is best known for the Laffer curve, a curve illustrating tax elasticity which asserts that in certain situations, a decrease in tax rates could result in an increase in tax revenues. Although he does not claim to have invented this concept (Laffer, 2004), it was popularized with policy-makers following an afternoon meeting with Dick Cheney in which he reportedly sketched the curve on a napkin to illustrate his argument (Wanninski, 2005). The term "Laffer curve" was coined by Jude Wanniski (a writer for the Wall Street Journal), who was also present. The basic concept was not new: Laffer himself says he learned it from John Maynard Keynes. The gist of the theory is that tax revenues would be zero if tax rates were either 0% or 100%, and somewhere in between 0% and 100% is a tax rate which maximizes total revenue. Laffer's innovation was to state that the inflection point in the curve was at a much lower level than previously believed: so low that current tax rates were above the level where revenue is maximized. Before Laffer's work, it was universally assumed that the revenue-maximizing tax rate would be only slightly below 100%. At the time of the famous cocktail napkin incident, Laffer was on the faculty of the Marshall School of Business at the University of Southern California. Earlier in his USC tenure, Laffer played a key role in the writing of Proposition 13, the still-controversial California property tax cap initiative that spawned a host of similar laws around the United States and is generally credited with launching the tax revolt of the 1970s and 1980s. During the mid-1980s, Laffer and many other conservative USC faculty members decamped to Pepperdine University in nearby Malibu; Laffer remained on the faculty for several years. In 1986, Laffer was a Republican primary candidate for the US Senate in California. (Congressman Ed Zschau won the nomination and lost in the general election to the incumbent Democrat, Alan Cranston). Laffer is the author and co-author of many books and newspaper articles, including . An example of his recent work is an article entitled "Destination USA" concerning the trade deficit, which appeared in the January 3, 2005 The Wall Street Journal. The article argues that the trade deficit is an artifact of the American economy's strong structural features. Founder and CEO of Laffer Associates in San Diego, he received a BA in economics from Yale University in 1963. He graduated from Stanford University with an MBA in 1965 and a PhD in economics in 1971. He has six children. His followers include Lawrence Kudlow, the co-host of Kudlow & Co. on CNBC; and Donald Luskin, author of the blog The Conspiracy to Keep You Poor and Stupid. Free Enterprise Fund ("FEF"): Arthur Laffer is Policy Co-Chairman with Lawrence "Larry" Kudlow as the other Policy Co-Chairman of FEF. FEF has listed five "take action" campaigns on their website (https://www.myfef.org/bin/action.center.election). Four of these campaigns are common conservative financial reforms themes (Repeal Death Tax, Reform Social Security, Reform Sarbanes-Oxley and Budget Reform). The fifth campaign is to Stop MoveOn.org. FEF has produced a television commercial with its central theme asserts that MoveOn.org was started by and run by billionaire George Soros. MoveOn.org can hardly be considered anything but a grassroots organization started in 1998 by Joan Blades and Wes Boyd, two Silicon Valley entrepreneurs who neither had experience in politics. MoveOn.org has over 3.3 million members, of which George Soros is one, who joined in 2003 and donated $1.5 million. It is ironic that FEF has attepmted to label MoveOn.org as a mere political front for Mr. Soros, which is untrue, and FEF is actually a political front for Laffer and Kudlow, two long time DC insiders. Unbeknownst to him, the computer game character Larry Laffer of the famous Leisure Suit Larry series of games was named after him. Arthur Laffer for years had no idea about the existence of the games until much later when Larry's creator, Al Lowe sent him a letter. Lowe planned to program a new application under the name Laffer Utilities featuring Larry and Lowe asked his permission about it. Laffer's secretary had played the games for years, but never made a connection. Laffer gave the permission and also paid a visit to the Sierra On-line studios.
Publications by Arthur B. Laffer The following is a partial list of publications for which Arthur B. Laffer is an author (mainly focusing on articles for which he is first author), in descending order by date, including in some cases brief summary excerpts from the text. "When 'W' ran for president in 2000, I voted for him but not enthusiastically. I had voted for Bill Clinton in the prior two presidential elections, but with Al Gore as the Democratic candidate in 2000 the choice was easy for me even if I wasn't all that excited about George Bush. I am now flabbergasted by the performance of Bush 43. "Just because the United States has its largest trade deficit ever doesn't mean that we're living beyond our means. Far from it. "California's recall effort is based 100% on the state's fiscal crisis. Listen up candidates: California's progressive (steeply graduated) tax structure is the cause of the fiscal crisis, which itself is the first-born of the union between fuzzy logic and misplaced emotions. "Now that President Bush has pushed his tax-cut proposal through both houses of Congress, it's time to seriously consider a federal, state and local tax amnesty program. The result would be lots of money raised in quick fashion and a supply-side jump-start to the economy. Tax amnesties are legislated periods during which the payment of past unpaid tax liabilities is allowed without fear of legal reprisal." "The U.S. Senate recently halved President George W. Bush's tax cut, supposedly to offset the cost of the war in Iraq. Though this dollar-for-dollar accounting mentality has a crude appeal, it's wrong nonetheless. The U.S. needs this bill passed for its short-term and its long-term effects, and it can afford it. "Based on economics, President Bush appears to have a fairly clear path to re-election in 2004. But there is a major potential roadblock currently on display in the oddest of places—the fiscal crisis in California. After more than two years of lackluster performance, the economy has a great deal of pent-up growth and should start making up for lost time soon. "To eliminate the markets' reticence all that's needed to get a normal recovery going is a clean resolution to the Iraq crisis. And that appears to be close at hand. But a lot more could be done to accelerate growth and propel this economy back to where it should be. To further stimulate growth on the fiscal policy front the recently emboldened Bush administration would be well advised to accelerate and make permanent its tax cuts." "The huge drop in the stock market from early 2000 to today is psychological to be sure. My only question would be, is the change in people's psychology based on real change in the economy or is it based on emotion? My conclusion is that the markets are way oversold given the realities of today's economy. Sure, there are lots and lots of problems with corporate governance and accounting, and some of those problems may even involve criminal fraud. But, the accounting problems don't do a whit of damage to the true economic profits of overall corporate America. "The bottom line is that stock prices are currently substantially undervalued—some 48% by my measure. Barring some highly unlikely policy changes that would collapse profits and push interest rates a lot higher—such as higher tax rates, across-the-board protectionism, wage and price controls or a complete reversal of Federal Reserve Board policies—the pessimism prevalent today is entirely unwarranted. In fact, from where I'm standing, it looks as though we're in for a very nice market indeed." "Higher returns abroad and lower returns in the U.S. mean reduced U.S. capital inflows, lower U.S. trade deficits, and, yes, a weaker dollar. If the U.S. wishes to maintain our leadership role in the world economy, we've got to proceed undaunted in our pro-growth agenda. Just talking about a strong dollar won't cut it. In the words of Nobel Prize-winning economist Robert Mundell, we need tight money and tax cuts—and then we'll have prosperity, asset appreciation, employment growth, and a strong dollar." "To talk turkey, the new sales-tax holiday proposed recently by two senators is the best short-term tax stimulus idea I've seen in ages. While Patty Murray and Olympia Snowe are both politically left of center, their tax proposal is right on the mark. They propose a federally underwritten national sales-tax holiday that would last for 10 days. The resulting burst in activity could give a real boost to our faltering economy." "The attack on America posed a serious challenge to an already slowing economy. Fortunately the Federal Reserve, which cut rates again yesterday, has so far responded effectively. Fortunately too the United States remains strong enough fiscally for the tax cuts we need to get things moving. "Since July 1995, the euro has depreciated 36% against the dollar. And yet over that same period Euroland prices have risen by only 12%, compared with a dollar price rise of 17%. Very recently, however, Euroland inflation has begun to rise while the euro continues to fall. Putting it all together paints a scary picture for inflation. Either the euro will rebound sharply, or Euroland's inflation rates will soon exceed those of the U.S. by 500 or more basis points annually and be accompanied by significantly higher interest rates." "Broadly, Mr. Bush needs to support a strong dollar and free trade, maintain a powerful Federal Reserve, and oppose farm subsidies and increases in the minimum wage. He also needs to keep Social Security on an even keel and regulations to a minimum. But good trade, monetary and regulatory policies will only set the stage for the one move that will take Mr. Bush over the top. He needs a flagship tax proposal that doesn't compromise the beliefs we hold dear "All of the interest rate hoopla surrounding the Fed's Open Market Committee meetings is nothing but a sideshow. I too wish the Fed could just wave a wand and change interest rates, but it can't. In the near term, the Fed has very little power to do much of anything. In the long run, however, the Fed is the single most powerful force in our economic universe. It can and does move planets and change the world. But it doesn't change the world by directly changing interest rates. The key to the Fed's power is its total control over the monetary base—the sum of currency in circulation, vault cash and member-bank deposits at the Fed." "The highest marginal tax rate on personal income went from about 65 per cent in 1984 to 42 per cent today. The highest corporate rate went from 50 per cent to 20 per cent. "George W. Bush's tax-cut proposal does have shortcomings, but it is an enormous step forward. It will benefit the American economy in the near term by bringing the current slowdown to a quick end. In the long run, it could increase the economy's growth rate. "What's striking is that all of the critics of the 1997 capital gains cut and the Reagan tax cuts in 1981 -- the very same crowd of skeptics who have been proven wrong twice now -- continue to crusade with their discredited class warfare rhetoric against the Bush tax cut plan. Mr. Gore's charge that the top 1% get 50% of the Bush tax cut comes from the union-funded Citizens for Tax Justice. That partisan outfit wrongly predicted that the 1997 capital gains cut would lose billions of dollars for the Treasury. "The first word that came to mind when I heard that Robert A. Mundell had just won the Nobel Prize in economics was vindication. Back in the 1960s Mr. Mundell, who then taught at the University of Chicago, was considered beyond the fringes of mainstream economics. He was the leader of a small group of economists—most of the time I thought it was just the two of us—who advocated fixed exchange rates, warned of impending inflation if the U.S. went off gold and called for tax cuts to spur economic growth. Many in the profession called him a kook. Today they call him a Nobel laureate." "In April the Japanese government cut the highest marginal tax rate on personal income (federal and local) to 47% from 63%. "If you can get by the smell, Bill Clinton hasn't been all that bad as president. His lack of morals and lack of core values really does stand him in good stead for leading an economy that is already on a rock and roll path to Valhalla. At present, doing no damage is as good as it gets. "Once George Bush raised taxes in 1990 and President Clinton raised them further in 1993, savings fell again. Fortunately, monetary policy during the '90s has been excellent and has kept savings from falling to the lows of the mid-'70s. Our nation once again stands at a crossroads deciding whether to continue a policy of high taxes and restrained growth, or change course and cut tax rates to foster more growth and more savings. The Reagan-era tax cuts not only spawned excellent economic growth but also enormous savings. Based on such historic lessons, the Dole-Kemp plan looks like a real winner." "One of the silliest things I've heard coming out of this campaign is that Darman was correct when he told Bush in 1988 not to make the 'read-my-lips' pledge. The pledge was the right thing to do. Not keeping that pledge was the wrong thing to do. Bush still doesn't get it. Lots of other issues can be enumerated from the collapse of the economy to Saddam Hussein's continued rule in Baghdad. "California is in for an unpleasant surprise of considerable magnitude. The sales tax increase that went into effect yesterday will, over the next several years, do enormous damage to the Golden State's economy. Property values and employment among California's most vulnerable people will be the hardest hit. But everyone will suffer. "Using rice, cotton, and alfalfa farmers as scapegoats for California's current water crisis is wrong. In fact, why anyone would describe California as having a water shortage is beyond me. The price of water is simply too low and the reason the price of water is too low is because governments control its distribution. It's as simple as that. "This is a plea to politicians of all persuasions to raise taxes and raise them now. "One of the silliest explanations for last Monday's stock market crash is that budget deficits are somehow responsible. Financial markets respond to new information, but large budget deficits have been around for years. "What the Federal Reserve must do to keep prices stable is to reduce the amount of money being held by the public. In such instances, the Fed should sell bonds to the public in exchange for their excess cash until that selected price returns to its target level. The reverse process would be appropriate if the selected price falls. Eventually the entire process should be made automatic by returning the dollar to full convertability both here and abroad. "Quite frankly, my error on the deficit was due to my overly generous perception that Congress would live up to its appointed role. The solution to the deficit problem must also include spending restraints. Tax cuts alone just aren't enough." "The Laffer Curve is, and always has been, a pedagogic device illustrating that changes in tax rates influence both the revenue collected per dollar of tax base and the very size of the tax base itself. The sophomoric notion that such a curve purports to show that cutting tax rates automatically reduces deficits should never have seduced any profound 'insider.' Lower tax rates may or may not reduce the budget deficit. Many factors come into play. The longer a reduction in tax rates is in existence, the more likely it will expand total revenues. "In sum, the role of the United States as the world's banker has tended to reduce the recorded U.S. trade surplus." "Review of findings: 1. Fiscal policy, as represented by federal purchases of goods and services (assumed exogenous), provides a powerful temporary stimulus to GNP. Over a year, the cumulative effect is near zero. "Monetary theory has a large number of unresolved basic issues. In fact, at times it is doubtful just what the meaning of the word 'money' is "When the surface of the economist is scratched we generally find a belief that vertical integration in the corporate sector has increased during the past few decades, if not longer. This proposition, however, has not been put to a rigorous empirical test for the entire corporate sector. | ||||||||
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