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Arthur Laffer on income inequality, raising taxes

Arthur Laffer, the father of supply-side economics.

Jeff Horwich: For the roots of today's Republican economic message, look to a small dinner in 1974. It included Dick Cheney, Donald Rumsfeld, and an economist named Arthur Laffer. As the story goes, Laffer sketched a curve showing how lower tax rates might actually increase government revenue. And the rest is history. The taste for so-called "supply-side economics" has waxed and waned, but it is now very much back in vogue.

Arthur Laffer was one of Ronald Reagan's top economic advisors, did a stint in academia, and now runs a research firm he founded. This morning, he's on Marketplace. Good to talk with you.

Arthur Laffer: It's good to talk with you, Jeff.

Horwich: I think it's fair to say -- correct me if I'm wrong -- that the one main thing you would like to see above all else is lower taxes, that that is a solution for a great deal of what ails us.

Laffer: Well what I'd love to see is lower tax rates and a broader tax base. It doesn't have to be a revenue-enhancer or revenue-loser, but you know, any major improvement would help the country enormously. We've got to get the job machine running again and get things really going.

Horwich: What's so wrong about raising taxes on this small segment of wealthy Americans, and lowering them or keeping them the same for other folks?

Laffer: The problem with raising taxes on rich people -- what they call rich people -- is rich people have many options open to them that other people don't have, and you won't get the money. You know, if you could get the money from them without costs, I'd love it. But you can't.

Horwich: Many economists will say the data is extremely inconclusive in practice as to how marginal tax changes actually affect personal and business activity. What makes you so sure?

Laffer: Because basically, these economists you talk about never worked in the real world. They're just looking at the econometrics and the data there. If you ever go and look at what's being recommended from the CPA firms, from financial planners. If you actually look at how they go through, do their tax returns -- believe me, they are more focused on their taxes than you and I are on their taxes.

Horwich: But am I right that I just heard you criticize economists for actually looking at the data and making their decisions based on that?

Laffer: No, no, not looking at the data. I think it's wonderful to look at the data. But I think it's really silly to look at this accurate data and not make any judgments beyond those aggregate data.

Horwich: But you're also arguing for a bit of common sense?

Laffer: Yeah, a lot of common sense. Even if you did get more money from the top 1 percent, it would be more than offset by the losses other people would not pay in taxes because these people aren't employing as many people, aren't investing as much, aren't buying as much. I mean, it's much more than just one little group.

Horwich: Many other economists left, right and center will point to various kinds of data that show income and wealth inequality in the U.S. are increasing, maybe the worst in many, many years. And yet, your center just put out a report claiming to debunk this narrative on income inequality. Are you saying that's not true?

Laffer: You know, this is a debate that's going to go on for years and years and years. I don't mind inequality if people are rising in incomes in all groups. I do mind equality when everyone's brought down to the lowest common denominator. You don't want to make the rich poor; you want to make the poor richer. These inequality specialists all around the place aren't proposing that. In all the quest to achieve less inequality, they are creating equality by lowering everyone. And that's silly.

Horwich: Economist Arthur Laffer, father of supply-side economics, with Laffer Associates, Laffer Investments and the Laffer Center. Good to talk with you, thanks.

Laffer: Very nice talking with you, Jeff.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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