Beck's "Plan" is based on discredited Laffer Curve

››› ››› MATT GERTZ

Laying out his economic "Plan," Glenn Beck hosted former Reagan administration economist Art Laffer to promote Laffer's theory that increases to current federal tax rates would decrease federal revenues. But Laffer's theory is widely discredited, with Bush administration economist N. Gregory Mankiw calling it not "credible," and numerous Bush administration officials acknowledging that tax cuts produce a net decrease in revenue.

From the April 12 edition of Fox News' Glenn Beck:

BECK: Show me the Laffer Curve here. I said earlier this -- we're not talking about raising taxes, we're talking about tax revenues.

LAFFER: Exactly. No, that's exactly right.

BECK: We don't need to raise taxes, we need to raise tax revenue. We need more dollars in.

LAFFER: That's right.

BECK: Explain this.

LAFFER: Well, you know what this is is these are tax rates here, tax rates on this level, all right? And this is tax revenues down here -- tax revenues. And the thing is fairly simple. If I taxed you at 120 percent of everything you earned so every time you came in the studio, instead of getting a check you got a bill. How much would you work?

BECK: I wouldn't work at all.

LAFFER: Obviously, it's zero if you get nothing. You have zero output at 100 percent tax rates, and you therefore have zero revenue. Obviously, the zero tax rate, you'll have lots of output, but there will be no taxes so you'll have zero revenue. As you start raising the tax rate, you can see the revenue starts rising because even though there's a little less output, you'll be taxing at more rates, and likewise, if you start lower tax rates here, people will start coming back to work and there will be revenue. This maps out the relationship between tax rates and tax revenues. And this whole range here, which we call the prohibitive range -- here, if you raise tax rates you actually get less money. And in my view, in a number of the taxes that we face in the U.S., we are literally in this range.

BECK: We were talking today, there was a study out, 77 percent income tax, that's what they're talking about.

LAFFER: Yeah, but that would clearly be in this range, I mean, and especially on upper income people. The more you raise their tax rates, they move abroad, they shift the types of income they get, they go out of business, they defer the income. They do all sorts of stuff, and you just aren't going to get their money. You just plain aren't. So if you raise tax rates on the rich, I will guarantee you you're going to get less revenue.

Laffer spoke in front of a blackboard drawing of his Laffer Curve:

Laffer Curve Blackboard

Bush economist Mankiw says idea that increasing tax rates reduces revenues is not "credible"

Mankiw: "[M]ost economists" agree "supply-sider" claims are not "credible." In a May 2006 Wall Street Journal op-ed, N. Gregory Mankiw, Harvard University economics professor and former chairman of President Bush's Council of Economic Advisers, wrote: "Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don't find that conclusion credible for most tax hikes, and I doubt [then-Treasury Secretary Hank] Paulson does either." Further, in a 2005 paper, Mankiw writes: "Most economists ... believe that taxes influence national income but doubt that the growth effects are large enough to make tax cuts self-financing."

Bush administration officials acknowledged cutting taxes decreases net revenue

Paulson: "I don't believe that tax cuts pay for themselves." During his June 2006 confirmation hearing, then-Treasury Secretary Hank Paulson said, "As a general rule, I don't believe that tax cuts pay for themselves." The financial information website MarketWatch reported this statement as "echoing the opinion of most economists."

Nussle: Tax cuts do not "totally pay for themselves." According to a November 15, 2007, Washington Post editorial, Jim Nussle, then the director of the Office of Management and Budget, told reporters, "Some say that [the tax cut] was a total loss. Some say they totally pay for themselves. It's neither extreme."

Viard: "No dispute" revenues lower than they would have been without Bush tax cuts. In an October 17, 2006, article, the Post quoted Alan D. Viard, a former Council of Economic Advisers senior economist under Bush, saying that "[f]ederal revenue is lower today than it would have been without the [Bush] tax cuts. There's really no dispute among economists about that."

Lazear: "[W]e do not think tax cuts pay for themselves." During his testimony to the Senate Budget Committee in 2006, Edward Lazear, then-chairman of Bush's Council of Economic Advisers, stated: "Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data presented above do not support this claim."

Samwick: "You know that tax cuts have not fueled record revenues." In a January 2007 New Year's Plea," to "anyone in the [Bush] Administration who may read this blog," Andrew Samwick, an economics professor at Dartmouth College and former chief economist to the Council of Economic Advisers during the Bush administration, wrote:

You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.

Other conservative economists make same acknowledgement

Bernanke: "I don't think that as a general rule tax cuts pay for themselves." In his April 27, 2006, testimony before the Joint Economic Committee, Federal Reserve chairman Ben Bernanke asserted "I don't think that as a general rule tax cuts pay for themselves," adding that "to the extent the tax cuts produce greater efficiency or greater growth, they will partially offset the losses in revenues"

Holtz-Eakin: "You are not going to get tax cuts to pay for themselves." As director of the Congressional Budget Office in 2005, Douglas Holtz-Eakin, who later became senior policy adviser on Sen. John McCain's presidential campaign, released a study of a 10-percent federal income tax cut, which concluded that "the budgetary impact of the economic changes was estimated to offset between 1 percent and 22 percent of the revenue loss from the tax cut over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years." In other words, during the first five years of a 10-percent tax cut, the resulting economic impact on the budget would offset at most 22 percent of the federal revenues lost and during the second five years would offset at most 32 percent of the revenues lost. Holtz-Eakin also reportedly told Boston Globe columnist Scot Lehigh, "You are not going to get tax cuts to pay for themselves."

Fox News Channel
Glenn Beck, Art Laffer
Glenn Beck show
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