"The lesson, Arthur Laffer says. is that raising taxes on the rich makes everyone worse off. Cutting taxes on the rich makes everyone better off." - Allysia Finley in her interview with Arthur Laffer ('America Needs A Supply Side Comeback', WSJ, May 17-18, p. A13.)
It is a sad but inescapable fact that U.S. recent (20th
century) economic history is too often given short shrift in the setting of modern
American education. The result is that students later mutate into citizens (and voters) who
are ignorant of past policies of American presidents and try to insinuate
these misperceptions into the modern setting, often via stupid memes and
rhetoric spread on social media.
The recent WSJ weekend edition editorial (‘The Incredible Shrinking GOP Tax Cut’, p. A12, May 3-4) again reminded me how the Right’s reactionaries have been trying for decades to paint JFK as a tax cut supply sider. In this case, by the 3rd paragraph we read the current GOP needs "to relearn the lessons of successful tax cut reform” that included: the Bush tax cuts of 2001 and 2003, the Reagan tax cuts of the 1980s and the Kennedy tax cuts of the 1960s."
Whoa! Kennedy’s tax cuts lumped with Reagan’s and Gee Dumbya’s?
The resurrection of this canard (mainly by the economic Right) that JFK was an exuberant supply sider first crept in at the time Bush was trying to get his tax cuts passed in 2001. Numerous useful idiots emerged in the press at the time, including Charles Krauthammer, who insisted Kennedy was even more of a supply side tax cutter than Bush. He succeeded in convincing too many of this malarkey by using cherry-picked parts from a JFK speech before the New York Economic Club in December, 1962.
In much the same way, the WSJ recently sat down with the "grand daddy" of supply side bunkum, Arthur Laffer (see top quote) to try to push Trump's new tax cuts through. This via his grossly misnamed "big, beautiful bill" which will literally send this nation hurtling into destitution. See e.g.
Opinion | There’s nothing beautiful about this big bill - The Washington Post
First things first: WHO is Arthur Laffer and what did he do to get WSJ editorial board member Allysia Finley's attention?
Arthur
Laffer is responsible for the "Laffer curve" (see diagram below):
Which was originally sketched on
a D.C. restaurant napkin and on the fly, by Laffer in 1974. Laffer was then at the University
of Chicago and traveled to Washington, D.C. to meet with Donald Rumsfeld,
Gerald Ford's then chief of staff, Dick Cheney and Wall Street Journal editorial
writer Jude Wanniski to discuss Ford's support for raising taxes. Laffer had a new theory on why tax rates were inefficient and high, or
one might say "inefficiently high".
As it happened, Rumsfeld had other commitments so dispatched Dick Cheney instead
to a bar & restaurant , where the meeting took place. (See, e.g. Economics for the
Rest of Us by Moshe Adler, Ch. 6) Laffer then proceeded to sketch his
infamous diagram on why the rich could be said to be "over taxed".
As drawn, it was totally convincing, especially for a guy like
Cheney with minimal math skills. Note the line defining the highest marginal
tax rate of 70% for Gerald Ford's presidency. What Laffer's curve sought to
show is that by cutting that rate down, say to 50%, one could increase
the revenues by nearly 35%! In other words, the economic equivalent
of a perpetual motion machine. Little wonder most real economists
believed him to be 52 cards short of a full deck. After all, if one
could increase revenues by cutting taxes 20%, imagine what one
could do by cutting them more than 40%, or even 80 percent!
Thus did Laffer's curve become the basis of Reagan's tax cuts and the
whole tax cut- supply side idiocy ever since, despite the fact that
in reality no community, nation or even human body has managed
to survive or grow by virtue of starving. But try to tell the bulk
of Americans, who continue to buy into this codswallop at a mind-boggling rate!
Despite the fact there's never been evidence it's actually worked! (As per a
Financial Times examination of the Bush tax cuts in Sept, 2011, showing
essentially zero benefit and exploding deficits.)
In like manner, the Trump -GOP tax cuts of 2017 have been found to be a
colossal flop and weren't remotely close to paying for themselves as the
braying buttbrains (like Paul Ryan) claimed. All they've done is raise the
deficits another $1.7 trillion. Now
Trump’s GOP stooges – and the “king” himself – want to double down with a new
tax cut and pump the deficit up another $4.5 trillion. This even as Moody’s
jacked the U.S. bond rating down from its AAA status – marking a warning “don’t
do supply side again!”
What was the biggest irony of all? That one of Reagan's top professional economists, Martin Feldstein, actually pooh-poohed Laffer's curve. In a 1986 econ article Feldstein admitted he "never believed Laffer" and referred to his "curve proposition" as the "height of supply side hyperbole". The tragedy is that Feldstein's article was snuffed by the Reaganites, and Feldstein himself never broached it, especially after being given an office in the administration.
In the recent WSJ interview, Laffer disparages FDR as being
the culprit who “prolonged” the Great Depression, by “hiking taxes on
the wealthy and taxing undistributed corporate profits to raise more money to spend
on welfare and public works.” Yeah,
bonehead, but it was those policies that actually helped put people back to
work – paved the way for Social Security – and got us out of the Great
Depression.
True, there was a putative delay in achieving that but Laffer is totally oblivious to the fact that the Federal Reserve’s then deflationary interest rate policy was at the crux. Interest readers should consult Chris Farrell’s excellent monograph: ‘Deflation’, page 103, the Chapter, ‘The Great Depression’. In addition, FDR made another critical error, which was to listen to administration deficit and budget hawks and apply spending cutbacks prematurely, in 1937. This added to the Fed's belt tightening spelled disaster prolonging the economic pain unnecessarily.
Interestingly, Laffer during his Allysia Finley interview never once invokes JFK as a supply sider - like Krauthammer did in his 2001 WSJ piece. One wonders why. Hmmmmm.... Well, see, JFK's speech (before the New York Economic Club in December, 1962) endorsed a general tax cut, and let's bear in mind at the time that the top rate was 91%. JFK proposed lowering it to 65% for the wealthiest, still nearly two times what the current top rate is for them (after the Bush tax cuts). Seldom mentioned in conjunction with JFK's tax speech were the other key proposals he had in mind, including:
-the elimination of all tax breaks set up in the form of foreign investment
operations or companies
- the repeal of all tax advantages by corporations operating in low tax
countries, such as Switzerland
- the repeal of the 100% charitable contribution write-off by the wealthy
- Withholding tax on the investments, dividends and capital of the wealthy to
ensure revenues could not be lost by too many shelters or at the 'end point'.
- Tax on investment dividends so that all those earning in excess of $180 k
would pay a much higher rate.
-Devices that would prevent 'high bracket taxpayers' from concealing income
from 'personal holding companies'.
- An anti-speculation provision that would ensure property or investments were
kept at least one year - else no benefit from existing capital gains rates
would apply
-The elimination of special 'gift' transfers as well as repeal of the $50
dividend exclusion and the 4% dividend credit.
(Source: 'Battling Wall Street - The Kennedy Presidency', by
Donald Gibson, Sheridan Square Press, 1994, pp. 22-23)
In addition - again omitted by the conservo parrots - JFK targeted large oil
and gas producers who had been manipulating a (1954) law to avoid taxes and
gain an advantage over smaller producers. Sadly, most of his proposals didn't
survive the compromises forced by congressional committees (which held JFK's
original Medicare, and Civil rights legislation up for ransom.
Don't take my word for it, just consult the financial press at the time (i.e. in library archives) to see how they actually felt about JFK's proposed policies and initiatives. One of these, which appeared in Fortune accused him of an attempt to "manipulate the tax level against the business cycle". ('Activism in the White House', June, 1961, p. 117). Two years later, Fortune implored Congress to stop JFK from using tax policy "as instruments to manage the economy". ('The Dream Businessmen Are Losing', Sept. 1963, p. 91).
These aren't just fiction, but historical records of the press of the JFK era and what THEY actually thought of his tax proposals. They are available to anyone with the diligence to seek them out.
Along the same lines, the "central organ of finance capital" - The Wall Street Journal, launched various articles and diatribes accusing JFK of being a "statist" and other things. Some of those articles include:
- 8/6/62 'No Cause for Celebration'; p. 6;
- 3/26/63 'Too Much Money, Too Little Thought', p. 18;
- 8/15/63 'When Friends Become Foes', p. 8
Meanwhile, Henry Hazlitt, contributing editor at Newsweek (The Washington Post's sister publication) was airing many of the same complaints against JFK. These polemics, appearing regularly in Hazlitt's 'Business Tides', included taking JFK to task for his tax policies - including the proposed tax on U.S. business earnings abroad while he also chastised Kennedy for "welfare spending".
All this is germane now as we continue to see codswallop penned by latter day fact twisters, such as reside at the WSJ. Bottom line: JFK never was a supply sider, and would have been aghast that current propagandists are trying to paint him as one now.
Tax cuts pushed by the Trump administration are amplifying
debt and deficit concerns among bond investors, a powerful group of market
players who strongly influence how much it costs for the government to finance
its budget. The buying and selling of government debt, known as Treasuries,
also influences interest rates on a wide variety of debt extended to American
households and businesses, including mortgages, credit cards and car loans.
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