Bidenomics will fail, especially if you are poor, a longtime Republican economic advisor warns.
Arthur Laffer, an economic advisor to presidents Reagan and Trump, says the proposed Biden administration tax increase will hurt everyone. That’s even though President Biden says no one with an income below $400,000 will “pay a dollar more in taxes.”
“Learned Nothing…Forgot Nothing”…
However, tax increases on the rich or anyone else in a recovering economy, Laffer says, will not provide the growth rates of the Reagan and Trump administrations Instead, he adds, these policies will repeat the mistakes of presidents Carter and Obama. Indeed, hiking taxes in hard times, Laffer says, is more than bad policy; it is cruel.
“Raising taxes will especially hurt the poor and minorities who need jobs,” according to Laffer.
Bidenomics, Laffer contends, will be frightening. It is a repeat of failed Obama policies but only worse because of Covid, he says. Recent history, Laffer adds, is the key to a strong recovery.
“Now that they have slaughtered half of the people in the country, you should be scared,” Laffer told InsideSources.
Lower Taxes Yet More Government Geld?
Laffer was one of the architects of the supply side revolution of the 1980s. It was based on the principle of the Laffer Curve. This is an idea that lower taxes can promote strong growth rates but also put more money in government coffers than raising tax rates on anyone because the latter discourages work and thrift.
That’s an idea Laffer traces in part to the Harding Administration Treasury Secretary Andrew Mellon. His huge tax cuts helped the United States recover in some 18 months from the little-known depression of 1920-21. These cuts led to about a decade of prosperity. It made Mellon a popular figure in the 1920s. Mellon’s “Taxation: The Peoples Business” along with Jude Wanniski’s “The Way the World Works” are supply-side sacred scrolls.
“High taxation,” Mellon wrote in his book, “even if levied upon an economic basis, affects the prosperity of the country, because in its ultimate analysis the burden of all taxes rests only in part upon the individual or the property taxed. It is largely borne by the ultimate consumer. High taxation means a high price level and high cost of living. But tax reduction helps everyone.”
Laffer describes Bidenomics as a disastrous attempt to tax, redistribute wealth and have the government take over more of the economy. However, Bidenomics advocates say their policies will ensure more employment because of clean/alternative technologies.
The Bidenomics Brew
President Biden’s administration promises millions of new government sponsored jobs owing to higher taxes on the rich and government job creation.
“Democrats,” writes Biden in the Biden-Sanders Unity Task Force paper, “will make investments to create millions of family-supporting and union jobs in clean energy generation, energy efficiency, clean transportation, advanced manufacturing, and sustainable agriculture across America.”
Second Rate America
But Laffer says if these policies don’t bankrupt the country, they will hurt America’s standard of living, reducing the country to a second-rate economic power.
“There’s a very good chance now that the United States, a few generations from now, will be a minor country,” according to Laffer. He argues that the successful tax cutting policies of presidents Reagan, Trump and Kennedy were “not sustained,” but were interrupted by a return to the high tax ideas of the 1930s to 1950s. That’s when the highest marginal tax rates were sometimes as high as 94 percent.
“Why,” Laffer asks, “would someone earn an extra dollar when you only get to keep six cents?” He said many high earners in those periods would stop working for the rest of the tax year when they reached the 94 percent level.
He believes many of the Biden policies or proposed policies discourage work. They also demonstrate, Laffer charges, a breathtaking economic illiteracy.
Les Enfants Rule
Asked to comment on the essence of Bidenomics, the recent passed and proposed stimulus packages, the proposed Green New Deals and higher taxes, Laffer complains, “Did you ever talk to a vociferous five-year-old?”
He says the principles of Bidenomics will slowly bankrupt the country if followed over the next few decades. He says that many Bidenomics supporters don’t understand the basic principles of economics.
“These aren’t people who have any knowledge. These aren’t people who have economic education,” Laffer contends.
Republican Laffer emphasizes dumb and smart economic policies come from both sides of the aisle. Besides the Republicans he has served, Laffer also praises the tax cutting policies of Democrats John Kennedy and Bill Clinton.
The latter cut the capital gains tax.
Laffer contends Biden is making the same mistakes as presidents Carter, Nixon, the Bushes and Obama: Pursuing dirigiste policies, such as the government running clean energy companies with the promise of tens of thousands of new jobs, and raising taxes at a time when the economy is in recovery.
Still, Biden and his associates believe their policies will not only clean the environment, but provide government led economic growth.
“We believe that federal investments in infrastructure,” according to a Biden/Sanders economic paper, “should help cut carbon pollution, build resilience and protect communities from the impacts of climate change, promote racial equity and sustainable economic development, and come with livable wages and robust labor protections that empower workers.”
Biden says all these government jobs “should provide an opportunity to join a union. Democrats will restore and protect workers’ rights to organize and bargain collectively.
We will build a diverse pipeline of talent in the clean energy economy by increasing access to industry-based credentialing programs and registered apprenticeships.”
This government leading the economy approach is not unprecedented, Laffer notes.
Government Job Creation?
The Carter administration set up a government corporation in the late 1970s designed to create synthetic fuels that would make the United States energy independent.
But the United States Synthetic Fuels Corporation (SFC) would never achieve its goals of 500,000 barrels per day by 1987 and two million barrels per day by 1992 in return for its $88 billion authorization.
SDC didn’t achieve energy independence, Laffer notes. The SDC was shuttered in the subsequent Reagan administration. The Obama administration spent tens of millions of taxpayer dollars on the solar company, Solyndra, which went broke.
The company and the Obama economic policies didn’t work, Laffer wrote in a publication of his consulting firm. “The Obama recovery ranks as the single worst recovery in recent U.S. history,” Laffer says.
Another example of a government led economic development recently happened in New York State in the Buffalo Billions project to redevelop depressed parts of Western New York.
The administration of Governor Andrew Cuomo spent tens of millions of taxpayer dollars on various technical projects. They produced almost no jobs.
“Despite millions of dollars of state funding, selected high-tech projects have yet to create the expected number of jobs,” New York State Comptroller Thomas DiNapoli wrote in a report last year.
“While these projects still have time to meet their total job commitments, it is unclear whether such goals will be met, given that much work remains to yield the overall employment and investment targets—in some cases, years after construction has been completed,” according to DiNapoli.
Another part of democratic dirigiste policy is higher taxes as a way of redistributing wealth.
Biden has proposed raising the corporate tax back to 28 percent.
It was reduced from 35 percent to 21 percent under the Trump administration. Laffer opposes that and says some never learn from history.
Questioning Giant Government
What else would Laffer do?
He favors more enterprise zones in poor neighborhoods, lower capital gains taxes and tax amnesty programs. Laffer dismisses the Biden administration’s emphasis on more government spending and taxing. “More spending means more taxation,” he says, noting the United States is reaching record levels of government debt.
Laffer, who proposes massive tax cuts including a flat tax system, says his ideas have little chance of being enacted unless Republicans retake Congress. He is pessimistic about the GOP recapturing the Senate in two years but thinks the House is a possibility. Laffer also expects the GOP to do well in the Senate in four years.
Although he often differs with Democrat economist Larry Summers, he commends him for sounding an alarm on the huge deficits that he believes will result from Bidenomics.
Summers said that the country is seeing the “least responsible” macroeconomic policy of the past 40 years. He blames both parties for overspending.
“Even though I disagree with him on a number of issues, he’s a real hero on this issue,” Laffer says. Summers is much smarter than the people who are running the government and enacting Bidenomics, Laffer concludes.
“These aren’t the people who understand economic science,” Laffer contends. “They are people who replace knowledge with political cliches. This will run the country into the ground.”
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