A Well-Deserved Honor

Steven Hayward posted an article at Power Line Blog today about a Presidential Medal of Freedom that President Trump will be awarding to Arthur Laffer, the father of the Laffer Curve.

So what is the Laffer Curve. The International Finance website defines it as follows:

The term “ Laffer Curve” was coined by Jude Wanniski (former associate editor of the The Wall Street Journal) in 1978 when Wanniski penned an article named “Taxes, Revenues and the Laffer Curve”. In December 1974, Wanniski who was the associate editor of The Wall Street Journal along with Arthur Laffer, Professor at the Chicago University, Donald Rumsfeld ( Chief of Staff of to President Gerald Ford) and Dickey Cheney (Rumsfeld’s deputy) were discussing President Ford’s WIN (Whip Inflation Now)  proposal for tax increases at a restaurant in Washington, Laffer grabbed a napkin and a pen and sketched  a curve on the napkin illustrating the tradeoff between tax rates and tax revenues, Wanniski later named it as the “Laffer Curve”.  A humble and honest academician who served Former U.S. President Ronald Reagan’s Economic Advisory Board, Arthur credited the theory to 14th century Muslim scholar Ibn Khaldun and eminent Economist John Maynard Keynes.

This is what the Laffer Curve looks like:

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The “Laffer Curve” is a theoretical curve showing the relationship between applied income tax rate and the resulting government revenue. The theory propagates the following points:

    • A tax rate of zero would result in zero government revenue
    • A tax rate of 100% will also result in zero government revenue
    • As the tax rate increases to above zero, there is an increase in the revenues of the government
    • As the tax rate continues to increase, the resultant increase in government revenue begins to slow
    • At a particular point the curve peaks and turns back towards the horizontal axis

The Laffer Curve is the reason that the federal government will collect more tax revenue this year despite the fact that President Trump lowered taxes. When taxes are raised, those with the money to hire good tax accountants find a way to avoid paying high taxes and tax revenues go down. Those of us without good tax accountants (usually the middle class) are stuck paying the increased taxes. The spending power of the middle class decreases, and the economy slows down. When the middle class has more money to spend, the economy does well.

Congratulations, Arthur Lapper. The recognition is well deserved.

Sometimes Saying What You Really Think Is Not A Good Idea

Every time President Obama gets off the teleprompter, he gets into trouble. The most recent example of this is the statement, “If you got a business, you didn’t build that; somebody else made that happen.” That is an affront to every American who has worked 60-hour weeks to build a business to support his (or her) family.

Here are some figures from the U. S. Small Business Administration website:

Small firms:
•    Represent 99.7 percent of all employer firms.
•    Employ half of all private sector employees.
•    Pay 44 percent of total U.S. private payroll.
•    Generated 65 percent of net new jobs over the past 17 years.
•    Create more than half of the nonfarm private GDP.
•    Hire 43 percent of high tech workers ( scientists, engineers, computer programmers, and others).
•    Are 52 percent home-based and 2 percent franchises.
•    Made up 97.5 percent of all identified exporters and produced 31 percent of export value in FY 2008.
•    Produce 13 times more patents per employee than large patenting firms.

These are also the businesses that will be hit the hardest if the “Bush tax cuts for the rich” are allowed to expire. Just for the record, most small business owners are not rich.

An article at Power LIne compares President Obama’s recent gaffe about small business to President Ford’s comments about Poland during the 1976 debates. The article concludes:

Okay—let’s have that debate, and ask what business needs from government today.  Not high-speed rail in California (or anywhere else), investments in “green energy,” massive regulatory uncertainty from the EPA and Dodd-Frank, a health care law expanding by the day as the regulators figure it out, massive financial uncertainty from taxes set to explode in January, and a permit-process-from-hell to build anything bigger than an outhouse.  That’s just for starters.  I note that Obama hasn’t even met with his highly touted Jobs Council for more than six months now, which shows how unserious he is about all of this.  Bring it on.

I agree.