West Virginia, Don’t Fall into Art Laffer’s Trap

Dear West Virginia Lawmakers,

Do you remember the scene in Return of the Jedi where Admiral Ackbar and Han Solo launch an assault on the partially-constructed second Death Star during the Battle of Endor? (Of course you do.) Unbeknownst to the heroes, the entire setup is a ruse to flush out the Rebel forces so that the Imperial fleet can destroy them. Ackbar discovers the true nature of the scheme too late, uttering his immortal catchphrase, “It’s a trap!”

Don’t be like Admiral Ackbar. You still have time to save yourselves. Don’t fall into a trap of your own making.

I’m referring, of course, to a recent visit to your state by Art Laffer, the Emperor Palpatine of economics. Laffer pushed for tax cuts for the wealthy in a speech to the West Virginia Chamber of Commerce, arguing that “If you tax rich people and give money to poor people, you’re going to get lots and lots of poor people and no rich people….It’s all incentives; it’s all driven by that.” He further claimed, “If I had a wand I could wave, I’d get rid of the income tax now,” decrying the progressive income tax as a job killer. Barring total income tax elimination, Laffer’s advice is to “right away…drop the highest rates first. Drop the highest rates down, and then bring the lower rates [up].” The logic here mirrors his first statement: raising taxes on poor people to give money to rich people must lead to lots of rich people and no poor people.

You might be surprised to learn that Art Laffer is a respected economist in some circles, despite the fact that he has been giving policymakers the same wrong advice for almost four decades now. Every supply-side piety he has uttered has been debunked, completely and thoroughly. The first Laffer acolyte, Ronald Reagan, had to immediately undo some of the 1981 tax cuts championed by Laffer after the national debt ballooned out of control. Reagan spent most of his presidency undoing the fiscal damage done by those tax cuts with sensible tax reform (most notably in the Tax Reform Act of 1986), but Laffer’s theories continue to receive most of the credit in the minds of his followers.

For proof of the bankruptcy of Laffer’s ideas, a legislative field trip to Kansas is in order. In 2012 and 2013, Laffer served as chief architect of Gov. Sam Brownback’s massive tax cuts for the wealthy. Brownback and Laffer made many of the same snake-oil promises you heard from Laffer in Charleston. The “real-live experiment” of massive wealth distribution up the income scale would lead to gangbusters economic growth. Businesses and rich people would flood into Kansas to take advantage of lower tax rates. The increase in economic activity would boost state coffers, covering the billions taken out of the treasury.

A quick scan of headlines about Kansas reveals the truth. Kansas lags the nation in job growth, and does worse than neighboring states that have not enacted draconian tax cuts. In January, the state faced a $5 billion deficit over seven years. Brownback and the state legislature were eventually forced to rollback scheduled income tax rate cuts and raise the cigarette and sales tax rates, among other changes, earlier this summer.

Far from bringing prosperity to all Kansans, Laffer’s tax proposal and the subsequent course correction brought misery to middle-class and working families. First, the three years of tax changes actually raised taxes on the bottom 40 percent of Kansans in order to give those making over $1 million an average tax break of $27,962 each year. Second, the budget cuts necessitated by the loss of tax revenue hit services that Kansas families depend on – public education, hospitals, universities and social services. Brownback was also forced to raid public pensions and funding for road construction to balance the budget. Third, in order to balance the budget this year, Brownback and the legislature relied on regressive sales and cigarette taxes, which disproportionately impact those near the bottom of the income scale.

Asked about the total failure of his predictions to come true, Art Laffer did what he always does – shrugged his shoulders. Asked about the huge budget deficit, Laffer said he wasn’t surprised but couldn’t explain them. Asked when the promised revenue boost would materialize, Laffer said maybe a decade. “You have to view this over 10 years…It will work in Kansas.” Did he feel sorry for the Kansans left stranded in the wake of his trickle-down terror? “I feel sorry for the governor, but he did the right thing,” Laffer lamented.

Sadly, some of you left Laffer’s speech convinced he was right. Rep. Eric Nelson, Chairman of the House Finance Committee, was enthusiastic about Laffer’s proposal to institute a flatter income tax, saying, “I think we heard everything from Dr. Laffer the other day and we’re going down his path.” Senate President Bill Cole was similarly effusive, saying, “There’s no question in my mind that [this] could be the single biggest and largest economic driver that this state has ever seen….I think he’s spot on. I think, virtually, everything he’s said has proven itself out in history.”

Instead of listening to Laffer, the legislature should take the word of State Commerce Secretary Keith Burdette, who knows much more about what West Virginia needs. When Burdette testified before the joint legislative committee on tax reform, he identified two reasons that more businesses don’t come to West Virginia. First is location, with the lack of flat land and mountainous terrain making it harder for companies to relocate. Another was the lack of a high quality workforce, with the lack of college degrees and low median income among West Virginians being a disincentive. When asked about taxes and regulation, Burdette replied, “We don’t lose prospects over taxes; I’m not sure we lose them over regulations anymore.”

Investments in infrastructure, roads and bridges would go a long way toward mitigating the downside of mountainous terrain. Similarly, investments in public education and services for the people of West Virginia would help to improve workforce quality.  Following Art Laffer’s plan would reduce the revenue available for crucial investments, while making the rich richer and the poor poorer. It’s a recipe for disaster – just ask Kansas.

In the Star Wars universe (spoiler alert), Wedge and Lando were able to overcome the surprise attack, destroy the second Death Star, and lead the Rebels to victory. But I wouldn’t bet on a Hollywood ending for West Virginia if you follow Art Laffer’s lead. It’s best that you see his promises for what they are now: a trap that your state can’t afford to fall into.