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Laffer and Fox on Tax Revolt

October 30, 1994

To quote an ex-President, "There you go again."

Arthur (Voodoo Economics) Laffer is back with more sage advice for us ("California Is Ripe for Revolt Again," with Joel Fox, Column Right, Oct. 21). I am sure that you will remember Laffer's economic plan for the Reagan and Bush administrations. It was, in a nutshell, to max out on the credit cards and let the kids pay the bills after we die. Now Laffer accuses us of "sloppy thinking" and points out that "the candidate who first calls for a serious across-the-board tax cut would very likely (win)."

We would be well advised to recall that Laffer's advice on a national level was a disaster. Perhaps we should pay heed to the ancient Chinese proverb, "Fool me once, shame on you. Fool me twice, shame on me."



* Laffer and Fox attribute all of California's economic success during the 1980s to the Proposition 13 tax cuts, and all of its malaise during the 1990s to state tax increases in 1990 and 1991. In so doing, they have blithely violated the ceteris paribus (other things constant) condition cited in chapter one of every introductory economics text as one of the pitfalls to avoid in economic thinking.

In the interest of academic rigor, Laffer might have at least mentioned the possibility that our prosperity and increased tax revenue in the '90s were the result of booming employment resulting from the large Reagan increases in defense spending, and their subsequent decline the result of high unemployment caused by defense cutbacks. Citing the aforementioned list of pitfalls in economic thinking, "Association is not causation." While the changes in our economic fortunes were associated with the changes in state taxes, it does not follow that they were caused by them.

Laffer's prescribed federal income tax cuts in the '80s were followed by the largest federal deficits in history, but he would probably be quick to lay the blame on the Fed's tight money policies which caused double-digit unemployment (the unemployed don't pay taxes). Most economists would concede that it is unfair to blame the record deficits of the '80s solely on the supply-side tax cuts. Similarly, it is disingenuous of Laffer to claim that changes in tax revenues in California were solely the result in changes in tax rates.


Adjunct Professor of Economics

National University

San Clemente

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