Arthur Laffer laid out his prescription for an economic turnaround during a talk at Kansas University on Thursday, using his doctrine of supply-side economics: less government spending and a flat tax.
The former economic adviser to Ronald Reagan criticized the federal stimulus spending that has taken place over the past five years, saying it served only to hold the economy back.
“The reason we have a great recession is not in spite of stimulus spending,” Laffer said. “It is because of stimulus spending.”
Laffer told an audience of business students and other people at the Kansas Union, numbering roughly 200, that he believed stimulus spending did indeed spark economic activity among the people who receive money, but the money must come from somewhere, and that spending will result in corresponding economic decline.
He recommended a flat federal tax of 11.8 percent on all personal income and value added by businesses, saying it would match current revenues while doing more to encourage economic growth.
He said he had compassion for the poor and deplored the income disparity in the United States, but he said redistribution of income served only to give fewer people an incentive to work.
“Economics is all about incentives,” Laffer said. “If you move the cheese, you move the mice. If you move the mice, they go back to the cheese.”
Laffer advised Gov. Sam Brownback on tax policy during the last legislative session, which included the passage of massive tax cuts.
Though he criticized President Barack Obama on health care and economic policy, he made it clear his allegiances did not necessarily follow party lines.
He praised Bill Clinton for his support of free-trade legislation and welfare reform, saying he voted for him in 1992 and 1996. And he said George W. Bush was in a tie for his least favorite president of all time — with Obama.
“I can’t tell the difference between the two of them, to be honest with you,” Laffer said.
He also praised Al Gore for his proposal to tax carbon emissions while reducing other taxes to make up for the additional revenue, saying it could provide insurance against possible climate change while not harming the economy. He added, though, that he did not have a position on whether global warming is real.
Laffer’s speech was sponsored by the KU School of Business, 1st Global and the Fred and Mary Koch Foundation. But KU Business Dean Neeli Bendapudi, speaking at the beginning of the program, said the person who led the effort to bring Laffer to Lawrence was KU business school alumnus Tony Batman, the CEO of 1st Global, a financial company based in Dallas.
In an introduction, Batman called Laffer the “father of supply-side economics,” a philosophy that he credited for a period of economic prosperity between 1982 and 2007.
After the talk, Batman said he sought to bring Laffer in as a speaker because he thought his ideas were beneficial for people to hear. He also said he wanted to give back to the business school.
“This school changed my life,” Batman said.
During a question-and-answer session following the speech, one attendee accused Laffer of favoring the rich and neglecting the poor with the policies he favored. But Laffer said his proposed flat tax would close tax loopholes that rich people are especially able to exploit.
The tax cuts approved by Brownback following Laffer’s advice have been criticized by some who say they give wealthier Kansans a tax break while depriving important government services of funding. Legislative researchers say the cuts will create revenue shortfalls approaching $2.5 billion. Brownback has said the cuts will spark growth in the economy.
As he walked out of the event, KU sophomore Tanner Treiber said he agreed with Laffer’s economic philosophy, though he was skeptical that it would ever be fully implemented by the federal government.
“We need a guy like this in the White House to take charge,” Treiber said.
Following the speech, Laffer attended a reception with business students and others in attendance.