Former senior Reagan advisor warns against US stimulus spending

Senior US economist argues attempts to tax ourselves into prosperity have failed

Ahead of the US election result, former senior Reagan advisor Dr Arthur Laffer warns the US against continuing a policy of fiscal stimulus.

Describing tomorrow’s Presidential election as the ‘single most important’ in his lifetime, he argues that attempts to tax ourselves into prosperity have failed. To achieve an economic recovery we need lower taxes, spending restraints, improved monetary policy and increased free trade.

In this new paper, The Laffer Curve and the Failure of Stimulus Spending, Ronald Reagan’s former economic advisor highlights the historical evidence against stimulus spending and suggests that future economic success depends on lowering tax rates and encouraging the wealthiest members of society to declare all of their taxable income.

Raising Tax and Reducing Revenue

  • A rich variety of data from the USA demonstrates that by raising taxes on the rich, the government reduce the amount they receive in tax revenue. This is especially true when raising taxes from the high rates we currently have.
  • In order to raise revenue, governments should lower tax to a blanket rate that is both fair and economically advantageous for both the government and the taxpayer.

Stimulus Spending

  • There is no stimulus in stimulus spending. As spending goes up, the economy suffers.
  • During George W. Bush’s last two years in office, the USA saw the biggest ever increase in federal government spending in peacetime. It was in this period that the recession began.
  • Stimulus spending discourages work and dramatically hinders the economy. Policy on stimulus spending is the most divisive and important factor in the election.

The Answers

  • High tax rates are negative incentives for people to create wealth. Instead, evasion becomes a more profitable course for the wealthy. In order to help boost ailing economies, lower taxes are essential.
  • The government is attempting to implement some spending cuts. They need to go further and cut tax rates to increase revenue and secure economic recovery.
  • A new administration needs to implement a significant change of policy on tax, spending and stimulus.

Notes to editors

To arrange an interview about the publication please contact Stephanie Lis, Communications Officer: slis@iea.org.uk or 07766 221 268.

This paper, The Laffer Curve and the Failure of Stimulus Spending, is taken from a lecture delivered by Dr. Arthur Laffer  to the Institute of Economic Affairs on 27 June 2012. It can be downloaded at www.iea.org.uk.

Dr. Arthur B. Laffer is founder and chairman of Laffer Associates and was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms. Dr. Laffer also advised Prime Minister Margaret Thatcher on fiscal policy in the U.K. during the 1980s. He has been a faculty member at the University of Chicago, University of Southern California and Pepperdine University.

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