Arthur Laffer predicts collapse when Bush tax cuts expire in 2010

a photo illustration with bernake, bush and greenspan

Arthur Laffer, extremely rich person, fondly remembers the Reagan era and predicts economic collapse after the Bush tax cuts expire in 2010. Flickr photo.

Arthur Laffer is making news by predicting that the U.S. economy will collapse next year when George W. Bush tax cuts expire in 2010. His theory on the Obama tax plan is based on how the super-rich can choose when and how they collect their income to evade taxes. Laffer believes the economy is doing better this year than it should because these aristocrats are collecting more of their loot and spending more of their money before taxes rise. He says that when taxes go up, Americans who can will choose to make less money, thus reducing the government’s tax revenue anyway.

Bush tax cuts expire 2010

Arthur Laffer became famous when he influenced the Reagan administration to cut taxes. His Laffer Curve regarding taxes appears in economic textbooks. Laffer, in his Wall Street Journal column, said that Reagan tax cuts brought the economy out of what was the worst U.S. recession since the Depression — until the Mt. Everest recession we’re still trying to get out of now made that one look like a speed bump. He said when tax cuts went into effect on Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5 percent in 1983 and 5.5 percent in 1984. He doesn’t mention how Bush tax cuts in 2001 and 2003 in the face of two wars eventually ran the U.S. economy into the ground and destroyed a budget surplus he inherited from Bill Clinton.

The Arthur Laffer curveball

The Laffer Curve tax cut argument misleads his readers, according to Asha Bangalore at Northern Trust. As another recession set in after Laffer’s utopic Reaganonomic era, Bangalore wonders why the economy posted substantial growth after tax increases were implemented by Bill Clinton in 1993. A revival of bank lending after the Reagan hangover led to self-sustained growth despite the tax increases. Bangalore also points out that if the Laffer Curve theory about tax cuts is valid, the U.S. economy would have done better than record the weakest period of economic expansion in history following the Bush tax cuts of 2001 and 2003.

Obama tax plan lower than Reagan’s

Arther Laffer’s predictions of economic collapse when tax cuts expire in 2010 is also questioned by The Motely Fool. In his column Laffer says we’re all going to die when the highest federal personal income tax rate goes to 39.6 percent from 35 percent. The Fool says it’s worth noting that the 1983 cuts Laffer remembers so fondly lowered top rates from 69.13 percent to 50 percent. Top marginal tax rates under all but one year of Ronald Regan’s presidency were more than 50 percent. The Obama tax plan wants to revert the highest personal income tax rates to 39.6 percent, where they were in the ’90s when the economy boomed and the government collected more taxes than it spent.

Arther Laffer feels your pain

Arther Laffer, the chairman of an investment consulting firm and obviously very wealthy, is making predictions of economic collapse from a very narrow point of view. Bangalore goes further to point out that the obstacles the economy will face in 2011 have nothing to do with tax increases. A severe credit crunch, lackluster job growth, and housing market challenges are factors that will have far greater influence on the economy. Most people will keep their head up and try to survive. But when Arthur Laffer’s personal income tax rate goes up 5 percent, the millions he won’t pocket will seem like the end of the world indeed.

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