Laffer is #Laffable

Chuck Sheketoff

You’d think that the guy who popularized the kooky, destructive and widely discredited notion that tax cuts pay for themselves would long ago have been dismissed as the equivalent of an economic snake oil salesman (and as the peddler of a thinly veiled attempt to increase regressive sales taxes).

But then again, if — like Arthur Laffer — you are on the payroll of the American Legislative Exchange Council (ALEC), you have a big megaphone to keep spreading your flawed analysis.

Laffer’s latest #Laffable effort is to convince state legislatures, starting with Oklahoma, to repeal state income taxes on the misguided notion that doing so will boost their economies.

A new report from the Institute on Taxation and Economic Policy (ITEP) should give everyone who reads anything that relies on Laffer pause for concern.

Arthur Laffer Regression Analysis is Fundamentally Flawed, Offers No Support for Economic Growth Claims (PDF) shows why Laffer's analysis that concludes that states should abandon income taxes to boost their economies is without merit. That's why links to the ITEP report are being tweeted with the hashtag #Laffable (go ahead, tweet this blueoregon.com post).

The ITEP report explains how the most recent Laffer analysis done in support of an effort to repeal the income tax in Oklahoma measures tax rates incorrectly and leaves out other important non-tax factors that help explain states' economic growth.

When you do consider other factors, as was done in a paper by James Alm and Janet Rogers titled “Do State Fiscal Policies Affect State Economic Growth?" (PDF), you learn there's no significant impact of state income taxes on state economic growth.

As noted yesterday, it just so happens that when you compare states without income taxes to those with "high" income taxes, states with "high" income taxes perform as well or better than the nine states that lack an income tax. And this companion report from ITEP shows that Laffer's claim that eliminating an income tax will boost a state's economy is #Laffable.

Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

By Chuck Sheketoff Feb. 16, 2012 Posted in open discussion.