Democrats' Tax Hike Folly

I waited all day for our resident Prosperitarian to post this but was left wanting. I guess my stilted analysis will have to do.

Blog favorite Arthur Laffer writes on today's WSJ Ed page of 'The Tax Threat to Prosperity' wherein Democrats want to "soak the rich" to return the federal treasury to surpluses and make milk and honey run in the streets. But then reality took over:

Using recent data, in other words, it would appear on its face that the Democratic proposal to raise taxes on the upper-income earners, and lower taxes on the middle- and lower- income earners, will result in huge revenue losses on both accounts. But some academic advisers to Democratic candidates have a hard time understanding the obvious, devising outlandish theories as to why things are different now. Well they aren't!

And this doesn't even count the oft-disputed supply side effects:

Even these data grossly understate the total supply-side response. A cut in the highest tax rates will increase lots of other tax receipts. It will lower government spending as a consequence of a stronger economy with less unemployment and less welfare. It will have a material, positive impact on state and local governments. And these effects will only grow with time.

Laffer ends with an ominous warning:

Mark my words: If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.

Economics and Markets Posted by JohnGalt at January 25, 2008 7:33 PM