The Great Fraud

One of the first interviews my editor at the Houston Business Journal sent me on, way back in the late 1970s, was with a then-unknown economist named Arthur Laffer.

Laffer sketched for me his famous "Laffer curve," on a real napkin. He was a very fast talker, as I recall, part carny, part used car salesman, part earnest academic. Given the editorial proclivities of the day, I wrote him up as the last.

But he was, in fact, the first. As even I could see at the time, while the curve made some sort of objective sense, that at some point a higher rate would discourage investment and cause tax revenues to fall rather than rise — the reverse must also be true. Otherwise a tax rate of zero means you have infinite revenue.

The real purpose of the curve should have been to see what tax rate
would lead to maximum revenues, a balance between what people might
take from themselves and what they might otherwise give. But that’s not
the way it has been used.

Rather than solving the equation the curve proposed — find the optimum tax rate — the curve
has been used to argue for ever-lower rates, so that today money you
make from money is taxed at roughly half the rate as money you make
from working, as though money would go on strike if tax rates rose over
15%.

Laffer, meanwhile, has grown increasingly fat, and increasingly bogolicious.
He now peddles his nonsense out of Nashville, where his company doesn’t
even have a Web site. He also sits on boards of appreciative rich people — appreciative of him for giving class warfare a good name.

Most of his clients these days are in state government, where
"innovation" (from his side) consists of raising sales taxes (paid
mainly by poor folks) in order to eliminate income and property taxes
(paid by rich folks). Acolytes like the unctuous Glenn Richardson,
speaker of the Georgia House, are now practically arguing the nonsense
I started with, namely that a tax rate of zero leads to infinite
revenue.

He remains what I should have written him up as originally, a carny
barker. Perhaps the greatest fraud of the late 20th century. But as
every carny knows, you can only defraud those who wish to be defrauded.