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Taxes: No Laffing Matter

As voters head to the polls today, the economy is probably top of mind.

At the heart of the economy is taxation, on individuals and businesses.

What kind of tax policies will the next president put in place?

Noted conservative tax expert Arthur Laffer -- often called the "father of supply-side economics" and certainly the father of the Laffer Curve -- appeared on CNBC last night to talk about the power of punitive taxes.

The Laffer Curve argues that there is a tax rate on a scale from 0 to 100 -- it's a different rate for everyone -- where taxes become so high that they reduce productivity, because people have no incentive to work anymore. In other words, higher taxes actually lower tax revenues, Laffer argues.

Laffer obviously prefers low tax rates and advised President Reagan and Prime Minister Margaret Thatcher to lower them.

On CNBC last night, he was advocating a flat tax: Individuals would be taxed on their unadjusted gross income and businesses would be taxed on net sales. A similar plan has been proposed by former presidential candidate Steve Forbes and former California governor Jerry Brown.

He argues that raising taxes on the rich, as Sen. Barack Obama (D-Ill.) has said he will do, is actually a sure-fire way to not get more tax revenues because the rich have the best means to avoid paying more taxes -- they hire lawyers and deferred-income specialists and do things like change the location of their income.

"Taxes are a punishment so people want to avoid them," Laffer said.

Those on the other side of the fence from Laffer argue that taxes are an equitable redistribution of wealth; Obama has talked about "sharing the wealth," an idea that is anathema to many.

Laffer said the best way to get money into the Treasury -- to pay off the deficit and debt -- is actually by lowering the tax rates because then more people will pay a greater volume of taxes, as they will not be seeking to avoid them.

Asked if any of the Democrats in Congress have called on Laffer, as Reagan and Thatcher did, he just laughed.

"There's no appetite to hear my ideas," he said.

-- Frank Ahrens

By Frank Ahrens  |  November 4, 2008; 6:32 AM ET
Categories:  The Ticker  
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