The Nobel Prize for economics will be awarded next week. The clear winner — and it's high time — should be Art Laffer.
If you ever needed more evidence that the Laffer curve, drawn on a napkin by Dr. Laffer way back 49 years ago in 1975, has proven to be correct time and time again, including even the latest budget deficit numbers, just released for FY 2024 — those numbers showed an out-of-control deficit of nearly $2 trillion.
Indeed, Biden-Harris fiscal policies have produced $2 trillion yearly deficits as far as the eye can see, but here's the wonder of the Laffer curve: Total revenues soared to $4.9 trillion, with individual income taxes up 11%. Get this: corporate income taxes — up a whopping 26%.
In other words, as Dr. Laffer has preached for five decades, lower tax rates lead to higher tax revenues. It's been about five decades that government estimates have been completely wrong when scoring tax cuts as revenue losses. In fact, whether it was JFK, or Ronald Reagan, or Donald Trump, lower tax rates produced higher revenues and a lower budget deficit.
That is, except during the Biden years, when federal spending keeps rising by double digits. The combination of economic growth incentives and less tax avoidance were the basic principles behind Art Laffer's curve, and it keeps getting proven correct, even while official government estimates keep proving wrong.
Right now, there's a spate of news stories about the high deficit, which is allegedly supposed to grow even worse under Mr. Trump's tax cuts than under Kamala Harris' spending increases.
She's already told us she's going to spend at least $2 trillion above the Biden-Harris budget baseline, including new entitlements and subsidies, but not to worry, folks, because the $5 trillion in proposed Kamala tax hike is going to pay for all of the new social spending. Nonsense. The spending will raise the deficit and the tax hikes will so depress the economy that they will raise the deficit even more.
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Mr. Trump, on the other hand, has a transition policy group that will chop down the budget deficit with Elon Musk-type budget restraints, as well as revenue-increasing, supply-side tax cuts. Trump policy is about less taxes, less spending, more growth and declining deficits. Harris wants more taxes, more spending and bigger deficits.
Mr. Trump, to his credit, believes in Dr. Laffer's curve. That's why he awarded Art the Presidential Medal of Freedom in June 2019. That was wonderful, but Arthur deserves a Nobel Prize as well. That's the riff.
This article is adapted from Larry Kudlow’s opening commentary on the Oct. 9, 2024, edition of "Kudlow."
