Most people talk with Arthur Laffer about supply-side economics and his famous “Laffer curve,” which shows how governments can increase revenues by lowering taxes.
But few know that Laffer is an outstanding investor. He recently joined me as a guest on “Common Ground” and I asked him for investment advice. And that advice might surprise some.
Laffer likes France “because we think Macron is much better than Hollande,” he said, referring to France’s new president, Emmanuel Macron and its former president, socialist Francois Hollande.
That’s because, to Laffer, Macron gets what’s important for economic growth. While immigration policy or cultural shifts or social issues matter, more important are what he calls the four pillars of prosperity—monetary policy, trade policy, tax policy, and fiscal policy.
Get these right, and societies will prosper and give their citizens a shot at a better future. Get them wrong, and progress is nearly impossible.
Who else does he think gets this right?
China gets it right, Laffer said. It has opened trade, cut taxes, reduced government presence in the economy, and shored up its currency and, in the process, done more to reduce poverty over the last 40 years than all the countries in history combined.
Tennessee gets it so right that Laffer moved there from California just to take advantage of its smart tax policy, and he was able to pay for his home with the tax savings from his first year there.
Tennessee has no state income tax and relies almost solely on a flat and comprehensive state sales tax. It has the lowest tax rate in the nation, the fastest growth, the best improvement in public services, fully funded pension funds, and a $2 billion surplus.
Presidents Warren Harding, Calvin Coolidge, Ronald Reagan, and Bill Clinton all got it right, Laffer said.
Clinton was “an amazingly good president in economics,” Laffer said. He cut taxes, reformed Social Security, cut the capital gains tax to 15 percent, eliminated the capital gains tax on owner-occupied homes, and imposed a work requirement on welfare.
Who got it wrong?
The four stooges, as Laffer called them—Presidents Lyndon B. Johnson, Richard Nixon, Gerald Ford, and Jimmy Carter—didn’t understand the value of creating economic growth or the role tax incentives played in economic decision-making, he said, and the country grew slower than it could have in every instance.
Presidents George W. Bush and Barack Obama didn’t get it either.
He also says it’s painful to watch high-tax states, which perform worse than low-tax states in every instance, continue to persist in policies that do exactly the wrong things if they want growth.
Laffer said he hopes President Donald Trump follows through on his economic proposals, especially reducing the capital gains tax to 15 percent, which he said would put a jolt into the heart of the economy.
That would make it lower than every industrialized country except Ireland—which is always a good investment opportunity, he said, because the capital there is always Dublin.
Art does enjoy a good pun or two. It was a fun conversation.