Arthur Laffer was waiting in the sun outside Terminal A of Reagan National Airport, smiling like the Gipper. It was 10:30 a.m., and he was just in from Nashville. In his briefcase were two papers he was eager to show off. One called minimum-wage laws a crime against black men. The other detailed all the ways liberal economists had been wrong about this economic recovery and Arthur Laffer had been right.
No one has influenced Republican candidates’ thinking on the economy for the past four decades as much as Laffer, who is now 75. Laffer says he believes that limiting government and cutting tax rates, especially the rate levied on top earners, will unleash faster economic growth. Since he sold then-candidate Ronald Reagan on that prescription, every Republican presidential nominee has run on a Laffer-inspired economic platform.
As the 2016 GOP primary season takes off, Laffer is more in demand than ever before, with Republican candidates embracing tax-cut-for-the-rich policies even as they bemoan economic inequality. Candidates have been meeting with him in recent weeks, and on Friday in Nashville, he says, his schedule includes Rick Perry at 10 a.m., Ben Carson at noon, Jeb Bush at 1:15 p.m. and Bobby Jindal at 5. Dinner is scheduled with Ted Cruz. He has already met at least once with Wisconsin Gov. Scott Walker.
For the first time in a generation, however, Laffer’s “supply-side” strategies are not going without question on the right. Some conservatives believe that America’s struggling middle class needs more targeted policies today than simply broad tax cuts, and that Republicans won’t win back the White House without offering that relief. And mainstream economists, in surveys and interviews, have expressed deep doubt about whether his view of economics is correct.
Laffer is as confident as ever — and so are many of the Republicans who follow his proposals. “What I tell candidates today — and there are not many who are very economically literate — is to push something simple, or do something that has worked in the past,” he said.
“I’ve been to this barbecue before,” he added. “Today is almost exactly like 1978,” two years before Reagan’s election.
But some conservative economists disagree. Michael Strain, an influential economist at the American Enterprise Institute, said Laffer’s formula needs an update for Republicans to win. “I would argue that conditions are substantially different today than they were in 1978,” he said.
The upcoming election is, in many ways, a crucial barbecue for Laffer and his supply-side acolytes. In recent years Laffer has advised Republican governors and legislators on tax- cutting plans in North Carolina, Tennessee, Wisconsin, Florida and Kansas, where the revenue shortfalls that followed nearly cost Gov. Sam Brownback his job last November.
Kansas did not see a surge in growth after making cuts, and it has suffered a series of large budget shortfalls. When Brownback, under threat, called Laffer, worried about whether the tax cuts were working as planned, Laffer said he told Brownback to remember why he cut those taxes in the first place. The growth will come. Be patient.
“Kansas,” Laffer declared over a five-hour lunch interview in Washington, “is doing fine.”
All of that was prelude for the presidential race, which Laffer says could be a once-in-a-generation opportunity for Republicans to seize control in Washington and enact sweeping, pro-growth tax cuts. Laffer has been tutoring candidates for months.
When Carson, the neurosurgeon turned tea party favorite, came calling with a tax plan to run by him, Laffer headed him off. I have a great new plan I thought up for separating brain neurons, he told Carson. Carson, as Laffer tells it, got the joke. “His mouth fell open and he said, ‘I get it. I get it,’ ” Laffer said. “ ‘Throw away my agenda and listen to you.’ ”
Some time ago, Laffer recounted, he sat down with Sen. Rand Paul of Kentucky, who was hoping the economist would bless his flat-tax plan. Laffer critiqued it instead as having too many complicated, economy- distorting features. He recalled Paul expressing disappointment he couldn’t endorse it.
After that sit-down, Paul’s advisers kept calling Laffer, he said. When Paul announced his presidential run this week, he touted a tax plan far more in line with Laffer’s vision.
Now, bigger tests lie ahead — particularly with Bush, who has talked about reaching out to middle-class voters with new policies in this campaign, and with Sen. Marco Rubio of Florida, who has emerged as the early champion of a movement for more middle-class-focused policies that directly competes with supply-side economics for Republican attention.
In 1978, Laffer was already a rising force in conservative economics. He had graduated from Yale, earned a doctorate from Stanford, taught at the business school at the University of Chicago, the same campus that included the free-market champion Milton Friedman. He had been the first chief economist of the Office of Management and Budget in Washington, under President Richard Nixon, with the legendary George Shultz as his mentor.
Most famously, he had sketched what would come to be called the Laffer Curve. It was a sloping line on a cocktail napkin that showed how, if tax rates were high enough at the top end, a tax cut could actually bring more money to the government than was coming in before — because the lower rates would spark faster economic growth, higher incomes and, voila, more tax receipts.
The curve drew Reagan’s attention. Laffer was an architect of his 1980 campaign plan to chop federal income tax rates, which at the time topped out at 70 percent. That was the plan George H.W. Bush dubbed “voodoo economics” in the primaries, and it was a plan Bush would embrace when he ran again for president eight years later, with Laffer advising him, and won the White House.
Laffer tells a lot of Reagan stories, as many Reagan administration veterans do. His have a rare quality: Reagan often begins as the villain, only to be redeemed when he embraces supply-side economics.
Do you know what Reagan did, he asked, as the head of the actors guild? He called a nationwide strike. As governor of California? He raised taxes. “Who would believe that the man could become the greatest president that we’ve had in generations?” Laffer asked, his eyes twinkling. “Now how could that happen? He was a politician. He was able to reflect the people’s will, and when he didn’t, he changed.”
Laffer has stuck with the same basic argument about taxes that he brought to Reagan. And, recently, over a burger — no condiments — and black coffee, he repeated it.
Taxes discourage work, he wrote, scribbling lines on a legal pad. Less work adds up to less economic growth, which suppresses everyone’s pay across the economy. “Whenever you redistribute income,” he said, “you reduce total income. Period. That’s math.”
The best way to encourage work is to scrap the entire federal tax code and replace it with two things: an effective national sales tax and a flat tax on income, both at 11.8 percent (compared to a top rate of 39.6 percent today). Laffer predicts the change would unleash huge additional economic growth.
Influential conservatives say the message is powerfully seductive.
“He is a great communicator,” said Stephen Moore, the chief economist at the Heritage Foundation, who has known Laffer for nearly 25 years. “And most economists can’t communicate.”
There was even a time when Democrats called on Laffer, too. He helped with Gary Hart’s tax plan in 1988. In 1991, Jerry Brown, the once and future governor of California, called Laffer looking for a policy spark to a presidential campaign that was languishing. “I was looking for something that was clear and easy to articulate,” Brown recalled recently, “and I didn’t like the income tax.”
Laffer reminisced about Brown and about working for Arnold Schwarzenegger when he governed California. (“You, Arthur, you remind me of Danny DeVito,” he recalled Schwarzenegger telling him, complete with thick faux accent.) He lamented that it has been 20 years since a Democratic candidate sought his advice, and that, instead, the party had returned to a brand of economics that attempts to stimulate the economy through spending fueled by government borrowing.
Laffer’s ideas have also grown out of fashion with much of the mainstream economic community. There is an entire branch of economic literature that uses detailed equations to show cutting top tax rates does not spark additional growth. Most recently, the University of Chicago’s Owen Zidar showed that the biggest gains from tax cuts come when rates are reduced for low-income workers.
In 2012, the University of Chicago’s Booth School of Business asked a panel of respected economists from across the political spectrum whether they believed an income tax cut today would lead to higher tax revenue five years from now, compared with a world with no tax cut. Not a single respondent said it would.
Laffer’s theories are so far detached from mainstream economics that “there is no point of contact,” said Paul Krugman, a Nobel Prize-winning economist and a liberal columnist for the New York Times. “This is not a wing of professional economic thought, for what that’s worth. This is not at all the same kind of enterprise as what even conservative economics professors do.”
Republicans love Laffer, Krugman said, not because his message is simple but because it conforms perfectly to a preexisting limit-the-government worldview: “The point is, he’s telling them what they want to hear.”
Economists point out how different the world is today from 1978. The top income tax rate is 30 percentage points lower than it was when Reagan took office. Tax cuts appear to have lost some punch with voters — they didn’t get Mitt Romney elected, or John McCain. Jerry Brown stopped running on a flat tax a long time ago.
“The idea of lowering the top rate is dead,” said Sen. Charles E. Schumer of New York, the third-ranking Democrat in the Senate.
But Laffer is constantly reassuring the presidential candidates of his vision, steering them back toward simple supply-side principles, urging them to find the simplicity and embrace the power of low rates. He tells them that America will break its foreign enemies with economic strength, not more military spending. He calls earned- income tax credits for the working poor — a favorite idea of Paul Ryan and Rubio — “garbage.” He has written a 12,000-word paper on how minimum-wage laws have killed economic opportunity for young black men, in particular, by artificially reducing the demand for labor.
Candidates keep coming back to Laffer, said his friend Larry Kudlow, the popular conservative economics commentator, “for the same reason you pay attention to Milton Friedman, even though he’s dead. For the same reason you listen to John Maynard Keynes, even though he’s dead. For the same reason we still read Friedrich Hayek. You don’t throw things out because they’ve been around so long.”
Laffer rejects the ideas of candidates such as Rubio who push for targeted tax relief for families or the middle class, saying those deductions “don’t make sense in the tax code.”
But then in the next breath he praises Rubio, recalls how long it took Reagan to come around, and expresses confidence that the eventual nominee will follow his advice. “We’ll see who slugs it out” in the primaries, Laffer said. “But no one’s voting for a redistributionist again. It’s over.”
When he, Kudlow and Moore welcome candidates to their small-group meetings in New York, Laffer said, he gives an hour or so briefing on how economics works. Simple charts and explanations. Eventually the candidate gets to talk.
“I don’t care what they say,” he said. “I’m giving them time to practice answers.”
Correction: A previous version of this story stated that Laffer taught in the same department as Milton Friedman at the University of Chicago. Laffer taught at the business school, while Friedman was a professor in the economics department.