Arthur Laffer Gets His Supply-Side Revenge in North Carolina | Triangulator | Indy Week
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Arthur Laffer Gets His Supply-Side Revenge in North Carolina 

Arthur Laffer, the 75-year-old "father of supply-side economics," developed a theory decades ago that posits that tax cuts pay for themselves by unleashing economic growth. In the Reagan administration, he was a key architect of trickle-down tax policies, and his ideas are still very much in vogue among modern conservative intelligentsia.

One problem: they've never worked. Sure, the Reagan years saw growth (owing largely to changes in monetary policy, but whatevs), but it came with ballooning deficits and widening inequality that persists to this day. Meanwhile, President Clinton's tax hike was followed by the strongest growth in a half century, and President Obama, who raised taxes on top earners, has overseen the best job gains since Clinton.

As The Washington Post reported last year: "There is an entire branch of economic literature that uses detailed equations to show cutting top tax rates does not spark additional growth."

But, as Saint Ronnie told us, "Facts are stupid things." And so this grand experiment continues in conservative strongholds like North Carolina, where the Reagan fanboys who took power in 2013 dramatically reduced taxes on the wealthy while making the state more reliant on regressive sales and property taxes. (Related: last week, state House Speaker Tim Moore rejected a recommended 10 percent teacher pay raise because the state can't afford it. Which is funny because the price tag for those raises nearly equals that of the tax cuts passed last year.)

And some people think this has all gone swimmingly. One of them is J. Peder Zane, a News & Observer columnist who penned a column last week called "How Republicans Have Righted North Carolina's Fiscal Ship." In it, he argued that the so-called Laffer Curve works—for realsies!—and all those dumb economists with their dumb models have it wrong.

"The GOP tax cuts did not drain the coffers," Zane wrote. "Instead, they helped replenish them—just as the falsely derided Reagan tax cuts actually increased revenues and sparked a two-decade long rise in median incomes. These are the stubborn facts that belie the incessant propaganda of those who insistently pretend that supply-side economics is a fantasy."

Uh-huh. Let's consult someone who knows what she's talking about: "The Laffer Curve continues to be discredited economic theory," says Alexandra Forter Sirota, director of the N.C. Budget & Tax Center. "The evidence that is pointed to from North Carolina doesn't give that theory any support. We know that there is less coming into the state than there would have been had they not cut taxes."

Indeed, Zane's thesis is a beautiful example of the post hoc, ergo propter hoc fallacy. Yes, North Carolina's economy grew after the tax cuts. But that doesn't mean the tax cuts had anything to do with it.

After all, if the Laffer Curve is so kick-ass, the states that most enthusiastically embraced it would be doing better than everywhere else. Not so. Kansas's tax cuts left it with a $900 million deficit, leading to a sales-tax hike and a court order to better fund education. Last year, Louisiana faced a $1.6 billion shortfall, as the promised stimulus never materialized.

Closer to home, McCrory's "Carolina Comeback" has produced an unemployment rate stubbornly higher than the national average—and 39th in the country.

Meanwhile, Sirota points out, median income hasn't recovered from the recession, per-pupil education spending has declined since 2008, and the state doesn't have nearly enough money to keep up with its infrastructure needs.

But at least Art Pope's happy.

triangulator@indyweek.com

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