Economist Arthur Laffer Bullish on Trump, Economy

Speaking at Caldwell Trust Company in Sarasota, ex-Reagan advisor sees much better days ahead.

By David Hackett February 22, 2017

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Arthur Laffer, a champion of supply-side economics, speaking Wednesday at Caldwell Trust Company in Sarasota.

Image: Staff

When it came to the 2016 presidential election, famed economist Arthur Laffer got the, er, last laugh.

Dismissing polls that signaled otherwise, Laffer predicted before the Republican Party convention that a victory by Donald Trump was practically inevitable, citing the undercurrent of change that had swept Republicans to power in local, state and Congressional offices.

Laffer was still smiling Wednesday in Sarasota where he was renewing his longtime connection with the Caldwell Trust Company.  Despite Trump's problematic first month in office, Laffer told a group of reporters that the new president will  reverse a 20-year decline in the U.S. economy.

"You're in for the best ride since Ringling and Barnum and Bailey Circus came to town," Laffer says of Florida in particular. "Sit back and enjoy the ride."

Laffer was a prominent advisor in the 1980s to President Ronald Reagan, advocating the supply side theory that cutting taxes both fuels economic growth and increases government revenue.  Reagan's tax cuts helped ignite a boom in the U.S. economy from 1982 to 1999 in which GDP growth averaged 3.56 annually, nearly double what is has averaged the past 17 years. Reagan's policies also led to record federal budget deficits, but Laffer says those were inconsequential given the enormous increase in the nation's overall wealth. Plus, he says, his theory was later proven correct when increased revenue generated by lower taxes allowed the federal government to run budget surpluses under President Bill Clinton.

Now, Laffer is predicting a similar boom under Trump, a president whom he says has a lot in common with Reagan, including being a "circus barker." Reagan, like Trump, had plenty of "verbal slips" such as saying that trees cause pollution and ketchup is a vegetable. Most are forgotten now, or at least overshadowed by Reagan's larger accomplishments, a scenario Laffer says could also play out with Trump.

The reason for Laffer's optimism is his belief that Trump will cut corporate taxes from the current rate of 35 percent, among the highest in the world, to 2o or even 15 percent. That and other tax cuts will "jump start the economy massively," Laffer predicts.

Laffer also concedes that the cuts will, in the short term, spike the federal deficit, raising the federal government's debt which has already hit a dizzying $20 trillion. But he says it would be a mistake to cut spending, particularly on for the poor. Instead, he says, the government should accept the rising deficits with the knowledge that the overall wealth of the economy will grow and that eventually tax revenues will rise to reduce the deficit spending.

With control of Congress, the Supreme Court and other branches of government for at least the next four years, Laffer predicts that Trump has an even longer "runway" than "we had with Reagan." Laffer says he has talked to prominent Democrats who are open to Trump's tax cuts and see a potential grand bargain, with Republicans agreeing to a carbon tax to combat global warming.  It's an idea that Laffer says "Al Gore is right about" and that Laffer himself has long supported.

Laffer sees a few potential landmines to an economic resurgence. One is if Trump follows through on his campaign promises to impose tariffs and take other actions to inhibit free trade. Laffer, who is close to Attorney General Jeff Sessions and with prominent Trump economic advisors such as Larry Kudlow, says Trump's threats on trade are more negotiating tactics than precursors to action. Laffer notes that Trump himself has done business around the world and understands the benefits of open markets.

"I don't think the guy is a protectionist," Laffer says. "He knows we gain from trade."

Laffer, 76, says Trump is in an even better position than Reagan because of the decline in the U.S. economy under presidents Bush and Obama. Laffer says that the economy, measured by GDP per adult, a formula he favors, has actually fallen since the Great Recession.

"I thought we had a low bar, but it's nothing like what [Trump has]," Laffer says. "All the cards are in his favor."

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