RACHEL MARTIN, HOST:
Economist Art Laffer is set to receive the Medal of Freedom today from President Trump. Laffer helped popularize the notion that tax cuts can pay for themselves through faster economic growth. Ronald Reagan's former budget director David Stockman calls Laffer, quote, "the greatest fake economist to ever come down the pike," end quote. NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: Art Laffer's journey to the nation's highest civilian honor began 45 years ago with a round of drinks in a Washington cocktail lounge. Laffer, a young economist at the time, was trying to persuade President Ford's deputy chief of staff, a guy named Dick Cheney, that lowering taxes could actually boost government revenue.
GRACE-MARIE TURNER: Art was trying to explain to Cheney how the Laffer curve works.
HORSLEY: Grace-Marie Turner, a reporter who was there, says Cheney wasn't getting it right away. So Laffer resorted to a visual aid.
TURNER: So he sketched out this Laffer curve on a paper cocktail napkin at the Hotel Washington. It was just across the street from the White House.
HORSLEY: The Ford Administration never embraced Laffer's philosophy, but Ronald Reagan did. Tax historian Bruce Bartlett says the namesake curve that Laffer sketched that day provided intellectual cover for Reagan's 1981 tax cut.
BRUCE BARTLETT: Basically, it was a way to have your cake and eat it, too.
HORSLEY: Bartlett, who later worked in the Reagan White House, says in those days, Republicans pushing tax cuts still had to pay lip service to fiscal responsibility.
BARTLETT: So if you wanted to have a tax cut, you either had to pay for it by raising other taxes, cutting spending, or come up with some gimmick, like the Laffer curve, to simply assert that it wouldn't lose revenues.
HORSLEY: Despite Laffer's assurances, the Reagan tax cuts did lose revenue. And while the economy eventually boomed, deficits soared. Reagan was ultimately forced to reverse about half the cuts. Today, most serious Republican economists dismiss the idea that tax cuts pay for themselves through faster economic growth. But sociologist Elizabeth Popp Berman of SUNY Albany says the Laffer curve has nonetheless stuck around.
ELIZABETH POPP BERMAN: Once you take those kinds of ideas and put them purely into the political sphere, they sort of take on a life of their own.
HORSLEY: In 2012, the state of Kansas paid Laffer $75,000 to help then-Governor Sam Brownback craft his own tax cut. Laffer told NPR's Planet Money cutting taxes would do great things for the Kansas economy.
(SOUNDBITE OF ARCHIVED BROADCAST)
ART LAFFER: More employment, more output, more production. There are more jobs created in Kansas. There'll be more payroll taxes.
HORSLEY: It didn't work out that way. Annie McKay, who was head of the Kansas Center for Economic Growth, says despite Laffer's promises, state revenues plunged by $600 million and job growth lagged.
ANNIE MCKAY: His voice was nowhere to be heard when we were undergoing nine consecutive rounds of budget cuts, credit downgrades. There wasn't any part of the state budget that wasn't being used to prop up this failed tax experiment.
HORSLEY: State lawmakers eventually reversed the tax cuts. Laffer insisted they just needed more time to work. He continues to champion tax cuts at the federal level. A month after President Trump's election, Laffer told MORNING EDITION, corporate taxes should be cut dramatically.
(SOUNDBITE OF ARCHIVED BROADCAST)
LAFFER: Dropping that tax rate to 15% would have a huge impact on the U.S. economy and would have very little impact, if any, on tax revenues from corporations, from businesses.
HORSLEY: Congress did slash corporate taxes, although not as far as Laffer wanted. And despite a strong economy, corporate tax revenues dropped last year by 26%. No matter how many times Laffer's projections have proven wrong, White House economic adviser Larry Kudlow is unfazed.
LARRY KUDLOW: I know some people agree and some people may not agree with his views, but I'm a Laffer curve guy.
HORSLEY: A replica of the cocktail napkin where Laffer first sketched that curve is now on display at the Smithsonian's Museum of American history. But Grace-Marie Turner says that cloth museum piece is not the original.
TURNER: This wasn't a kind of establishment that would have had a cloth napkin. And I don't think anybody knows what happened to that napkin. It probably got picked up and carried off when the beer glasses were sent back to the bar.
HORSLEY: A fitting end for the Laffer curve as an economic forecasting tool. But when it comes to political marketing, the curve and its creator live on. Scott Horsley, NPR News, Washington.
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