What did Trump’s TCJA bring to America? The Liberty asked Dr. Laffer about Trump’s achievements in contrast with the Biden administration, as well as the catalyst for Japan’s reform.

 

Cho: As you have explained, the Tax Cuts and Jobs Act (TCJA) has been a huge success. It took less than three to five years for household income to increase, with household income in the U.S. increasing by $8,000 before the coronavirus hit. There were also 6.6 million fewer people at the poverty level. African Americans have had the largest median income growth compared with the Obama era. How do you, as an architect of the TCJA, look back at Trump’s achievement?

Dr. Laffer: These people from the Tax Policy Center said that the TCJA would lead to $6.8 trillion in deficit. Not only did tax revenues go up, but they went up by more than they had gone up in the prior two-year period. These people don’t know economics, and I don’t know how to say it, but they won’t sit down and listen with me because they’re politically motivated.

 

Biden Dropped Unemployment by Cutting Labor Force Participation

Dr. Laffer: But if you look at one thing that’s very interesting, let me tell you this fact. As you know, the coronavirus damaged the U.S. economy enormously. Unemployment went way up. GDP fell sharply. But then, once the pandemic started to get under control from policy actions such as the rollout of vaccines, employment started to rise again. The unemployment rate has come back to being very close to where it was under Trump in 2019.

The reason it has come back is not because we’ve created a lot of jobs.

There are three million less jobs today than there were at the end of 2019. All these people have been removed from the labor force. The participation rate has dropped sharply, especially amongst the poor, the young, the undereducated. These people have all left their jobs because they’ve been paid not to work.

An unemployed person is someone who is looking for work, so once someone loses his or her will to work, that person is no longer unemployed. Ironically, that’s why unemployment rates are back to what they were at the end of Trump.

The unemployment rate at the end of the pre-pandemic era of Trump was half of the rate at the beginning of the Biden Administration. In other words, Trump’s policies had an enormous impact by creating jobs and by pulling people out of unemployment into roles. They had created low unemployment rates because of growth and because of job opportunities. Biden’s economy has created low unemployment rates by taking people out of the labor force, not bringing people into the labor force.

As such, what has happened is a lot of the poor, the minorities, the disenfranchised, the lowest echelons of the American economic ladder have not improved like the rest of the economy has improved.

Trump is very, very focused on creating prosperity. He deserves enormous credit for his actual accomplishments for the economy.

 

THIS Is How You Balance the Budget

Cho: Even now, there are many Republicans, as well as legislators of the Liberal Democratic Party in Japan who believe that balancing the budget is necessary but it would be attainable by raising taxes. What is your view on this?,

Dr. Laffer: It’s wrong. The best way of getting the revenues you want is to have a low rate, broad-based flat tax. Now, the reason you have a low rate is to provide people with the least incentives to evade, avoid or otherwise not report taxable income. And the reason you have a broad base is so that there is no place they can put their income and not have to pay taxes, all right? The reason you want one rate is, a lot of the ways people shelter is to arbitrage between different taxes, get all their deductions against high tax rates and all their revenues at low tax rates. And there are just infinite numbers of schemes. A low rate, broad-based flat tax gets rid of all of the efforts people employ trying to manipulate the tax codes, and it provides them with the least incentives to try to get around paying taxes. So what do they do? Those people will work and produce good products at low cost and not worry about their taxes and do the right thing.

If it’s a low rate, broad-based flat tax, they won’t lobby government. I mean, all of these things like manipulating the tax codes and lobbying disappear quickly.

I believe that spending restraint is also very important for balancing the budget. Number one, you want a low rate, broad-based flat tax so you collect your taxes in the least damaging fashion possible, and then you want them to spend the money in the most beneficial fashion possible. Now, the key here is to spend your money efficiently and to collect your taxes efficiently. And then when the benefit done by the last dollar spent is a little bit more than the damage done by the last dollar of taxes collected, you stop. That’s where you stop spending. So that’s what I would tell Japan.

 

More Spending Lowers Growth, With No Exception

Dr. Laffer: Japan lost its way in 1989. Japan could be transformed to one of the top countries in the world on economic growth and influence if only they’d go back to the olden days of cutting tax rates, broadening the tax base and spending less.

I’ve published a chart titled “Sayonara Japan.” It shows how government spending causes lower growth. Look at what happens when government spending in Japan goes way up, and look at what happens to economic growth. It’s devastating.

If you don’t like the Japan example, look at the German one. Look at the U.S. ones. They’re all the same thing. I must have 10 pages in “The Template” with examples of supply-side economics showing how government spending and higher taxes causes lower growth and less revenues — maybe more than 10.

Cho: In deregulation, Mr. Trump initially said that he would eliminate two regulations for every one he introduced, but in the end, he succeeded in eliminating more than four regulations for every one he introduced. What do you think about the burden of the ever-increasing number of regulations placed on the public if left unchecked?

Dr. Laffer: I think your question there is probably the single best unasked question I’ve had.

He did the oil deregulation, and you saw what happened. America became energy independent. He did the medical transparency. He did the minimum wage (*1). All the deregulation was just spectacular. And with Biden now undoing all of his executive orders except one or two, I think Biden is going to make it much worse for us than Trump.

Trump was amazing with regard to deregulation. Just amazing. What he did with Operation Warp Speed is incredible. It was just an amazing presidency.

 

Trump’s Agenda for His Second Term

Cho: I think Trump had some unfinished business to attend to on the economic front. If he were reelected, what issues do you suggest he tackle?

Dr. Laffer: I’m going to take you through the whole plan. Taxes. I think he would go for a low rate, broad-based flat tax, primarily. Merit pay for politicians. Spending rationalization. I think he would do [medical] transparency. I think he would deregulate the economy by eliminating 501(c)(3)s, which exempt American universities and other “non-profits” from paying federal income taxes. This is a crime. I think he would end antitrust exemptions to football and baseball teams (*2), as this creates many problems such as restrictions for minor league reductions and trading players.

I mean, all the wonderful stuff he could do to really create an equitable society of incredible prosperity. I think there’s a good chance right now that he will run. Now, that’s many years off. It’s three years off. But right now, I think he would run.

 

America Is Not Becoming Socialistic

Cho: It is said the U.S. is becoming more and more socialistic. I’ve heard that the left is dominating almost the entire academic world. What should we do to change this?

Dr. Laffer: It is not getting more socialistic.

You and I had this conversation once, a long time ago. The highest marginal income tax rate in 1945 was 94%. Today that tax rate is 37%. In 1976, it was illegal in the U.S. for a store to discount its products, to sell them below the manufacturer’s suggested retail price. Then the stores were decontrolled, and now you have things like Walmart and Costco and Lowe’s and all the discounts stores all over, a wonderful change.

It used to be illegal in the United States to sell anything on Sunday. These were called blue laws. Liquor or anything, it was illegal. Now those laws have all been overturned and we have people’s stores selling way below discounts, selling at prices.

You’ve got all this much more competitive today than it was in the late ’40s, early ’50s, and on. If you look at the airlines, airline tickets were all controlled. The price was controlled by the CAB and the FAA. That was eliminated in 1978. In 1974 you had to pay over $0.30 a share to buy a share or stock. That was the law. It was decontrolled, and now the competitive price is 0.01 cents per share. Trucking was deregulated. This trend continues.

In 1976, there was one state in the United States that did not have its own death tax. Every other state, all the other 49, had death taxes on the state level. Today there are only 17 left that have a death tax. All the rest have gotten rid of them.

In 1957, there were only two states that had right to work, that you did not have to belong to a Union to work. Those two states were Arkansas and Florida, which by the way, back then was Arkansas. Today, well over half the states are right-to-work states. The number of union members has dropped dramatically in the United States, except for in public service. But it’s down to six and a half percent of workers that are unionized. It used to be 40%. These are major. I could go on and on and on with you, but the U.S. is getting much, much better.

Yes, it is true we have these momentary splurges of left-wing politicians coming in, like Joe Biden and all those people with him, but they don’t last long. They make so many mistakes, like Biden, that they get thrown out of office.

He couldn’t even get his bill through, the Build Back Better Act. And you think that people are going to go back to left-wing politics? Never.

There are a lot more stories to that one than I’m telling you. Look at what’s happened with the vaccine mandates and the mask mandates. They were put in 2020. Now look, people are rioting and protesting. Politicians are losing everywhere on this issue. It’s wonderful to see what happens when you antagonize the electorate, and left-wingers are antagonizing the electorate. Now, people do want to boss other people around, but they don’t want to be bossed around themselves. So whenever we get a left-wing government, it’s followed by Reagan.

I always used to tell people that it took Jimmy Carter to create Ronald Reagan. If Ronald Reagan had been elected in 1976 instead of Jimmy Carter, he would not have been the president he was. It took Jimmy Carter’s left-wing policies and stupid economics to create Ronald Reagan, and then look at the springtime in America that occurred. And it took George Bush, honestly, to create Bill Clinton, who was a great president. I think that Joe Biden is going to create one of the greatest renaissance periods in U.S. history because of people like you, Hanako, because of people like Liberty, as you point out all the mistakes, all the problems, and you show the evidence.

 

Toward the Realization of an Equitable Society of Prosperity

Cho: What are you most concerned about right now in terms of establishing the economics of the future which can really make people happy and prosperous?

Dr. Laffer: We’ve made huge headways on taxes. We’ve started making the headways on spending, the transfer payments. Everyone realizes how stupid it is. They couldn’t even get the Democrats to vote for it, all right? That’s all done there.

The one thing that is really very hard to explain to normal people is why it’s not good for the government to be charitable and pay people not to work.

They’d say, “Well, that person doesn’t have a job. They need the money.” Well, that’s why people work, because they need money. If you ruin that incentive, you will destroy the economy with it. Now, everyone understands taxes very clearly, but they don’t understand why it’s not good for the economy to pay people who are unemployed, to give poor people more money.

Now, obviously, if you’ve got someone who cannot, for whatever reason, get a job or hold a job, those people should be helped. But people who can work should not be helped. There should not be unions. There should not be welfare payments and food stamps for people all over the place. You need to be very parsimonious. And that’s where I am focusing my attention right now.

How do you get rid of monopolies? How do you get rid of all this stuff, [medical] transparency, merit pay for politicians? That’s where I am focusing my time on now very, very heavily.

Our football teams and baseball teams do not need to be exempt from antitrust, and people should not be able to have 501(c)(3)s like universities. Universities pay no taxes in the U.S. This is the stuff I’m working on now very, very hard. I’m only 81, so I have a feeling I’m going to really win on this one too. I don’t like losing, as you know.

All my life I’ve been focusing, whether it be Proposition 13 in California or all the other things, Margaret Thatcher, Chile, Argentina, all of these places, the U.S. with Reagan, with all of it. I don’t like losing, and I’m not going to lose this one either.

Cho: Thank you so much for sharing your story over the past 22 months.

(*1) In May 2018, President Trump signed an executive order to exemplify seasonal workers from minimum wage hikes as this would get in the way of these workers who operate on Federal lands to provide services to the general consumers. President Biden revoked the order and issued an executive order that required contractors to pay their employees minimum wage, which took effect on Jan. 30, 2022.

(*2) Major League Baseball (MLB), one of the four major professional sports leagues in the U.S., has been exempt from antitrust laws. It has created problems such as teams placing trade restrictions and minor leagues being one-sidedly downsized.