Quote:
Originally posted by Spanky
Wrong. Laffer proposed this idea to Reagans people. At the time the country was running huge deficits. Laffer argued that we were above the t* and therefore cutting taxes would increase revenue. Other economists argued that the deficit was already crowding out growth and that a tax cut would further increase the deficit, crowding out even more investment, and therefor would not produce the growth needed to balance the budget. The other economists argued that by balancing the budget with tax increases, we would reduce the crowding out caused by the deficit and thereby increase growth. Laffer said that the crowding out was not that big of a deal and would not effect his curve.
His tax cut would cause growth that would increase revenue and therefore would eventually balance the budget which would eventually reduce the deficit. Thereby we would grow our way out of the deficit. That was the basis of his argument.
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And we went from "huge" deficits of $74BB in 1980 to deficits of $208BB in 1983.*
*I chose that year because it is just before Reagan started raising Social Security taxes to mask, somewhat, how obscene his policies were making the deficit.
Of course, there was lots of growth. The 1980 deficits were 2.7% of GDP, while the 1983 deficits were 6.0%.
