January 26, 2022

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Reagan economist wants to slash public salaries, cut taxes to boost economy

  • Former Reagan economic advisor Arthur Laffer wants to cut the salaries of government officials and academics to stimulate the coronavirus-stricken economy.
  • His proposal also includes a payroll tax cut until the end of the year.
  • Laffer has been mentioned as a possible leader of the second coronavirus task force aimed at determining when the economy should be reopened.
  • Laffer’s ideas have long been a lightning rod for controversy, particularly his theory that aggressively cutting taxes unleashes economic growth.
  • Visit Business Insider’s homepage for more stories.

Former Reagan administration economist Arthur Laffer has a new plan to shore up an economy that’s been ravaged by the coronavirus pandemic, which he laid out in an interview with Reuters published Wednesday.

Laffer, the designer of the Reagan-era tax cuts and a pioneer behind the controversial notion that slashing taxes unleashes economic growth, is calling for these three actions:

  • Impose taxes on non-profit organizations that encourage the arts and education, among others.
  • A 15% pay cut to the taxpayer-funded salaries of government officials and professors.
  • Enact a payroll tax cut holiday for employees and businesses until the end of the year.

Laffer also told Reuters that he opposed to the recent expansion of unemployment aid under the $2 trillion coronavirus stimulus law. He argued it would actually serve to discourage people from working and inflict more pain on the economy.

“If you tax people who work and you pay people who don’t work, you will get less people working,” Laffer said. “If you make it more unattractive to be unemployed, then there’s an incentive to go look for another job faster.”

Laffer has been mentioned as a possible pick to head Trump’s second coronavirus task force focused on reopening the economy, Reuters said. And he’s pitched his plan to top White House officials.

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Trump awarded Laffer the Presidential Medal of Freedom in the summer of last year, The Washington Post reported.

Most mainstream economists though say emergency federal aid to individuals and businesses is a crucial element to tide the economy over during its unprecedented shutdown.

Read more: A hedge fund chief overseeing $2 billion explains how a ripple effect could take down the housing market — and warns ‘we’re just at the beginning’

They also say the government must take aggressive measures to curb the spread of the coronavirus by shuttering businesses and keeping tens of millions of people at home — and implementing a robust testing mechanism for the virus should be a key element determining the reopening of the economy. 

Laffer, though, agrees with the president’s assessment that the “cure cannot be worse than the disease.”

“I think it’s really important to balance out the economic consequences with the health consequences,” Laffer said, arguing that a spike in the poverty rate could lead to more suicides and lower life expectancies.

Laffer’s theory of supply-side economics has been embraced by Republicans like Trump and former President George W. Bush over the years. But his critics — Democrats and Republicans alike — say his push to aggressively cut taxes only exploded federal deficits.  

Former Reagan budget director David Stockman blasted Laffer as “the greatest Fake Economist to ever come down the pike” in a past interview with NPR. 

Read more: C.T. Fitzpatrick has beaten 99% of his peers since the financial crisis. He shares his 4-part strategy for dominating a coronavirus-hit market — and names 6 companies that will benefit from the fallout.

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