Economist Art Laffer Wednesday called the contraction in the U.S. economy "catastrophic" and predicted that it would continue to shrink without spending restraints and lower business tax rates.
"You have the whole output of the economy shrinking. Not just expanding more slowly, it`s absolutely shrinking," Laffer told Fox News' Eric Bolling Wednesday.
"That's catastrophic," the former adviser to President Ronald Reagan added.
"You can explain some of that by sequestration, and defense spending was down lot and all that. But you still have a rotten economy. And it's still too bad. We know how to fix it, by the way, a low rate flat tax, spending restraint, sound money, free trade."
Laffer was responding to reports Wednesday that the U.S. economy contracted 0.1 percent in the last quarter of 2012, marking the worst quarter performance since the recovery began more than two years ago.
The White House blamed the surprising slowdown on Republicans in Congress, accusing them of creating uncertainty during the fiscal cliff crisis.
But Laffer dismissed that criticism as an excuse for bad economic policies that he insisted have left businesses and consumers in a state of confusion. He agreed with most Republicans that it's a spending problem, not a revenue problem. Yet, he declined to lay all the blame on President Barack Obama, noting that former President George W. Bush started the spending binge, which he said led to the so-called "great recession" beginning in 2008.
"It's amazing, isn`t it? We spent $5.8 trillion in the last couple of years, and this is what we get for it," Laffer said.
"Have you ever heard of a poor man spending himself into prosperity? It`s just dumb on the outset. Government spending, as [economist] Milton Friedman always said, is taxation," he continued. "Government doesn`t create resources, it redistributes resources. And this government spending stuff is why we have the great recession."
"W. did just as bad a job as did [Obama], but Obama continued that bad job for four straight years. And this is the result," he added.
Laffer stressed the importance of a low tax policy in helping to stimulate the economy while increasing government revenues at the same time.
Recalling his years as one of Reagan's top economic advisers, Laffer said Reagan actually cut the highest tax rates. He said "we made a mistake" by phasing in the cuts, which he said caused the 1981-82 recession. But he said the economy took off in 1983 when the cuts went into full effect.
"This place just went like a rocket ship," he said. "I think we had 7.5 percent growth in 1983 and 5.5 growth in 1984, just this boom that lasted for years and years."
"When growth happens in the economy, even though the rates go down, the actual tax revenue receipts increase, right?" Bolling interjected.
"There is some guy`s curve that is named [for that]. I don`t know what the heck it is," Laffer joked in response.
"But it`s so true today," he added. "We have the highest corporate tax rates in the world and one of the lowest corporate tax revenues as a share of GDP in the world. Go figure. It's just you`re taxing them out of business."
Laffer said the economy last year grew by about 2.1 percent, a poor performance that he described as "the worst single recovery in the history of the U.S."
"It's just tragic," he added.
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