President-elect Donald Trump's proposed tax policies will have a positive effect much the same President Ronald Reagan's did, says economist Art Laffer.
Laffer, a former member of Reagan's Economic Policy Advisory Board, told the Financial Times that Trump should not worry about America's growing trade deficit, and he should welcome a strong dollar.
Laffer is a proponent of supply-side economics, which calls for lower taxes and regulations on businesses. The theory is ridiculed by liberals as "trickle-down," which they contend never fully trickles down to those as the bottom as proponents assert.
But his "Laffer Curve," which he sketched on a napkin in 1974 for Nixon officials Dick Cheney and Donald Rumsfeld, maintains that there is a certain tax rate between zero and 100 percent that will generate the most possible government revenue. That percentage, Laffer says, is relatively low.
Two of Trump's appointments so far agree with Laffer's thesis: Treasury Secretary designate Steven Mnuchin and Commerce Secretary pick Wilbur Ross.
"We think by cutting corporate tax rates we will create huge economic growth," Mnuchin said last week. Ross said that "this administration will prove" lower rates produce higher revenues.
"I know this will come as a shock to you, but if you tax people to work and pay people who don’t work, don't be surprised if you get a lot of people not working," Laffer told the Financial Times. "If you tax profits at lower rates, the benefits of productivity will be greater after tax and there will be more productivity."
Laffer said his "curve" has no fixed percentage at which the most tax revenue is generated.
"Make sure you understand this is the beginning and the process never ends," he said. "Just when you think you've hit nirvana, something else goes on and you start the process all over again."
Laffer said he believes Trump's tough talk about keeping jobs in America does not mean he won't welcome foreign imports.
"I don’t believe Donald Trump is nearly as protectionist as his quotes," he said, adding that Trump should not worry about the U.S. trade deficit.
"Which would you rather have? Capital lined up on our borders trying to get into our country or trying to get out of our country?" he said.
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