Art Laffer says Trump's tax cuts don't go far enough

Dion Rabouin
Financial Markets Reporter

Tax cuts passed by Congress and signed by President Donald Trump have cut into government revenue and boosted the U.S. budget deficit this year. But well-known tax policy adviser Arthur Laffer says he’d like to see more cuts.

Laffer, a member of President Ronald Reagan’s Economic Policy Advisory Board who also was an adviser to Trump during his 2016 presidential campaign, says the $1.5 trillion in tax cuts — temporarily reducing individual tax rates and permanently slashing the country’s corporate tax rate — should be even larger.

“I don’t think they’ve gone far enough yet, to be honest with you,” Laffer said in an interview with Yahoo Finance.

Known as the godfather of supply-side economics, Laffer is the creator of the Laffer Curve, which advised Reagan’s tax cuts. His theory was that taxable income changes in response to changes in the tax rate. Further, politicians have asserted that taxes can essentially pay for themselves by encouraging more work and higher productivity, which boost economic growth.

The amount of corporate taxes collected by the federal government has plunged to historically low levels in the first six months of the year, pushing up the federal budget deficit much faster than economists had predicted.

Economist and former Reagan economic adviser Arthur Laffer.

Corporate tax receipts plunged to a historically low level in the first six months of 2018, increasing the federal budget deficit much faster than economists had previously predicted.

The Treasury Department reported in July that the government took in 7% less in June than in the same month a year earlier, including a 33% drop in gross corporate taxes. The budget gap totaled $607.1 billion in the first nine months of the 2018 fiscal year, 16% larger than the same point a year earlier.

The tax rates have been a boost for U.S. growth, though. The Commerce Department reported earlier this week that the country’s gross domestic product grew by 4.2% in the second quarter, the fastest pace in nearly four years.

Laffer said Friday that the reduced government receipts were to be expected initially, but that the increased economic growth will offset those losses in due time.

“It takes a while for that growth to compound and really make a difference in tax revenues, but it will happen,” he said. “When that does happen — and remember it’s going to happen with payroll taxes, property taxes, income taxes, all the other taxes — we’ll be in great shape from this tax cut and we should go even further.”

Laffer said he supported the idea of further cutting rates on capital gains, or investor profits from sales of stocks and other financial securities. President Trump has said he expects his tax cuts and deregulation agenda will spur 3% economic growth for multiple years — a claim almost universally panned by economists — but Laffer thinks it could be even higher.

“If we get 4% growth over the next couple of years we’ll have revenues way above what anyone ever expected,” he said.

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Dion Rabouin is a global markets reporter for Yahoo Finance. Follow him on Twitter: @DionRabouin.

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