Re: Laffer Curve Not All We Learned, 02/10/11

Re: Arthur Laffer, “Reagonomics: What We Learned,” Wall Street Journal, 02/10/11

Unsurprisingly, Arthur Laffer restates his view that the economy will return to robust growth by reducing tax rates, just as it did during the Reagan era. But the U.S. economy, today, is structurally different and has a new set of problems that would be inadequately addressed by merely lowering tax rates.

Since the Reagan era, relaxed international trade has become a much larger component (something Laffer also favored), but outsourcing for the benefit of cheap labor has resulted in a major decline in U.S. manufacturing with a broken foundation for middle-class assembly line jobs.

“Tax reform” must not mean only lower tax rates with fewer tax preferences. It must also mean providing the U.S. with the most competitive tax system with which to engage in international trade. And, that is the fundamental case for a VAT – to replace, at least, the Corporate Income Tax and remove a major competitive disadvantage. U.S. exports would exclude the VAT tax burden, and imports would shoulder the same tax burden as domestic production. It works well for all our trading partners to eliminate the cost of government from the comparative advantage of goods and services.

The VAT would be good for business as well as labor, and should be endorsed by Republicans and Democrats alike.