Arthur Laffer And The Big Lie Of Tax Reform


Arthur Laffer is the predominant author of the old big lie of tax policy, that reductions in US income tax rates would increase revenue. And today (via Chait) we find him touting another big lie, this one about loopholes:

A tax reform to a simple flat-rate tax with no deductions would significantly reduce the current complexity inherent in our progressive tax system, which is full of loopholes, exemptions and special interest carve-outs. Based on the estimates from our new study, if a static, revenue-neutral flat-tax reform were to reduce the tax complexity in half, the long-term growth in our economy would increase by around one-half of 1% per year.

All the work here is being done by the proviso “with no deductions.” It’s quite true that a flat rate tax with no deductions would significantly reduce complexity. By the same token, a progressive tax with no deductions would reduce complexity. So would a calculus-based system with an infinite number of brackets and no deductions. That’s because eliminating deductions reduces complexity and economic distortions. Moving to a straight proportional tax is just something rich people like because it means they’ll pay less. The one has nothing to do with the other.