“We don’t need more taxes in Tennessee,” well-known economist Arthur Laffer told the House Transportation Subcommittee on Wednesday at a hearing about Gov. Haslam’s proposed gas tax increase.
Laffer, who gained international prominence during the Reagan Era as the author of “the Laffer Curve” –which showed government revenues increase as high taxes are cut– testified before the subcommittee at the invitation of House Transportation Subcommittee Chair State Rep. Terri Lynn Weaver (R-Lancaster). He is probably most well-known for his role on the Economic Advisory Board under President Reagan. He has a B.A. in Economics from Yale University and his Ph.D. from Stanford University.
The renowned economist “made a calculation” and came to Tennessee 10 years ago, leaving the heavily taxed state of California. He hasn’t looked back.
“Economics is all about incentives. People like doing things they find attractive and dislike doing things they find unattractive. Taxes change the attractiveness of activities,” Laffer told the subcommittee:
If you look at taxes, all taxes are bad, but some are worse than others.
What you want to do is you want to collect your tax revenues in the least damaging fashion possible and you want to spend the proceeds in the most beneficial fashion possible. What you want to do is when the damage done by the last dollar of taxes collected is a little bit less than the benefit done by the last dollar of money spent, that’s when you stop. Up until that point, all increases in government of government are beneficial, beyond that point all increases in government are detrimental to the overall economy.
It is just amazing how taxes really incentivize people to move and bring their prosperity. Governments all throughout the United States are competing for people, jobs, businesses and output. It’s incredible.
Specific to Tennessee, Laffer offered statistics similar to those offered by the governor’s office:
Tennessee has the third lowest taxed state in terms of GDP; the ninth lowest property taxes; is tied with four other states for the highest AAA credit rating by three different agencies; has minimal debt; has well-funded pensions; has the largest percentage increase in employment per adult in the United States over the last 12 months; is number one in improvement in both English and math for both 4th and 8th grade on the 2012 NAPE test scores; is number one in improvement in science on 2016 test scores; and, using Reason Foundation’s measurement of highways, Tennessee went from 37th lowest in 1987 to 18th highest.
Without referencing the IMPROVE Act, Gov. Haslam’s proposal to increase gas taxes while cutting certain business taxes, Laffer offered guidance on aspects of the proposed plan.
“When I look at the situation here, highway funding does appear to be a very needed activity, that’s true. But, we don’t need to raise taxes and cut taxes that are temporary. … the Hall tax has been eliminated. It is supposed to be completely eliminated by the year 2022,” he told the subcommittee.
“But, if you accelerate that elimination, that is a tax cut for one or two years, but it is not a permanent tax cut. When you compare that with a permanent tax increase, I believe that is an incorrect comparison and should not be done,” he added:
If you raise the gas tax you should cut other taxes, other sensitive economic taxes by as much, if not more, than the taxes you raise.
The talk about the gas tax as being a user fee is not correct. It is not a user fee, it’s a gas tax.
Exempting food is a silly pandering.
If you look at it, a franchise tax is a job killer. It’s an attraction killer.
“The reason we’re running a huge budget surplus is because we are the lowest taxed state in the nation, it’s not in spite of that,” Laffer cautioned the subcommittee.
“And, if you raise those taxes, believe me when I tell you, you will find that surplus diminishing very quickly. You don’t need to spend everything you get,” he concluded.
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