Mr Laffer says the best part of his strategy is that there is no limit to the dynamic gains from lowering taxes. “Make sure you understand this is the beginning and the process never ends. Just when you think you’ve hit nirvana, something else goes on and you start the process all over again,” he adds.
Although tax rates in most countries rose throughout the 20th century, which was by far the best century in economic history, Mr Laffer is unbowed. “When [taxes] went up [countries] did very poorly and when they went down, they did very well,” he says.
Furthermore, the poor will gain, he insists, and whispers that incomes will “trickle down” from rich to poor — a conservative argument long maligned by liberals. “When you change the marginal rate of substitution between labour and leisure, do people choose different combinations of labour and leisure?” he asks rhetorically, “Duh — you can call that trickle down, but it’s not taxes that matter, it’s tax rates.”
“We went from a the highest marginal rate of 70 per cent to one of 28 per cent [in the Reagan administration]. Do you see what happened to employment? Boom.”
Trade is the one area in which Mr Laffer is concerned about the president-elect’s grip on economics, saying: “I don’t know if I’ve ever seen a politician who’s ever understood trade”.
“I don’t believe Donald Trump is nearly as protectionist as his quotes,” he adds, and he urges the president-elect not to worry about the US 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?”
Since foreigners need to acquire dollars by selling goods and services to the US, he says, there are big benefits in a trade deficit. “Duh — you can’t have foreign investment without a trade deficit,” he says.
Just as Mr Trump has been ferociously critical of Ms Yellen’s chairmanship of the Federal Reserve, Mr Laffer is sure central bankers have got their strategies of ultra-loose monetary policy wrong. He thinks low interest rates fail to give people incentives to supply capital for housing and businesses, thereby constraining growth.
“Markets really know how to give you prices and Janet Yellen doesn’t. She’s never been forced to bear the consequences of her own actions,” he says, before warming to the theme. “[Central bankers] think they know better than God. She thinks she knows better how to change the economy better than the last four and a half billion years of evolution. How silly is that.”
Invoking the spirit of Charlton Heston in Planet of the Apes he adds: “Keep your stinking monkey paws off my economy, you dirty ape. That goes for [liberal economist Paul] Krugman, that goes for Yellen, that goes for all of these would-be dictators of the economy.”
The House GOP Task Force on Tax Reform, led by Ways and Means Chairman Kevin Brady (R-TX) and overseen by Speaker Paul Ryan (R-WI), released its “blueprint” tax reform proposal on June 24, 2016. The “blueprint” cuts individual and corporate tax rates, simplifies the tax code, and promotes economic growth.
The proposal reduces the corporate tax rate to 20%, allows for 100% full and immediate write-off of business investments, and moves towards a purely territorial taxation system in which companies would only pay tax to the U.S. government on earnings that occur within the U.S. This is accomplished via 100 percent exemption for dividends from foreign subsidiaries; a one-time repatriation tax of 8.75 percent for cash and 3.5 percent for everything else; and border tax adjustments going forward whereby imported goods are subject to a tax (equal to the corporate tax rate of 20 percent) and revenues from exports are exempt.
The tax code would no longer provide U.S. multinational corporations “an incentive to move production overseas because the tax burden would be based on sales within the U.S. regardless of where the goods are produced.”
The House Ways and Means Committee, led by Chairman Kevin Brady (R-TX), will continue to work out the details of a tax reform plan pursuant to the “blueprint.” Rep. Jim Renacci (R-OH) and other members of the Ways and Means Committee have introduced alternate tax reform plans centered around a consumption tax similar to a value-added tax.
Replace the Corporate Income and Payroll Taxes with a Consumption Tax
On the corporate side, this plan eliminates the 35 percent corporate income tax, 12.4 percent Social Security payroll tax on the worker’s first $118,500 of wages, and the 2.9 to 3.8 percent Medicare tax on all wages. These corporate and payroll taxes are replaced with a flat 16 percent value-added tax called the “Business Flat Tax.”
This 16 percent business tax would differ significantly from the current corporate income tax, perhaps most importantly by making capital purchases fully and immediately deductible (“full expensing”) while eliminating the deductibility of wages. It appears that the the tax would apply to all employers, including non-profits and governments, and no business tax breaks would remain in law.
Making wages non-deductible has a huge impact on revenue, since it essentially means most wage income would be taxed twice under Sen. Cruz’s plan – once at the business level and again at the individual level. This feature, in combination with full deductibility of all non-wage business expenses (capital investments), effectively makes it a consumption tax. Both the Tax Foundation and Tax Policy Center describe Cruz’s plan as a value-added tax (VAT). Although unlike European-style VATs (Sen. Cruz’s tax would not be imposed at each stage of production nor appear as a tax to consumers), it would be paid by all businesses and passed along in the form of higher prices.
By abolishing the corporate income tax, the plan would effectively move to a territorial system where future income earned overseas by a foreign subsidiary of a U.S. corporation would not be taxed. The plan would impose a one-time deemed repatriation tax of 10 percent on past profits held overseas, which are currently tax-deferred.
During a onsite survey November 24-27 in Xuzhou, Lianyungang and Suqian, Jiangsu Province,the State Council’s environmental protection team founded low-quality steel (hereinafter means low-quality steel using scrap steel as raw material, which is melt by induction furnace or rolled steel produced with such low-quality steel) and illegal steel capacity, so executed rectification on such capacities, mainly intermediate frequency furnaces. A few plants using intermediate frequency furnaces in northern Jiangsu have been dismantled. Power supply for plants using intermediate frequency furnaces in northern Jiangsu was cut off to suspend their production. Some intermediate frequency furnaces in southern Jiangsu were also forced to cease production.
Intermediate Frequency Furnace Not Equal to Low-Quality Steel
Intermediate frequency furnace is a type of electric induction furnace, which uses scrap steel as raw material, with low investment, low volume and simple production requirements. It is mainly used to produce rebar, or a small part of section and strip steel.
Economic and trade industry letter 2002 (156) defined that low-quality steel means steel using scrap steel as raw material and melt with induction furnace, whose ingredient and quality is difficult to control and rolled steel produced with the former.
Low-quality steel can be defined by quality and production requirements:
1. Product quality is poor, and does not have the mechanical properties of ordinary steel, with low strength, stiffness and melting point, and porosity, and is easy to break 2. Chemical composition is disordered, and can not play its due role.
Intermediate frequency furnace’s steelmaking technique and quality of scrap steel used to produce steel have improved noticeably. Some steel plants using intermediate frequency furnaces purify by oxygen and argon blowing, or using refining devices. Some plants equipped environmental protection facilities this year given strict environmental protection requirements. Low-quality steel produced by these regular steel plants using intermediate frequency furnace still differs from that produced by small workshops.