Arthur Laffer

Some Oklahoma politicians have trumpeted a report by economist Arthur Laffer to claim that eliminating the state income tax will fuel an economic boom. Laffer is best known for the Laffer Curve, which he famously sketched on a napkin while meeting with Dick Cheney in a hotel bar. It went on to form the basis of the Reagan administration’s trickle-down economics.

The Laffer Curve makes an obvious point: government revenues peak at a tax rate somewhere between zero and one-hundred percent. In the lower half of the curve, raising taxes will increase revenue, but go too high and the reduced economic activity due to excessive taxation will result in lower revenue.

The argument was not original to Laffer. It had been stated previously by thinkers ranging from 14th Century Arab philosopher Ibn Khaldun to John Maynard Keynes, the founder of modern macroeconomics. What made this idea influential in recent decades was not any special insight into economics, but its powerful appeal for politicians. Rather than explaining how tax cuts (popular) would be paid for by budget cuts or increases in other taxes (unpopular), they could simply claim that the tax cuts would pay for themselves. Read the rest of this entry »

This blog post was excerpted from remarks by Angela Glover Blackwell, founder and CEO of PolicyLink, during the opening session of PolicyLink’s 2011 Equity Summit in Detroit, Michigan.  The speech presented a new framework for creating an equitable economy.  Click here for a new report from PolicyLink looking at how demographic changes and deepening inequality demand an urgent re-imagining of our economy.

This is a critical moment.  The economy is in crisis.  The middle class is shrinking.  Inequality has come front and center in our conversation in America and we have rapidly changing demographics in which the racial and ethnic composition of the country is changing fast.  This economic crisis really represents a failed growth model, one that was based on a housing bubble; one that was allowed to present itself as opportunity when it was really only credit-fueled consumption that was improving the lifestyles of people [..] Read the rest of this entry »

This video provides an excellent graphical overview of postwar recessions, putting the most recent economic downturn into grave perspective.  The video was created and narrated by Colin Gordon of the Iowa Policy Project.  For more videos like this, and additional research and resources on policies that affect working families, visit www.buildingthemiddleclass.org.

View other clips from OKPolicy’s “Watch This’ video series:

Making Ends Meet: The Medicare Generation

A tale of two (Oklahoma) cities

Living Through the Oklahoma Dust Bowl

Reducing Infant Mortality

What is Sharia Law?

Panic Nation

The national unemployment rate rose for the second consecutive month in May, edging up to 9.1 percent. Fortunately for Oklahoma, the unemployment rate is moving in the opposite direction, dropping for a fifth consecutive month in April to 5.6 percent, giving us the 6^th lowest unemployment rate in the nation.  While this is good news for the state, inconsistent job growth locally and nationally suggest that the road to labor market recovery will continue to be rocky.  While any encouraging news is worth celebrating, we need to look beyond this standard indicator to better gauge the overall health of Oklahoma’s labor market.

The unemployment rate as calculated by the Bureau of Labor Statistics (BLS) is an imperfect measure of unemployment, especially in the aftermath of a protracted economic downturn.  The widely reported unemployment rate only counts people who “made specific efforts to find employment” in the last month.  If you are unemployed but don’t meet that criteria, you are not considered part of the labor force.  This method discounts unemployed Oklahomans who had no specific leads on a job, didn’t make any effort to find a job, or have given up looking for work indefinitely.  The BLS describes the distinction this way:

Persons who are neither employed nor unemployed are not in the labor force. This category includes retired persons, students, those taking care of children or other family members, and others who are neither working nor seeking work. Read the rest of this entry »

Oklahoma’s tax system is broken. Despite a recovering economy, the state is unable to raise enough revenue to sustain core public services. The strains will only increase over time as we cope with a rapidly aging population, unfunded pension obligations, and decaying infrastructure.

But inadequate revenues is not the only problem. It’s just as important that the cost of supporting government is fairly distributed and does not privilege some businesses or individuals over others without good justification.

As we explain in an issue brief released today, Oklahoma’s sales tax has fallen victim to both of these problems. The economy has evolved so that services and online goods which are not covered by the sales tax make up a larger proportion of purchases. In addition, the legislature has granted a growing number of exemptions, many with questionable economic rationale. One report found that just 35.7 percent of all purchases in Oklahoma were covered by the sales tax in 2003, compared to 52.0 percent in1990. Trends in the economy make it likely that the situation has only gotten worse since then. Read the rest of this entry »

Health care reform is in the news. We have the world’s most expensive health care system, but our health care outcomes are not that good and we still leave one-sixth of Americans under age 65 without insurance coverage. President Obama and the Democratic-controlled Congress are making this one of their many top priorities this year.

The possibility of reform raises many troubling questions. Will there be new taxes? Will current employer-provided benefits be taxed? Will government control health care decisions? Will private insurers be run out of the business? Will the federal deficit get even worse?

Whenever we consider significant public policy changes, it is reasonable to ask “What happens if we do nothing?” The Council of Economic Advisers, a White House agency charged with offering objective economic advice to the President, suggests that may be the worst alternative of all. Their new report forecasts the economic effects of health care reform and gives us some insight into the “do nothing” alternative. The Council finds that:

• Letting costs grow at the present rate stunts economic growth. By 2030, gross domestic product would be eight percent below levels we could expect if we achieve minor–1.5 percent per year–cost controls.
• Translated into personal terms, a family of four would see about $10,000 less income in 2030 under the current health care system than under one that controls cost growth.
• Uncontrolled health care costs reduce employment by about 500,000 per year.
• The current system is inefficient. There is no relationship between cost and health outcomes, and it costs society more to leave people uninsured than it would to insure them. Employer-provided insurance keeps people in jobs when they might have better opportunities elsewhere, and makes it difficult for small businesses to compete with larger ones.

The Council concludes:

The CEA report makes clear that the total benefits of health care reform could be very large if the reform includes a substantial reduction in the growth rate of health care costs. This level of reduction will require hard choices and the cooperation of policymakers, providers, insurers, and the public. While there is no guarantee that the policy process will generate this degree of change, the benefits of achieving successful reform would be substantial to American households, businesses, and the economy as a whole.

Keep in mind that the Council works for a pro-reform president. The report, however, is well-documented and does not advocate any particular reform.

As we learn more about specific reform proposals, most of us will see something we don’t like. Many will vocally and arduously oppose most of the proposals that are offered. As we weigh new options, however, we should never lose track of the risks of leaving the current system alone.