Economics 102

Arthur Laffer and OCPA have begun responding to a few of the many criticisms of their tax proposal. Their latest argument boils down to this: it’s “Economics 101” that tax cuts are always pro-growth, because when less income goes to taxes, people have more incentives to work.

Unfortunately they don’t seem to have made it as far as Economics 102, because they leave out the fact that it’s not just “incentives” that decide how much income a person brings in. The most motivated worker or business is limited by their own skills and by available resources. They need raw materials, technology, access to markets, and a safe environment for commerce.

OCPA and Laffer totally ignore the role of taxes in ensuring this prosperous environment. All of that tax money isn’t piled up and set on fire, and its purpose is not simply to redistribute income, as OCPA contends. We spend it on schools, roads, health care, and public safety. Combining our resources to build these institutions that none of us could create individually is both efficient and pro-growth.

Oklahoma is already a low tax state, but OCPA is pursuing a goal to push us always to a further extreme. They would risk our economy for a mantra that tax cuts are the solution to every problem, a claim totally unsupported by real economics. That kind of Economics 101 might make for a good slogan, but it doesn’t match the real world.