BOOK REVIEW: “Taxes Have Consequences: An Economic History of the United States” – 71Bait

Those who do not learn from history are doomed to repeat it. And when those who don’t learn hold the reins of power and the purse strings of society, they do so at our expense. Taxes Have Consequences: An Economic History Of The United States, by Art Laffer, Brian Domitrovic, and Jeanne Sinquefield, is a concise, compelling treatise on economic history that lays out why and how periods of prosperity and decline were propelled by politicians alike’ Wealth taxation decisions.

Laffer brings his expertise and track record as an economic advisor behind Reagan’s historic tax cuts in the 1980s that ushered in a period of American prosperity and economic strength that eventually helped the free world weather the Cold War. Yet far from writing a love letter to capitalists, Laffer & Co. write. Instead, they apply a pragmatic perspective to explain how income tax decisions create incentives that direct human behavior toward either productive or unproductive ends.

When top US income tax rates are high, the rich have responded by using a complex system of perfectly legal loopholes, tax breaks, and investment vehicles to hide their wealth—often with the blessing of the governments themselves. From the restaurants where the decadent company dinners in 1960s Manhattan, to the burgeoning art collections and yachting industries, to the decidedly less glamorous market for tax-exempt municipal municipal bonds… the winners of income tax rate increases at the high end tend to be as diverse as they are absurd. As a result of these policies, virtually no person has paid income taxes at historically high rates.

Ironically, the ultimate losers from these policies tended to be the middle and working classes, who missed out on the jobs and opportunities that would otherwise have been created had the money been used for its most productive purposes. And that’s what happened throughout American history in the immediate aftermath of historic tax cuts under red-and-blue-striped governments, like those under the Kennedy and Clinton administrations, as well as the Trump administration’s more recent Tax Cuts and Jobs Act, which helped revenue bringing back millions of dollars from American multinationals invested abroad.

Rather than shrinking the pie by reducing government revenue for social services and programs, these cuts have resulted in a windfall, as assets that would otherwise be hidden or locked away have instead been used for entrepreneurship, productive capital goods, job creation, and other uses , for which the cake grows all.

None of this requires us to accept benevolence, let alone genius, on the part of the rich. After all, they are driven by their own ambition, greed, and self-interest. And those who lack their own acumen have the resources to access the best advice available from the best lawyers, accountants and management consultants. Läffer and co. make the simple argument that greed and ambition can either be suppressed in a way that leaves few or no winners, or they can be used for positive purposes.

In their argument, the authors debunk the conventional mythology behind the causes and effects of historical episodes such as the Great Depression, the post-war boom and the global financial crisis by using dates and historical facts. They demonstrate how periods of tax rate increases intended to promote “fairness,” such as Hoover’s Scott-Hawley taxes in the early 1930s, have always and inevitably led to a decline in wealth and prosperity for both rich and poor Americans – such as the depression. And how, contrary to conventional wisdom or the narratives of partisan actors, the post-war economic boom had much more to do with wartime government getting out of the way and removing existing constraints on entrepreneurship and private innovation than with FDR’s radical expansion programs. All of these arguments are backed up by statistics, numbers, and a critical appraisal of claims that have gone unchallenged in public discourse for far too long.

Economics students and those interested in the discipline will gain new insights that challenge mainstream discourse in liberal arts universities across the country today. History and Americana lovers will be delighted by interesting, if lesser known, episodes and anecdotes of this nation’s great history and the ingenuity of its people. Political tragedy is entertained and provided with the empirical ammunition needed to understand and argue how to solve the country’s problems.

At a time of record taxation and debt, rising inflation and out of control government spending that seem to be gaining increasing support from both sides of politics, Taxes Have Consequences is an important and timely work by three of the nation’s brightest business minds. It reminds us that we need only embrace what we know works, not the discredited garden path of the zeitgeist.

• Satya Marar is a Washington-based political analyst, foreign-educated attorney and member of the Capitalist League.

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Taxes Have Consequences: An Economic History of the United States
By Art Laffer, Brian Domitrovic, Jeanne Cairns Sinquefield
440 pages
Post Hill Press, September 27, 2022

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