Although Donald Trump has suffered political setbacks in his first months as US president, he is still in a position to drive ahead on his audacious plans for tax cuts and infrastructure spending, says economic iconoclast Arthur Laffer, who tells Global Finance, “This could well be another huge period of prosperity.”
Best known as the author of the “Laffer curve,” a Reagan-era theory that tax cuts could stimulate economic growth that would pay for the reduced rates, Laffer has enjoyed something of a career renaissance since Trump’s election last November. When Trump rolled out a tax reform proposal in late April, observers, including the news site Politico, reported that the plan was a response to a New York Times op-ed that Laffer had co-authored along with fellow supply-siders Steve Forbes, Larry Kudlow and Stephen Moore, urging immediate action on taxes.
While Laffer’s analytical prowess can be challenged—Reagan’s economic boom could be attributed to Keynesian-style stimulus after a difficult double-dip recession, and George W. Bush’s reprise of the strategy led only to stagnation and the worst global economic crisis since the Great Depression—the economist is undaunted. In a mid-May white paper on taxes, Laffer concludes, “The sooner the Trump plan is passed and signed into law and the longer the Trump plan is in place, the greater its impact on output, employment, prosperity and yes, even budget solvency.”
And despite Trump’s controversial and sometimes contradictory statements on trade, regarding countries from Mexico to China and Russia, trends that date from the ages of Reagan and Nixon will continue, he argues. “I believe we are going to become more integrated. I believe we are not going to become more isolated,” Laffer asserts. “The United States is probably still as free-trade as any country there is.”