Darian Woods (2:51)

The US corporate tax rate was lowered a lot, to 21%. But most of these big changes were temporary, so extending Them now explains why the One Big Beautiful Bill act is so expensive. Or does it?

Arthur Laffer (3:06)

Hello.

Darian Woods (3:07)

Glad you could join me.

Waylon Wong (3:08)

This is Arthur Laffer. He is a luminary in conservative circles. He advised Nixon and Reagan.

Arthur Laffer (3:15)

I made a vow never to take money from government ever again.

Darian Woods (3:18)

He still advises presidents, though, including now Donald Trump, but he says that's pro bono. Those meetings cover a lot of ground.

Arthur Laffer (3:26)

You're exhausted after coming out of a meeting with him.

Waylon Wong (3:28)

There's an economic chart that is Arthur Laffer's namesake, the Laffer Curve.

Arthur Laffer (3:33)

I didn't name it that, but I did use it a lot in the 60s and 70s and 80s. And it's.

Darian Woods (3:38)

That curve shows that at some point a higher tax rate will actually result in a lower tax take for the government. That's because economic activity slows if it's taxed too much. In other words, sometimes tax cuts can pay for themselves.

Waylon Wong (3:54)

Now, it's controversial exactly where this point is. Is it 20% or 80%? But the general idea that lowering taxes can boost economic growth is why Arthur Laffer applauds the One Big Beautiful Bill Act.

Arthur Laffer (4:07)

The big numbers there, I think, are quite good for the economy. I mean, we need to not have a big tax increase. We need that. I think it's done well on spending compared to the Democrats, the other side, it's not great. I'd like to see much bigger cuts.

Darian Woods (4:21)

And at the heart of what appeals to Arthur is the Big Bill's extension of the 2017 tax cuts.

Arthur Laffer (4:27)

I think the Tax Cuts and Jobs act extension is really important for the prosperity of this country.

Waylon Wong (4:33)

In fact, Arthur claims that last time the tax cuts actually brought in more revenue.

Arthur Laffer (4:38)

They paid for themselves more than that. They've created a lot of prosperity. Poverty rates went way down. The lowest levels, especially for minorities, disenfranchised, lower educated youth.

Darian Woods (4:49)

What you're saying about the 2017 tax cuts, that's not an uncontested view.

Arthur Laffer (4:54)

No, it is uncontested. This is not about opinions. This is not about how you feel. This is about facts. Federal revenues went up after the bill passed, that's fact. Unemployment rates went down after the bill passed, that's fact. Our growth rate accelerated relative to the Eurozone. That's a fact.

NPR Host (5:11)

It's really just a myth that a tax cut can pay for itself.

Waylon Wong (5:15)

Erica York is vice president of Federal Tax Policy at the Tax Foundation.

NPR Host (5:19)

If you lower tax rates on work, people might work some more. Or if you lower tax rates on business investment, businesses might invest more. You get a little bit more tax revenue. Than you otherwise would have. But you're still starting from that lower bar of the tax cut. So you may make up some revenue, but you're not going to pay for an entire tax cut.

Darian Woods (5:41)

Erica says that yes, tax revenue might have trended up after the 2017 tax cuts, or there might have been economic growth, but more sophisticated analysis is needed.

NPR Host (5:52)

The part that really matters is what would have happened without the tax cut. And you need to compare what did happen with the tax cut to the world without the tax cut.

Waylon Wong (6:01)

In other words, correlation doesn't mean causation. The world is complex.

NPR Host (6:05)

There are careful academic studies that go in and try to estimate that and what they tell us, some of the best that have been done find that, yeah, it was good for the economy, it boosted business investment, it to some extent boosted wages.

Waylon Wong (6:20)

But when you control for all the different forces in the economy, the Tax foundation has a much less rosy view.

NPR Host (6:26)

Our modeling of this current tax bill suggests that economic growth will pay for about 19% of the tax cut.

Darian Woods (6:32)

That 19% is actually more optimistic than most other policy think tanks estimates.

NPR Host (6:38)

Politicians make these wild claims, you know, the tax cuts are going to pay for themselves.

Darian Woods (6:43)

The academics always pouring cold water over the big claims.

NPR Host (6:47)

Yeah. And then that gives people who are, you know, against the law. They say, well, the politicians were wrong. The story didn't play out. The tax cuts didn't do anything for growth, when really the truth is somewhere in between. Tax cuts did a little bit for growth, but we should be realistic about what to expect. Tax cuts aren't going to, like, juice the economy, but there are important improvements that can be made that make things better on the margin.

Waylon Wong (7:09)

We presented these types of studies to Arthur Laffer, but he was unmoved.

Arthur Laffer (7:14)

These people are incorrect in their assessments of the economy. You know, tax rate reductions, especially on the upper ranges, are really ways of stimulating the growth in this economy. Look at what happened under Reagan. Look at what happened under Clinton. Look at what happened under Trump under Kennedy. Have you ever heard of an economy taxed into prosperity? It's just not common sense and it's not good academics either.

Darian Woods (7:38)

If Eric is right, though, the bill is set to cause government debt to soar higher and higher.

NPR Host (7:45)

It's significantly going to increase deficits. We're spending as much on interest payments on our debt as we are on defense. That's really eroding what the government can do because we're just spending so much to pay our debt.

Waylon Wong (7:59)

The committee for a responsible federal budget estimates that the one big beautiful Bill act could mean the federal debt grows to around 130% of GDP by 2034. That's up from 117% under the status quo. Arthur Laffer, Donald Trump and the President's Council of Economic Advisers don't believe that. They think growth unleashed in the economy will offset the lower tax rates.

Darian Woods (8:23)

On the other side, you have Erica York and the Tax foundation, the center on Budget and Policy Priorities, the Tax Policy center, the Brookings Institution.

Waylon Wong (8:32)

You also have the Congressional Budget Office, the Joint Committee on Taxation, the Penn Wharton Budget Model, and the Budget Lab at Yale.

Darian Woods (8:40)

Pretty much every mainstream budget think tank in the US they all come to the same conclusion. These tax cuts mean less money for government. We'll be digging into the One Big Beautiful Bill act over the coming weeks, learning how it affects US Businesses, workers and you. Stay tuned. This episode was produced by Cooper Katz McKim with engineering by Robert Rodriguez. It was fact checked by Corey Bridges. Kate Concannon edits the show and the indicator is a production of npr.

NPR Sponsor (9:18)

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