Economist Arthur Laffer brings anti-tax philosophy to Las Vegas

In a speech that was part stand-up routine, part macroeconomic overview, economist Arthur Laffer on Tuesday regaled the Nevada Taxpayers Association with his famous tax-cutting rationale.

"If you tax people who work and you pay people who don't work, you're going to get more people not working," Laffer said. "It's just common sense."

Considered the father of supply-side economics, Laffer, 67, made his name promoting the theory that lowering taxes on the rich can increase government revenue by motivating economic activity and responsible tax-paying. His ideas came into wide circulation when they were embraced by President Reagan, to whom Laffer was an adviser.

His critics say Laffer's theories make false assumptions about what motivates people's economic behavior and lead to greater economic inequality.

Speaking at Palace Station before an audience of government officials, business people and lobbyists, a youthful, mile-a-minute Laffer, between cracking wise and spinning misty anecdotes about Reagan, blasted the current Democratic presidential candidates for their plans to increase taxes on the wealthy, which he said would lead to disastrous results.

Hillary Clinton and Barack Obama have vowed to let President Bush's tax cuts on those making more than $200,000 a year expire, with Obama saying he also would extend the reach of payroll taxes.

Laffer said that those in the highest tax bracket make business decisions based on the highest marginal income tax rate and higher rates give them only more incentive to avoid taxes, legally or not. "People don't work to pay taxes," he said. "They work to get what they can after taxes."

Because the highest earners have lawyers, accountants and consultants at their disposal, "What you find is that if you lower tax rates, they pay them," he said. "You raise tax rates, and they find a way around them."

Although he once ran for U.S. Senate in California as a Republican, Laffer said his philosophy isn't partisan; he had praise for both Nevada Gov. Jim Gibbons, a Republican, and Tennessee Gov. Phil Bredesen, a Democrat.

In an interview, Laffer said he thinks the country is in a recession and Nevada, where revenue shortfalls have led to government cutbacks and home foreclosures are rampant, has "serious economic problems." But he said more taxes were not the answer.

"I wouldn't do anything today," he said when asked what the answer was. "I'd wait until the next boom comes, and it will. And when you have another surplus, put away a big chunk of money."

Nevada, he noted, has "a lucky, lucky situation where you have an industry that can be taxed pretty sizably without affecting the overall performance of the economy," referring to gaming.

Gaming taxes should be considered not just as a revenue generator but also as a "sin tax" to discourage excessive indulgence, he said.

Nevada's top casino gaming tax rate of 6.75 percent is the nation's lowest. But Laffer said that was still "very significant" and raising it would only give government an excuse to spend more needlessly.

Contact reporter Molly Ball at mball@reviewjournal.com or (702) 387-2919.