LAS VEGAS–A “parasitic leakage” is occurring in America with the government assessing excessive tax revenues and squandering part of the money that it collects, said Art Laffer, a former economics advisor for President Reagan and the founder and chairman of Laffer Associates, an economic research and consulting firm.
Examples of these problems can be shown simply by comparing how states that are more fiscally responsible outperform those that tax-and-spend heavily, said Laffer, who previously taught economics as the University of Chicago and the University of Southern California. Two of the starkest instances of this divergence can be found by examining the economic ascent of Texas and the decline of California, he added today during his keynote address at the FreedomFest conference.
One dramatic case of tax leakage is the “permitting process” in Orange County, Calif., which requires the payment of $100,000 in fees to build a new house, Laffer said.
Significant waste occurs when the government tries to move money from revenue to spending in California, compared to Texas, Laffer said.
California imposes 65 percent higher tax rates than Texas but government spending in the two states is roughly the same, Laffer said. Without question, leakage between spending and public services exists in California, he added.
Indeed, Texas provides more public services than California, even though the Lone Star state has comparatively lower tax rates.
States with higher tax rates provide less in public services, Laffer said. As proof, Texas has less poverty as a share of its population than California, he added.
Part of the problem that California faces is that it pays public employees significantly higher wages than Texas pays its state workers, Laffer said. The examples are numerous, he added.
For instance, California pays its educators 40 percent more than Texas, said Laffer, but the higher-spending state ranks lower in the test scores of students than the Lone Star state.
In another case, California pays correction employees 93% more than Texas, Laffer said.
Solutions exist to the problem, if government officials would implement them, Laffer said.
To achieve prosperity, the following steps should be taken by the U.S. government:
1. Use a low rate, flat tax;
2. Enact spending restraint;
3. Adopt sound money backed by something valuable;
4. Practice free trade with uninhibited borders for goods and services;
5. Only use necessary regulations; and
6. “Get the hell out of the way” and let the economy solve its problems.
Paul Dykewicz is a seasoned journalist who is the editorial director of the Financial Publications Group at Eagle Publishing and the editor of the Eagle Daily Investor website. He also edits five monthly investment newsletters, Forecasts & Strategies, Successful Investing, High Monthly Income, Alpha Investor Letter and PowerTrend Profits, as well as a number of time-sensitive trading services.