Laffer vs. Norquist: Reagan supply-siders spar over online sales tax

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Economist and former Reagan adviser Art Laffer clashed with Americans for Tax Reform head Grover Norquist over a federal online sales tax bill Thursday.

Laffer released a study touting the economic benefits of the Marketplace Fairness Act (MFA), but courted controversy when Norquist charged that a conference call about the report was reserved for supporters of the legislation.

The Marketplace Fairness Act, which passed the Senate and is now being considered in a House subcommittee, would allow states to collect sales taxes from businesses in other states if residents make online purchases across state lines.

Laffer’s study found that if the MFA was passed and income taxes were cut in all states, the country would see a massive economic uplift — $563 billion in additional GDP by 2022. Wisconsin Gov. Scott Walker is an example of an elected official who has promised to use online sales tax revenue to cut other taxes.

But would most states actually pursue this policy mix? Norquist told The Daily Caller News Foundation that this assumption was comparable to saying “if there were pink unicorns, they would be pretty.” In reality, Norquist warned, “There aren’t any pink unicorns. What states are actually going to do this?”

Both Laffer and Norquist cited California, New York, Illinois and Maryland as states unlikely to use increased sales tax revenues wisely.

Laffer, Donna Arduin, and Colin Hanna of the free-market nonprofit Let Freedom Ring, held the press call Norquist says he was invited to and then excluded from.

Laffer told TheDCNF he had nothing to do with organizing the call or inviting participants. Hanna also denied hearing anything about Norquist being disinvited.

“If you think you have a strong argument you don’t avoid your opponents,” Norquist argued to TheDCNF. “If you can’t take a question, how strong do you think your case is?”

“Laffer is a strong economist,” he continued. “He would have immediately known what problems would be raised.”

Laffer emphasized that he agrees with Norquist that “taxes should not be raised,” but said stopping the online sales taxes wouldn’t prevent other more harmful tax increases.

Norquist countered that states were unlikely to decrease income taxes in response to an expanded sales tax base. He told TheDCNF that “people who think the best way to tame one tapeworm is to swallow a second one are missing something.”

“The government’s demand for money is infinite. If you let them raise one tax, they’ll be back for more,” Norquist contended. “If you whack them and say ‘Don’t raise this tax,’ state governments will be less likely to try to raise income taxes.”

Laffer was a leading force behind the supply-side economic policies of the Reagan administration. Norquist is also an advocate of supply-side tax cuts, and started Americans for Tax Reform at the request of President Ronald Reagan.

Norquist said that a lot of the opposition could be quelled by requiring states to offset the new revenue with tax cuts elsewhere. He said that this idea “was specifically rejected by advocates of the legislation.”

The bill passed the Senate by a significant margin but faces an uncertain future in the Republican-controlled House.

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