Tag Archives: Arthur Laffer

Arthur Laffer Discusses A Jack Kemp Idea: Enterprise Zones

How to Fight Black Unemployment

The tragedy of the failed stimulus is felt hard in minority communities. There’s a better way.

September 12, 2011

Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.

I’m beginning to think that Irving Kristol was correct when he wrote, “It takes a Ph.D. in economics not to be able to understand the obvious.” It shouldn’t surprise anyone why the economy isn’t getting better.

If the U.S. wants prosperity, government doesn’t need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.

African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn’t even take into account “discouraged” workers, “involuntary” part-time workers and “underemployed” workers. But even these numbers don’t tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.

Behind these numbers are millions of lives discouraged and despondent. People who’ve lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he’s living on handouts from Uncle Sam. We as a nation can’t wait until 2013 to address this issue.

Whether President Obama’s base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.

Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:

A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer’s portion of the payroll tax. The locus of employment does have to be in the enterprise zone.

Don’t for a moment think that this will be a budget buster. Right now there aren’t many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won’t need welfare. The best form of welfare is still a good job.

B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren’t worth hiring. That is why they are unemployed.

A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami. Associated Press

Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.

C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don’t unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.

When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I’ll bet they’re even worse now.

D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.

Businesses don’t move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It’s as simple as that.

I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.

Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).

This editorial appeared in the Wall Street Journal.

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Larry Kudlow’s Kemp Obituary

On a personal level, been waiting to see what the great Larry Kudlow would say about Jack Kemp’s passing. This does not disappoint.

By Larry Kudlow

May 5, 2009 for Townhall.com

When I first visited with Jack Kemp in his congressional office in Washington, D.C., in the late 1970s, I couldn’t help but notice the row of books on his desk. There was Friedrich Hayek, Ludwig von Mises, Benjamin Anderson, and Milton Friedman. And of course there was Jude Wanniski’s The Way the World Works.

Jack extracted big ideas from these big books, and he applied them to an American nation that was in big trouble. His detractors called him a jock, just as they called Ronald Reagan a dunce. Yet both men proved their critics wrong.

Working with Wanniski, Arthur Laffer, Robert Mundell, Alan Reynolds, Steve Entin, Norman Ture, and many others, Jack developed an agnostic economic formula that solved the vexing problem of economic stagflation and malaise.

Lower tax rates for everyone, he argued. Make it pay after-tax to work, produce, invest, and take risks, and the country will get more of all of it. Along with lower marginal tax rates to reignite economic growth, stabilize the free-falling dollar to curb inflation. And add free trade to that mix, since tariffs are nothing more than taxes on the purchase and sale of international goods.

Foster policies that will unleash our God-given creativity and imagination, Jack Kemp argued. And let individuals take it from there.

Jack was always talking about a rising tide to lift all boats, borrowing from the JFK phrase of the early 1960s. In fact, in meetings in the mid-1970s, Laffer and Wanniski helped persuade Kemp to follow in JFK’s footsteps and propose reduced tax rates across-the-board to get the economy growing again.

Jack, an unbelievably energetic activist, then helped persuade Reagan of the merits of this new policy approach. The economic dons of Cambridge and New Haven scoffed. They wanted to raise taxes, allegedly to curb inflation, and pump up the money supply to expand the economy. Kemp and his group told the dons they had it exactly backwards. He was right. The Ivy League was wrong.

Kemp actually thought of himself as a bleeding-heart conservative. First and foremost, this son of a truck driver wanted to improve the plight of the non-rich in the inner-city housing projects and those trapped in the dead-end welfarism of the barrios. He worked to expand the economic fortunes and political rights of all minority groups, including all those blue-collar workers who were getting killed by high tax rates and virulent inflation.

A perpetual optimist, Jack told the Republican convention in 1996, “You see, democratic capitalism is not just the hope of wealth, but it’s the hope of justice. When we look into the face of poverty, we see the pain, the despair, and need of human beings. But above all, in every face of every child, we must see the image of God.” He then added, “I believe the ultimate imperative for growth and opportunity is to advance human dignity.”

Nobody talks like that anymore. Politicians should. It’s inspirational stuff.

Another of Jack’s pet projects was the bringing together of capital and labor, workers and investors, and businesses and jobs. His ultimate goal was to make the non-rich rich. And to achieve that, he knew Wall Street had to work with Main Street; investors had to work with unions; and high finance had to work with the hard-hit folks in the inner cities. He had a true post-partisan vision long before that phrase became fashionable.

Over the years Jack often called me to affirm and encourage my simple paradigm: You can’t have a good job without a healthy business to create it, and you can’t have a good healthy business without the investment capital to fund it. It’s a unifying message.

This week President Obama unleashed yet another attack on international businesses, essentially calling them unpatriotic tax cheats even though they abide by existing laws. Last week, Obama used his clout to undermine investor contract laws in the Chrysler bailout. The president has also blasted banks and Wall Street, and has launched a war against capital.

Jack Kemp knew all this to be wrong. He said we need to stop taxing saving, investment, and business two, three, and four times. Simplify the tax code, he said. Lower tax rates across-the-board for everyone. Understand that Hispanics in the barrio need the very capital that is supplied by investors. Without it there will be no new jobs. And jobs along with economic growth are the best anti-poverty weapons we have.

Jack Kemp never tore people down; he tried to build everyone up. He argued passionately to persuade, not to destroy. He believed in one grand economic coalition that in fact would constitute a rising tide.

So Jack has passed away and we mourn. But his big ideas and dreams will live forever.

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