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OPINION
Text in which the author defends ideas and reaches conclusions based on his / her interpretation of facts and data

Trump and the philanthropic ogre

The president is dusting off the old and unscientific “Laffer curve,” which did so much damage under Reagan

Joaquín Estefanía
US President Donald Trump.
US President Donald Trump.JONATHAN ERNST (REUTERS)

The members of Donald Trump’s government have more money between them than a third of all the citizens of the United States. They are a good example of how existence determines the conscience. This Cabinet is responsible for presenting the “America First” budget plan, which is a great example of redistribution in reverse: on the spending side, more for defense and national security and less for anything related to social assistance; and on the income side, “the biggest cuts in history” (Trump dixit), with reductions in company tax, the elimination of inheritance tax, a simplification of income tax and the elimination of a surcharge that was paying for Obamacare. A very favorable outcome for the richest.

The moth-eaten and unscientific Laffer curve has risen from the ashes

A rise in the fiscal deficit and public debt will only be avoided if there is economic growth much higher than the current rate. It’s a similar outlook to that seen in the 1980s, when Ronald Reagan was in power – a president who arrived with the promise of balancing the public accounts but left office with a country that was saddled with debts for more than a generation. Many analysts have been drawing parallels from the start between Reagan and Trump – although the latter is more a synthesis of neo-liberalism and authoritarian populism, a mix more of Reagan and Berlusconi.

As a result, the moth-eaten and unscientific Laffer curve has risen from the ashes. The curve establishes an inverse relationship between tax rates and income (the greater the rates, the less will be collected). Remember for example, 1974, with Gerald Ford president, when the objective was to raise income tax to deal with the ongoing fiscal crisis. Seated around a table were Arthur Laffer, a virtually unknown academic from a second-rate business school, two of the key members of the Ford Cabinet, Donald Rumsfeld and Dick Cheney (yes, they were there), along with the editorialist from The Wall Street Journal, Jude Wanninski. While they commented on Ford’s proposals to raise taxes, Laffer grabbed a paper napkin and a pen and drew on it a curve to illustrate the inverse relationship between taxation rates and government revenue. The “Laffer curve” was born.

Laffer grabbed a napkin and drew a curve to illustrate the inverse relationship between taxation and revenue

With this legendary napkin (which is on display in the Washington National Museum of American History), one of the basic principles of the conservative revolution was born, one that Trump has now borrowed. By combining lower revenues, which will hypothetically give way to stronger growth, and slashing social spending (in terms of healthcare for the poor, food stamps for 46 million people, student loans, assistance for the disabled…), a state will emerge that will have little to do with the philanthropic ogre of Nobel Prize-winning poet and diplomat Octavio Paz. He referred to a state (Mexico) that was repressive and regressive, but that compensated with patronage and compassion. Compassion is not currently in the plans of the current government of plutocrats in Washington.

English version by Simon Hunter.

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