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New Study Shatters ALEC, Laffer Economic Myths

Photo of Arthur Laffer courtesy of the House Republican Conference

A new study of proposals from the American Legislative Exchange Council (ALEC) shows that policies the organization promotes do more to harm the economy than help it, despite the claims of the group's lead researcher and author, Arthur Laffer. States that are highly rated in ALEC's annual Rich States, Poor States report actually do worse economically than states ALEC rates poorly, according to Selling Snake Oil to the States, by Good Jobs First.

“We tested ALEC’s claims against actual economic results,” said Dr. Peter Fisher, primary author of the Good Jobs First study. “We conclude that eliminating progressive taxes, suppressing wages and cutting public services are actually a recipe for economic inequality, declining incomes and undermining public infrastructure and education that really matter for long-term economic growth.”

The problem with Laffer's and ALEC's claims is that they rely upon evidence that is flawed or doesn't exist, they reject decades of peer-reviewed research and they utilize experimental methods in achieving their results that violate basic principles of valid methodology, Fisher’s study finds. In reality, his report says, the better predictor of a state's relative economic success is its share of high-growth industries.

The report refutes a number of claims commonly made by Laffer, ALEC and their allies:

  • Cutting state and local taxes for corporations, since such taxes are such a small cost factor for businesses (about 1.8%), does not lead to greater job growth. Because of balanced budget requirements in many states, the savings from the tax cuts have to be made up by the government through increasing taxes elsewhere or cutting services and employees, all of which counterbalance any gains from the corporate tax cuts.
  • Having a low personal income tax rate does not lead to small business success. Much more important for small businesses are the property tax and sales tax rates.
  • High personal income tax rates and the existence of state estate and inheritance taxes do not cause high-income individuals to relocate to states with lower or non-existent taxes in these areas.
  • State-level estate taxes have no negative effect on investment in job creation.
  • Cuts to state tax rates do not increase revenue, they reduce it, leading to the defunding of education, infrastructure and other things that play a much bigger role in economic development.
  • "Right to work" for less laws do not lead to greater job creation or economic growth. They do, however, lead to lower wages and benefits.
  • Similarly, the lack of a state minimum wage does not create jobs or grow the economy, but does lead to lower wages.

Read the full report.

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