Art Laffer, a former economic adviser to President Ronald Reagan, once sketched a diagram on a cocktail napkin for a staffer in Gerald Ford’s administration – named Dick Cheney – to showcase what’s now known as the Laffer Curve.
It was a parabola demonstrating how, eventually, tax rates can get so high they become counterproductive and produce diminishing revenue. Laffer, an unabashed conservative economist, has in that fashion and in more formal settings advised presidents and presidential candidates on tax policy for the last several decades.
Even so, more local tax situations also get him fired up too. Laffer was in Memphis Monday, April 9, to speak about the national economy and taxes to the Economic Club of Memphis.
But, before that, he railed for more than an hour against Tennessee’s estate and gift tax during a private meeting for a handful of businessmen at the office of Waddell & Associates.
He frequently pounded the table with a thunderclap of a whack and used salty language to make his point. And his point can be summed up as follows: “Tennessee’s gift and estate tax is the single greatest reason why wealthy people don’t want to live in Tennessee.”
That’s how he put it in a roughly 30-page paper he wrote – “The Economic Consequences of Tennessee’s Gift and Estate Tax” – which is now being used by an organized effort in the state to press the legislature and governor to take action. It had also been read by attendees of the Monday meeting.
That organized effort is a group with a name: Tennesseans Against Death Taxes. And it’s in the midst of raising money around the state to support its effort to prod the legislature and governor.
Richard Smith, the son of FedEx founder Fred Smith, was in the room Monday at Waddell & Associates, listening with several others as Laffer dropped a few big claims. One such claim: if Tennessee would have deep-sixed the estate tax a decade ago, Laffer’s research claims the state would have more than 200,000 additional jobs that it doesn’t have today.
Laffer met with the FedEx founder himself earlier in the day Monday.
“Tennessee has a low overall tax burden, has no earned income tax, has a low corporate tax, property tax rates are low, Tennessee is a right-to-work state, and Tennessee ranks among the best states across the 15 key economic variables identified in the Laffer-ALEC state competitiveness index,” Laffer wrote in his paper, which was published a few months ago. “In short, Tennessee’s low regulatory costs, right-to-work laws, low corporate taxes and zero personal income tax provide a strong foundation for state growth. The unanswered question is why hasn’t Tennessee performed up to its potential.”
Laffer answered that question to his small audience at Waddell & Associates. He lays much of the blame at the foot of the estate and gift tax.
“Don’t underestimate the power of incentives,” Laffer said. “If you tax people who work and you pay people who don’t work, don’t be surprised if you get a lot of people who don’t work.”
Tennessee’s estate tax situation has warranted a mention from the Wall Street Journal opinion page more than once in recent weeks. In one editorial, the WSJ put the blame for why action hasn’t been taken at the feet of Tennessee Gov. Bill Haslam. A few days later, the paper published a letter from Haslam headlined “I’m not the problem on death tax reform.”
Haslam noted that in early January he proposed legislation to raise the exemption level on Tennessee’s estate tax from the current rate of $1 million to the federal exemption level of $5 million during his time in office.