Transcripts For CSPAN2 An Inquiry Into The Nature And Causes Of The Wealth Of States 20150222

Or daily business. Time magazine listed arthur in an article, the centurys greatest minds. Los Angeles Times listed arthur in an article a dozen who shaped the 80s. Business week discussing the most destruct stiff ideas destructive ideas in the la85 years. Anything that has to do with disruption should have arthur listed. That brought a question. I want to propose a question. What does Arthur Laffer and Marilyn Monroe have in common . They both achieved their celebrity status because of their curves. [laughter] im not going to ask for a vote of hands to see which curve you suspect out of due respect for arthur. Arthur laffer. [applause] thank you very much tom. I had the pleasure of introducing tom not long ago when he got his award here from the manhattan institute. So it was a real pleasure in reverse. You were actually a little funnier than i was. Any of you find this weather unusual at all . I mean, im from cleveland ohio, and i dont know if you saw the lakeeffect theyre hitting records. I think in buffalo got up to 75inches of snow in the fall. I remember lock ago anybody remember jack kemp . [applause] i remember jack. I called jack. He was in buffalo. And i asked him, hey, jack, whats the weather like there in buffalo . And he said, oh art its clear and still. The snow clear up to your ass and its still coming down. So let me do you mind if i have a little fun with the people here today . Its a fun topic. Especially after the election on november 4th. Especially after the election of november 4th. Ill say it three four times. Wasnt that amazing . And its not only the senate and the house, but did any see the governorships . I mean my goodness. All seven taxcutting republican governors won reelection. Sam brownback john kashich, rick snyder mitch daniels. Not mitch mike pence. They get theyre the same person. Just i dont know how they do that. Its just then did you look at the tax inincreasing governors . Three out of six of them lost their seats. We took massachusetts, the governorship of massachusetts. Pretty amazing. If you look at what happened in maryland, we took the governorship there. Did anyone notice illinois . We took that one. [applause] i mean, this is reading when you look at it, economics really does matter. The ones we didnt take we didnt take california, but jerry brown did lose super majorities in both the assembly and the senate. We did not take minnesota, mark dayton was reelected. But he did take the house in minnesota in New Hampshire we did not take we took back the house in New Hampshire. Its amazing what is going on. If you look at the number of states represented senate and house, we picked up a huge number of that as well. It is just amazing itch thought id just go through some of the economics of states if thats all right. The book, yall got the book. But i wanted to go through with you. What i tried to do, what we tried to do in this book, was just put economics on a state level clearly and focused. And i hope im not going all over all of your heads today. If you have two locations, a. And b. If you raise taxes in b. And you lower them in a. Produces and manufacturers and people are going to move from, to . Aim going over your heads on this one . I had more fun doing this with steve and travis brown, but its really fun let me just go through a couple of them and then ill go through california. I still have a thing on for california. I lived most of my life there and i was in the governors council, and when he turned to the dark side, schwarzenegger i decided to get out of dodge. I still miss him. Schwarzenegger was very entertaining. In fact, i remember the first time i met with him on that. I was having breakfast with him at his house in l. A. I met him a couple of times. But i didnt know him well at all. And i went up there to have breakfast with him, and id heard his sharp wit was amazing. So i decided the best defense would be an aggressive offense. So i went up there and i said, governor, i just want to tell you very clearly how pleased i am to be with you today. And its just a real honor to be with you. But the truth of the matter is, i hope youre a good governor and do really well. And with that he responded to me and said arthur why are you economists so short . I said, where did that come from . Seriously. He said, no, no, cant be more than 46 tall and you are you remind me of danny devito. I starred with him in twins. So i never took that tack again. If i can, the book health of states. First big chapter starts with the fall from grace. There have been 11 states in the United States over the last 65 years that have introduced the income tax. So what we thought wed do in this chapter is take a look at what happened to those 11 states. It started off with West Virginia in 1961, end up with connecticut in 1991. Normal states. If you look at them you have maine, rhode island, you have connecticut, new jersey you have West Virginia, you have pennsylvania ohio you have michigan, you have indiana, you have illinois, and then you have nebraska. These are normal states. What i did in this chapter, we took the performance of those states, the three years before the introduced the income tax. You al with me . Looked at the primary metrics, population, labor force, all of these variables relative to the rest of the nation. So we standardized by the size of the nation. Then looked at the same metrics, including, by the way state and local taxes. Then looked at the same metrics in the last two years. If you look at each of those 11 states literally, with not one exception, every single one of those states declined as a share of the u. S. Economy. Not one exception. And some of them declined bay lot. I mean, michigan, for example, went from 5. 2 of the u. S. To 2. 7 . I mean, that is a collapse with the way, anyone know who introduced the income tax in michigan was . Romney. Sorry, just had to mention that. Just for the crowd here. If you look at my home state of ohio i was born, raised in ohio mitchell mom and dad were both born and raised in ohio. I four of my grandparents all four of my grandparents were bosh and raised in northeastern ohio. Stenseven out of eight of my greatgrandparents, i go back and visit my family at the Lakeview Cemetery in cleveland; have you seen cleveland . Its a bomb shelter. Its a disaster. I could go on. New jersey just think of new jersey. Anybody here from new jersey . New jersey in 1965, had neither an income tax nor a sales tax. Neither one. One of the Fastest Growing states in the nation. People from wherever moving to new jersey and they had balanced budget. When my student was governor four and a half year ago, guy named jon corzine just a cstudent and after reading all his stuff, im not even sure youre into c. I mean, had the highest property taxes, highest sales taxes, slowest growing state, people leaving like rats of a ship. West virginia, you cant make a state poorer than West Virginia. Yes, you can. Four more teeth fell out. Just joking. Thats not fair is it . But its funny anyway. You know, if you look at the provision of Public Services. If we were sit neglect capital of one of this stated that introduced an income tax, what would a debate be like . Those who are against the income tax would argue it will hurt growth output, employment and production. Those in favor of the income tax would argue, we need the schools, we need the highways worked in the roads. So what did was decide to take it on the next step and look at the provision of Public Services and ill go through one in a little more detail. So i looked at the number of fulltime equivalent employees in education, all the different Public Services at the state and local level we have detailed records. If you look at the number of fulltime equivalent employees per 10,000 of population in these states, you can see what happened to the input. There are some of these provision of Public Services where you can measure the output. Department of education, does scores. At fourth grade and eighth grade. Theyre all the same test close to nation. I if you look at these 11 states with income tax, only three of the states had improvements in their Public Services. Only three. And they were by little, bitty tiny amounts. Eight states actually declined in the provision of Public Service relative to the rest of the nation, and six of the states declined by a lot. That is chapter one the fall from grace and you can go through the details. I then did the nine members of the brotherhood of the ring i am hip im modern, im into it. What i did was i then looked at the comparison of those nine states with no earned income tax, compared with the nine states with the highest income tax rates. If you look at those states, its incredible the difference. The nine states with no earned income tax kicked the living bee jeaners out of the highest income tax rate states. Really do. In everybody single category including tax revenue growing. Its amazing. You can take out the oil states, which we did as well in the chapter, and even without oilproducing states, the nine states with no earned income tax did way better than the nine states. We looked at Public Services, and corporate rates all of these variables of theres a huge amount of Data Available for the 50 states over the last 75 years that no one taps in any state thing. Those states without took these data back, 50 years. Im looking at the tenyear growth differential. Not one single year in the last 40 years im using tenyear rates not one single year in which the zero income tax rate states didnt outperform the highest income tax rate states the same number of states. It just is incredible, the evidence there. Then looked at one called piling on, the next chapter, which looks at the nontax things. Have any of you seen the data on right to work . If you look at the difference in the performance of states with right to work and those without right to work, its incredible. The righttowork states way outperform the forced union states. Its amazing. If you look at minimum wage of the states. If you look at percentage unionization. The same results. The next chapter, which was all mine the metrics chapter. I dare you to read it. If did a bib logograph of 55 articles on the academic journals, all with the same results across the board. Then looked at give under caesar. We have irs data on states from 1992 on the reported year 1993 on to 20102011. If you look at where people are moving and where theyre moving to and what their income levels are, its astounding. We use one of these variables, which i didnt include in the book here which is on the estate tax or the death tax in states. Tennessee had an estate tax, and florida doesnt. And what i did in the estate tax paper was i looked at the number of states federal estate tax filings in florida per 100,000 population compared to in the number of estates, federal estate tax filings in tennessee her 1 been thousand, and then the size of the estates. Florida has twice as many filings per 100,000 than does tennessee and theyre twice as large. Duh. People really do move. I was reminded of im from ohio so any of your remember howard metten balm . He was mr. Death tax himself. He was like 912 years old when he died. Six months before he died, he decided to move to florida because there was no i just its funny, but the thing is true is his behavior was perfect. His words were bad. He did the right thing by moving to florida just before. He shouldnt have been arguing in favor of an estate tax all those years before that. What i want to too, the last chapter of the book is au contraire. I go through arguments and discuss which you might find fun i had fun doing it. What i want to go through with you is texas and california. Here are the two giants of the planet. Texas, and california. If you look at texas and california, i went through and looked at all of the taxes on income in both states and there are i think in california, i think i ended up with Something Like 1500 separate taxes before i stopped. I wasnt at the end of the taxes. There was still a lot more to go. But i stopped there. If you look at all of the tax rates there you have to just believe me on this tax rates in california on income are higher than they are in texas, but theyre not only higher but tax rates the effective marginal tax rate on a unit of income in california is about 65 higher than the effective marginal tax rate on a unit of income in texas. You al with me . You have to believe me. Theres no income tax in texas. Theres a 13. 5 in california. Theres no Capital Gains tack i could go on. If you take all of those together california, marginal tax rates on Economic Activity 65 higher than they are in california. Point number one. Now, once you look at this 65 higher marginal tax rate in california than it is in texas, you know theyre going to be some leaks. Back in the lateen 40s, 50s , we used to be working on cars. Back then they measured horse power of cars at the engine. And of course as you know the horsepower is at the engine measure. You want to know what the horsepower is on the rear axle, and theres something called their parasitic leakage, and you look at that and look at tax rates. If you have tax rates in california, 65 higher than they are in texas to go from tax rates to tax revenues, you have all sorts of parasitic leakages. Number one the Unemployment Rate in california is much higher than texas. Parasitic leakage the participation rates in texass higher than in california. Parasitic leakage. If you look at rich people, rich peopling are moving out of california and into texas. Parasitic leakage. If you look at tax returns in california, people hire lawyersaccountants, deferred income specialists, favor grabbers in the whole process. So that their income is sheltered. Parasitic leakage. You can all see the parasitic leakages going on there if you go from tax rates in california being 65 higher than they are in texas, this first parasitic leakage leads to tax revenues in california being about 25 higher than they are in texas as a share of gdp. Are you with me . Then you have the next parasitic leakage. Between tax revenues and public spending. This is all state and local government. And then you have the next parasitic leakage between revenues and actual state spending on Public Services. You al follow me there . I was in the board of lion homes, just as an example. Because of all the revelations and restrictions and requirements in california if we decide we need to build more homes, we had to look for a huge piece of property, rancho this that or the other, 2,000 3,000 acres, then yaw have go toe go through a permitting process that takes two years before you start anything. Once you started something, then it would take you a number of years to develop it through. Texas, very very different. Prevailing wage. Cow dont have that in texas. You do in california. School teachers are all unionized in california. They arent in texas. In fact, from 1975 to the present, School Teachers in california have put on 170 statewide strikes. In texas, if youre a School Teacher and you strike, you immediately lose your license to teach. There are none. Its amazing. But there are all these leakages in the process. If you go from revenues as share of state product, to spending you have a parasitic leakage number two 65 higher marginal tax rates in california than texas. 25 higher revenues. When you get to spending. Theyre dead even. Theyre dead even. Then you go to the third leakage in the process, and i think ill have some fun with you on this one. The third leakage is from spending, state spending. That is state and local government. To the actual provision of Public Services. Let me just go through a little fun stuff with you here. On california and on texas. Texas. Has less poverty shares of its population 16. 5 , than does california. Which has 23. 5 . California has the highest poverty rate of any state in the nation. As i mentioned to you, Unemployment Rate there. Here we go. Once you have the spending. California pays its educators 40 more for fulltime equivalent employees than does texas. Remember spending is the same in each state. Public welfare employees in california make over 56,000 per year to texas 37,000 a year, 52 premium. California pays its hospital employees 53 more than does texas. California pays its Police Protection employees 70 more than does texas. California pays its highway employees 76 more than does texas. California pays its Fire Protection employees 86 more than does texas. California pays its protection employees correction employees 93 more than does texas. California pays its state legislators 95,000 per year. Now, all full disclosure they have cut their pay from 113,000 in deference to the weak economy in california. Texas pays its legislators 7,200 a year. Now, on the provision of Public Services, i just got to go through this with you. The annual cost of a prisoner held in texas is 21,390, or 58. 60 a day. You with me . In california, the equivalent prisoner cost taxpayers 47,421 per year our 129 per day. One mile of highway in texas average cost is a little over 88,000. Texas employs 345 fulltime equivalent employees in educators for every 10,000 of population. Whereas california employs 231 fulltime equivalent employees per 10,000 of population. The u. S. Average is 286. As measured by the u. S. Department of education California Student test scores are the fourth worst in the nation and theyre the fourth worst in the nation thats true but thats their best performance in the last 25 years. California usually is the second low nest the nation, only being beaten by mississippi or louisiana, once by new mexico. Now theyre fourth worst in the nation. Texas is 29th highest in the nation. The California Teacher i mentioned that of the five mega states california texas, new york, illinois and florida, california, according to the department of education, has the lowest educational test scores and texas has by far the highest. Texas employs more Police Protection employees per ten thousand of population than does california. 28. 9 vs. 26. 4. Texas has far more prisoner this is one that got me. I dont get it. Texas has far more prisoners per 100,000 of population, of 923 prisoners per 100,000 population than does california, which has 621 prisonersed now what would account for that . I view all people the same. In their proclivity for skullduggery and all sorts of criminal activities being the same. I dont understand why california has 50 more prisoners texas has 50 more prisoners than california but they do. Maybe its they dont maybe the doobie they dont go after them in california. I dont know. Then the next one here. California prisons are currently running at 75 overdesign capacity. Now, that means that a prison that is designed to have 100 people in california has 175 people. Texas prisons have 15 below designed capacity. If you in fact the Supreme Court has ordered california as you all know they have to get down to 137. 5 . Theyre down to only murderers. Its just shocking. The Supreme Court gave them a stay on this. Texas has more corrections employee per ten thousand of population than does california. Texas has almost 30 more highway employees per ten thousand population than does california. Texas ranked 23rd in the nation in state road conditions, whereas california is dead last. I have to be in full disclosure to give you the counter. One piece of evidence where california way outperforms texas and forgive me for saving this to last. California has 74 more Public Welfare employees per ten thousand of population than does texas. And they pay those welfare employees 52 per person more than does texas. When you look at this, the one thing that pops out to me in this book that really came through this came through i was debating on intelligence squared, and he said laffer, can concede all your crap on lower taxes but i could give a damn. I care about the quality of life. I care about how things happen. What we can do to and to make our quality of life higher. So im willing to pay less the truth of the matter is, in the range were talking about the quality of life is directly aligned with the growth in state output employment and prosperity. There is those states that cut their tax rates that increased their economic growth, in the range of policies where we have them right now, their performances in the provision of Public Services also improves real testify to the rest of the nation. With that itll throw it open for questions. [applause] ill let mr. Laffer field questions. When he averages you, please wait for the microphone so we can hear your questions. Great talk. Thank you. California is still somewhat anomalous in this respect. Many entrepreneurs, and many Silicon Valley Business Leaders we talked to, still sing the praises of their corner of california. Are they in denial are they enjoying some shangrila that is not open to others . The question is a lot of people stay in california, a lot of them are wealthy entrepreneurs. California is wonderful. I mean to be real honest love it. I told some people here when i left california and went to nashville, and i had a problem going back with the odd odditiors, i had to put pictures on me walls of palm trees and dancing girls and i played beach boy music in the background for three years and i had salt spray so it was like the ocean. California is spectacular. I can now go back and enjoy california without taxes. But these guys they do have a great life. And from my standpoint i could have stayed in california. I can afford the taxes. And a lot of these people can afford the taxes and want to leave the lifestyle and, period thats all there is to it. Theres a lot else in life besides state and local economics. The reason i focus on state and local economics thats what the government can has as its sort of skiboard key board. I that it they cant change the sunshine or beaches but you can change whether they allow frack organize not. California doesnt allow fracturing texas does. Chaz far more reserves underground than texas but texas has them and produces wealth. Its amazing. When you look at this another wonderful thing about california, is tax shelter does really well in california. Homes are a tax shelter in california you. Watch prices going up. Its sort of like the Cleveland Clinic and Cleveland State university in downtown cleveland. You go through downtown leveled the boards all over, guys with brown paper bags and then you see the Cleveland Clinic beautiful buildings, just lovely. And Cleveland State university which i always put a c afterwardses, theres in outside indication to in cleveland believe me. And why are they doing well . Their 501 c 3 s, tax exempt activity does well in hightax environments and in california your one tax exempt activity is owning a home owning a building, because you get the unrealized Capital Gains. So theres a lot else going on besides just taxes. Look at the migration patterns from california. California was a larger share of the u. S. Ten years ago than it is today. And its declining happening faster and faster. If you look at the time series of california. When we did prop 13 and then got rid of indexes the income tax and got rift of the gift and estate tax in california, the spending limits. You cant believe the growth in california from 1970 through 1990. And then all of a sudden came prop 98, all the taxes and stuff came in and growth stopped in california we were adding a San Francisco a year in the state of california. In that 12year period. Just incredible. And then it just stopped. And it stayed stopped. Questions over here. Can you comment on new york, with high tax structure the future as far as moving of people especially with the new estate tax . The daily news, the one yesterday, butch . Whatever. Editorial in your new york paper here not the New York Times. Theyre silent. I send the paper in and theres no response. But and new york you have just the clearest sign of whats going on in new york is they have startup new york. Startup new york that program. If you fit into the right category you get tax free. Thats a clear sign they understand taxes matter. If you look at the migration of personal income from states from 92, 93 to the present the order is right at the very bottom. New york is at the very bottom. Its a devastating declining region of the u. S. And its wealth is leaving. I go through the numbers. I ema friend wrote a piece in 1974, when taxes are higher than now. Its true they were. He wrote the poor little richman, about the new yorker who goes through his taxes in 1974 and finally decides to buy a tax exempt bond instead of starting a new business. Thats exactly what is happening in new york. And it is really very, very sad because this is the citadel of American Society today. Theres no place that represents capitalism and americans preeminence than new york city and youre squandering it. We have plenty of room for all of you in tennessee. Its really fun. Let me just joke but i paid for my house in bellemead with my first years tax savings. Is there there are any data about states or municipalities that have done the reverse of this fall from grace, that have with enough time passage to test whether or not yes. One state has done that. One state has reversed it. Now a number of states have cut their tax rates. New york has, under kerry, when you had your governor kerry, cut tax rates substantially and was pretty good. One state has gone from an income tax state to zero tax only one and that was alaska. And alaska did it with a discovery of the oil. They kept the Corporate Tax. The sales but they got rid of the income tax in alaska. Alaskas output growth is exclusively related to hydrocarbons. Same thing with north dakota and wyoming there are four or five states with large Extraction Industries, very teeny, tiny populations and very large Extraction Industries so they really dominate the numbers if you let them stay in. But hydrocarbons, especially oil, really make a difference and thats alaska is the only one. There are couple of states that have tried to really move forward on this. I work with in 1991 we were going to get rid of the income tax. We did it by a bill every year just to make sure the numbers came in so you didnt do it one year with an automatic, and if the revenues didnt come in, we would have gotten pushback so we tried to do it with eight bills. Fife was doing a great job. We had five years into the program. It was one tv of the heist taxed states in the nation arizona, and missed all the booms of the 80s just coming through the last throw year offers that when fife was indicted federally convicted and sent to prison and that put a crimp in our proposals going forward. Now i got a call yesterday from john kyl, the new governor, a guy names doocy, doocy said, lets reignite that engine and be the first state to get rid of the income tax. So we might get arizona. There are bunch of states that have done the tax cuts and you can see if you use a time series crosssection the examples im giving you here are basically anecdotal. They really are illustrative of what is going on. Its not misleading. I took the cross expects analysis and dead the metrics did the met strucks metrics and its solid. Look at the numbers and you can see. The results, just fire out of it. Okay, right there. Dr. Laffer, if could i ask you to switch to the federal level and you were given a choice of three federal taxes to reduce, which would be your top three . I think the progressive income tax is the single worst tax ever, major tax. I think the estate tax is disgusting beyond belief. Here you are you can you earn your money after tax you can take that money and you can go to vegas and gamble and drinks smoke. Federal government says go bless you go for. But if you wand give it to your kids and family, they tax you up to 45 of the margin. I know of no taxes that is singularly more disgusting than the estate tax. The progressive income tax is close. The exact an antis didnt ticket sis, and its leads to vulgar behavior. Theres this french guy from nebraska whats his name, but. Warren buffett. Do any of you remember the letter he sent into the New York Times . I, warren buffett, i pay less in taxes than my secretary. You remember that letter . He said in fact i have 21 people on my staff and i pay less in taxes than all of them. And then he went through and made the fundamental mistake of actually saying what his percentage of income tax was. He said i pay 17. 4 of my income in taxes. He includes the payroll tax, which is sort of biases it against the rest of his employees versus him. But that okay. He said i pay 17. 4 of my income and my taxes i pa youre going to think this is a lot of money. He said the taxes i pay are a little less than 8 million. I know you think its a lot of money but its not. Its only 17. 4 of my income. So im a math whiz so hold on. I took the little less than 8 million, 7,934,000, whatever it was, divided by 1. 74 and i gotting this adjusted gross income. I then looked at that adjusted gross income a little less than 40 million. Thats a hell of a lot of money for a year. Thats 2010. You al with me . I said thats amazing he made a lot of money, paid a lot in taxes but his tax rate was low. I said, let in the go back to chicago, university of chicago and sort of look at what a persons income is. A persons income according to the chicago definition, what you spend, what you give away, and the increase in your wealth. Think that over a little bit. What you spend is part of your income what you give away is part of your income, and then your increase in your wealth, the three of those together comprise your income. You all follow me on that . I saw Warren Buffetts letter and i did those calculations like i told you and then i went to forbes 500 and i looked at Warren Buffetts net worth. Its pretty easy to do his net worth. So forbes probably isnt too far off on the numbers. At the beginning of 2010, the year for which he reported the income, his net worth was 40 billion. At the end of the year his net worth was 50 billion. So he had an increase in net worth of only 10 billion. I then went to the bill and Melinda Gates Foundation Web site, i didnt do it. I had people dish dont have a computer even. But i went there and the web site and look at that, and lo and bee hold that year he gave one and three quarters billion dollars to the bill and Melinda Gates foundation, and they published the conditions and if they arent there any longer its taken away and they have to spend it in three years and if the the federal government changes tax rulings, its taken away i get it back. Thought you would find that humorous. So thats one and threequarters. I didnt do goh to his sons web site or his daughters web site. There are two sons with foundations he gives to. And i also didnt go to the discounted the Insurance Premium payments discounted now in anticipation of future outlays for insurance company, and i didnt go to the difference in owning Berkshire Hathaway and you dont have to pay Capital Gains tax birth you own the toys i dont too that. I looked at the total amount there and i got i got Warren Buffetts income in 2010 as being about 12. 5 maybe 13 billion, from what i looked at. You follow me there . I win back to his taxes, which a little less than 8 million, and i calculated the percentage of income he paid in taxes and comes out to be about. 06 of one percent. Do you think he recommended taxings unrealized Capital Gains . The increase do you think he recommended to president obama that we should tax, lets say, the tax the first billion you give to bill and Melinda Gates foundation or your Sons Foundation . Of course not. He recommended raising tax rates on things he done pay taxes on and that he greats a congressional medal of honor for it. This is where you guys have to be serious. We must tax all income at a single rate from dollar one to dollar in and stop. [applause] and you got to do it on everything. I apologize to manhattan institute. I loaf you guys but there should never be a 501 c 3 ever in history. But were grandfathered in. Youre grandfathered in what you have already given. But what you should do it get rid of these things. The low rate i did jerry browns flat tax you. Dont think a flat tax works. You dont think people like it. In 1992 i did jerry browns flat tax, which we got rid of all federal taxes, the income tax, we got rid of the Corporate Tax we got rid of all payroll taxes both employer and employee, got rid of the gift tax and the Capital Gains tax got rid of the estate taxes got rid of excise taxes, rid of medicare and medicaid taxes. Got rid of tariffs. Well with one exception. We kept something called sin taxes. Now, sin taxes are, i guess, we americans dont like drunk guys smoking while they shoot each other. But sin taxes are tiny taxes. If you get rid of all the federal taxes static revenue neutral, full employment, where your tax bill is the highest you could replace all federal taxes today with a flat rate tax on personal unadjusted gross income, and a flat rate tax on Business Net Sales go ahead, call it valueadded you can do that at a rate of 11. 8 static revenue neutral, no laffer curve effect, none of that. Can you imagine what this country would look like today if we had a flat federal income tax of 12 and a flat federal value added tax of 12 . And thats it . I mean you wouldnt even have to file a tax return for gods sakes. You company owes you 100 bucks, they send you 88 and its off. If you moe your neighbors lawn for ten bucks you have to write a check for 1. 20. Thats where we should go on growth. I think we have time for one or two more questions. In addition to the legislative taxes you just described there, now systems of shadow taxation whether in the form of College Financial aid programs or the effects of Health Insurance subsidies, and i wonder if you studied the effect of behavior on shadow tax systems. Additions. Yeah, they are. Theyre very significant. All of these other taxes i mean, the one i love is obamacare. I think obamacares really wonderful, you know . Whenever someone gives away valuable resources in unlimited quantities, they go bankrupt. I hope im not going over your heads on this one. [laughter] but, you know, you have got to go back to Milton Friedman on this. And i miss Milton Friedman for two reasons. One, i miss him terribly for good economics. And the other reason i miss him terribly is whenever i followed him on the podium, i could actually raise the microphone. [laughter] joking. But he said it correctly he said all Government Spending is taxation. The tooth fairy does not work at the u. S. Treasury any longer. Father christmas is not an american tradition. Whenever the government spends, its taxation. Whenever they spend money, they have to take it from someone else. Government spending is taxation. And you can go through all of these processes all of the different ways in which they distort the marketplace, and they all have very, very powerful effects. The problem is its gotten so arcane and complicated and convoluted that you cant even tell whats going on really. Its really very hard to figure out what the degree of intervention to change income is. I mean its in damn[ city bus tickets. I mean its in every darn thing there is. One more . One more quick question. Yep. George austin. Arthur, in your longstanding and careful analysis of states relative to Public Policy the subject at hand here, so what are the political implications two years from now in 016 of 2016 of the messages that were sent by the electorate in our country, and for the record which you 95 plus accurately predicted in terms of Public Policy, tax policy and politics two years from now . The neatest thing about being my age 74 going on 75 youve actually experienced some things in life. And ive got to the el you, ive been to to tell you, ive been to this bash i cue before. The first time was in the late 70s early 80s with you know who. At that time it smelled really good with, but i didnt know what it was. I think we are literally in 1978 again. The Election Results are in theyre solid. I think the corner has been turned. When i look at, when i look at 2016, i think youre going to have a supply side president. It dud does not it does not have to be a republican people. It doesnt have to be a democrat a liberal conservative leftwinger, rightwinger. Its economics. And economics is all about incentives. And what we have had for the last 16 years is a redistribution of society. And whenever you redistribute income this is math now this is not ideology whenever you are redistributing income you always reduce income. The problem with picketty is he doesnt get this. Whenever you talk from someone who has more and give to someone who has less you follow me on that . By taking from the someone who has more, they have less, and their incentives to produce are reduced. By giving to someone who has less, you provided them with an alternative source of income other than working. And they too, will produce less. Whenever you redistribute income you reduce total income, and the more you redistribute, the more you reduce total income until you get to the extreme which is a Kurt Vonnegut extreme. If you have 100 redistribution you will have zero output. Just to give you the example here, if we had 100 redistribution, what we would do is we would tax everyone who makes above the average income, 100 percent of the excess. Okay . And everyone who makes below the average income we would subsidize them up to the average income. Thats the 100 redistribution model. Thats the sort of picketty model. Now, if we actually did that, if we actually taxed everyone who made above the average income 100 of the excess and subsidize everyone below the average income up to the average income i will stiptoday counselor, everyone stipulate today, counselor, everyone will be equal at zero. [laughter] now, what is happening and whats happened, i dont remember or if you remember back in the ancient days of johnson nixon, ford and carter. I used to like to refer to them as the four stooges. The largest assemblage of bipartisan ignorance probably ever put on planet earth. You know, they were redistributionists of the first order, and, of course, that led to be still my heart growth. We have had the same thing. W. Was not my favorite. Im sorry i hate to break it to you, but big spender, just i think an awful president. And obama clearly is not my favorite. [laughter] i think theyre twins, to be honest with you. But what you are in store for is a big change in the process, and ill just finish it with i used to tease the real president. I used to say, you know sir, its my professional judgment that as an economist, as a professor that you truly are a certifiable genius. [laughter] but, you know, some of my colleagues at the university dont sort of concur in my assessment of your intellectual acumen sir. In fact, some of my colleagues at the university dont think youre very bright at all. But the one thing my colleagues and i do agree upon is your one unique characteristic is your uncanny ability to select your four predecessors. Anyone following on heels of johnson, nixon ford and carter just cant look bad. [laughter] and in the same sense its really true that if reagan had been elected in 1976 and im going to tell you, he would have been a very different president than one you know and love. He really would have been. In all honesty, it took jimmy carter to create ronald reagan. And that is the truth. And in the same breath that it took jimmy carter to create ronald reagan, you cant imagine the great president whos going to follow barack obama. [applause] released after the war, some buried the memory bandwidth it, the history of this camp now more than 60 years later. Said the government comes to the fathers and said we a deal for you. We will reunite you with your families in the crystal city internment camp the family internment camp if you agree to go voluntarily. And then i discovered what the real secret of the camp was. They also had to agree to voluntarily repatriate to germany and to japan if the