In 1974, Arthur Laffer famously drew a curve on the back of a napkin while he had dinner with a reporter from the Wall Street Journal. The curve illustrated Laffer's theory that, as governments cut taxes, their revenues increased. Margaret Thatcher gave the curve a try and it didn't work. Ronald Reagan gave it a shot, too; but he managed to create the biggest deficit -- up to that time -- in American history. Next in line was Brian Mulroney, whose application of the Laffer Curve caused Canada to hit the "debt wall."
Paul Martin, Mulroney's successor, managed -- with a great deal of pain -- to bring government revenues into surplus and he began to pay down the national debt. But then came Stephen Harper, who insisted that taking the path that Thatcher, Reagan and Mulroney had trod before him would bring Canada to the gates of economic Nirvana.
However, Frances Russell writes:
Corporate Canada reached a milestone in 2014. For the first time ever, it now has more cash on hand than Canada’s entire national debt – $630 billion and counting.
In other words, Canada’s big corporations could pay off Canada’s entire national debt in one fell swoop with just the cash sitting in their collective bank accounts. And they wouldn’t even have to touch their other assets.
David Macdonald, the senior economist at the Canadian Centre for Policy Alternatives, has had the temerity to point out that tax cuts have not increased government revenues or economic productivity:
Back in the 1990s, Corporate Canada said it would use the new money to build more factories, employ more workers and make Canada more productive.
“Governments dutifully cut social programs as taxes decreased,” Macdonald says. “But Corporate Canada passed on making Canada’s economy more productive….(And) Canadians are left with weaker health care, veterans care and other social programs.”
The Harper government's response was to order the Canada Revenue Agency to audit the CCPA because it displayed political bias. But the CCPA has the facts -- and history -- on its side. Wherever governments have followed Arthur Laffer's advice, the result has been a pile of dead money -- not increased government revenues.
And Stephen Harper continues to assert that Laffer's laughable curve is sound economics.