Bert Folsom takes actor/economist Ben Stein to task for his criticism of the Laffer curve here. The actor Stein’s two minute role in “Ferris Bueller’s Day Off” made him a movie icon. But as Folsom notes, economist Stein’s call for higher taxes on the rich puts him at odds with his famous economist father Herbert Stein.
He [Ben Stein] wants higher tax rates on the rich, even though such actions in the past have led to diminished revenue. When a nation tells its entrepreneurs they don’t get to keep what they earn, they leave and invest elsewhere. When tax rates drop, by contrast, entrepreneurs start businesses, or expand existing ones. To Professor Stein, that ought to be Econ 101, and listeners today are reacting to his current message the way his students did in “Ferris Bueller’s Day Off.”
One of the best books that supports my critique of Ben Stein is The Fiscal Revolution in America, written by his father, Herbert Stein. On page 209, Herbert Stein notes that after World War II, Congress cut the sky high income and corporate tax rates that were stifling economic growth. In January 1946, the government estimated it would take in $31.5 billion in revenue, but the tax rate cuts spurred entrepreneurs to invest, and government collected $43.3 billion in revenue that year with lower rates. The same thing happened again in 1948. According to Stein, “By the time the tax cut was finally enacted in 1948 the estimate of revenues had been raised to $46.5 billion and the deficit had been converted to a surplus of $8.8 billion.”
The father is right, but the son is wrong when he suggests that higher tax rates will generate economic growth. Ben Stein’s homework assignment for the July 4th weekend is to read his learned father and then move back to the head of the class to teach us sound economics