Inflation is having an effect on everything, even policy analysis.

Back in 2013, I wrote that Phil Mickelson was “California’s One-Man Laffer Curve” because he wanted to escape the Golden State to save about $1.2 million per year in taxes.

But now, when a goose that lays golden eggs wants to escape, the numbers are much bigger.

How much bigger?

According to this story by CNBC, Jeff Bezos saved more than $600 million by moving from Seattle to Miami. That’s the steroid-fueled version of a one-man Laffer Curve.

Here are some excerpts from the report, which was authored by Robert Frank.

Jeff Bezos’ $2 billion stock sale last week came with an added perk: no state taxes. Last year, Bezosannounced on Instagram that he was leaving Seattle after nearly 30 years to move to Miami. He said the move was to be closer to his parents and his rocket launches at Blue Origin. The timing also suggested another reason: taxes. In 2022 Washington state imposed a new, 7% capital gains tax on sales of stocks or bonds of more than $250,000.Washington state doesn’t have a personal income tax, so the new levy marked the first time Bezos would face state taxes on his stock sales. …In 2022, when the tax took effect, Bezos stopped selling. He didn’t sell any Amazon stock in 2022 or 2023… After his move to Miami, Bezos made up for lost time. Last week, a filing with the SEC revealed that Bezos launched a pre-scheduled stock-selling plan to unload 50 million shares before Jan. 31, 2025. At today’s price, that would total more than $8.7 billion. Florida has no state income tax or a tax on capital gains. So on the $2 billion sale last week, he saved $140 million that he would have paid to Washington state. On the entire sale of 50 million shares over the next year, he will save at least $610 million. …he’s more than paid for his 417-foot yacht, Koru, with just his Florida tax savings.

I have two reactions to this report, one analytical and one visceral.

• My analytical reaction is that this story is good news because it keeps money in the private sector where it will be used more productively and also because it sends a powerful signal to the proponents of a state suicide pact that it is foolish to overtax people who can easily move.
• My visceral reaction is to cheer that the greedy politicians in the state of Washington wound up with an exploding cigar rather then several hundred million dollars that they could use to buy votes. For what it’s worth, I expect more rich people follow in Bezos’ footsteps.

P.S. I wonder about the revenue implications of the state capital gains tax in Washington. Notwithstanding Bezos moving out, I’m sure there will be some revenue collected from this misguided levy. But that doesn’t mean the tax will be a net plus for politicians. You also need to consider that the exodus of successful taxpayers will lead to less revenue from sales taxes, property taxes, and other levies.

As a long-time admirer of President Reagan and his economic policies, I was very pleased to author a new study for the Club for Growth Foundation entitled Reaganomics for the 21st Century.

In the report, I ask “Is it time for Reaganomics 2.0?”

This week, I’m going to look at key economic issues and see whether Reagan’s policies worked and whether similar policies are needed again today.

We’ll start with fiscal policy. Here’s Figure 2 from the study, showing that the burden of federal spending, measured as a share of economic output, increased significantly during the 1970s.

Most troubling, almost all of the increase was because of additional domestic spending.

What happened during the Reagan years? Did policy improve?

As you can see from this next chart, Figure 3, Reagan reversed that worrisome trend. The burden of government spending fell during his years in office (Reagan’s budgets covered 1981-1989, but I also included 1980 and 1988 for people who focus on election years).

Most impressively, Reagan reduced the burden of domestic spending (both entitlements and discretionary) by 2.5 percentage points of GDP.

For those who want more information on Reagan’s successful spending restraint, I recommend this 2011 video.

The purpose of today’s column, though, is to focus on the future. Specifically, what are the challenges we face today and would a Reagan-style approach be appropriate?

The first part of that question is easy to answer. The federal government is far too big and America’s fiscal burden is projected to become an even bigger problem in the near future.

In the study, I included this chart from the Congressional Budget Office, which shows that the burden of federal spending is on a very bad upward trajectory over the next three decades.

The second part of the question also is easy to answer.

Reagan’s approach was to restrain spending and that same approach is needed today. Here’s some of what I wrote.

America’s spending problem today is worse than it was when Reagan was elected and inaugurated. The overall burden of spending has reached more than 24 percent of economic output and domestic spending by itself consumes more than 19 percent of GDP. …All this spending…undermines growth by diverting resources from the productive sector of the economy. …Domestic discretionary spending is a very ripe target for budget savings. …Entitlements are the major budget challenge. More than 70 percent of the federal budget is allocated to these programs, and that share will increase since entitlement spending is projected to become an even bigger burden in the future. …some sort of spending restraint would be desirable. One option is a…spending cap. The best model in the United States is Colorado’s Taxpayer Bill of Rights. The TABOR provision in Colorado’s constitution effectively limits spending so that it cannot grow faster than the combination of inflation plus population. …Globally, the best model is Switzerland’s spending cap.

In the study, I explain that domestic discretionary spending should be significantly reduced, including elimination of various departments and agencies.

And I also make the case for entitlement reform, including Medicare, Medicaid, and Social Security.

To conclude this column, let’s look at the big picture.

I wrote that some sort of spending cap is needed. To help make the case, I showed what would have happened to federal spending if Washington was subjected to a TABOR-style spending cap at the start of the Trump years.

As you can see in Figure 5. the savings would be enormous. Limiting spending increases to population plus inflation would have resulted in a federal budget of about $5 trillion for 2023, which is more than $1 trillion less than politicians actually spent.

The bottom line is that TABOR has produced big savings for Colorado taxpayers, but those numbers would be dwarfed by nationwide savings is Washington was constrained by a spending cap.

P.S. Politicians who oppose spending restraint implicitly support massive tax increases on lower-income and middle-class households.

I’ve written dozens of articles about the Laffer Curveand most of that verbiage can be summarized in these five points.

• The Laffer Curve helps to illustrate that excessive tax rates result in less taxable activity.
• All public finance economists – even those on the left – agree there is a Laffer Curve.
• The Laffer Curve does not mean tax cuts are self-financing or that tax increases lose revenue.
• Different types of taxes produce different responses, so there is more than one Laffer Curve.
• There is a real debate about the shape of the Laffer Curve and the ideal point on the curve.

The fifth point recognizes that well-meaning and knowledgeable people can vigorously disagree.

Do changes in tax policy have big effects or small effects on the economy? How much revenue feedback will occur if there is a change in tax rates?

Just a couple of examples of questions that I have endlessly debated with reasonable folks on the left.

But let’s focus today on the unreasonable left. Or, to be more specific, let’s look at an editorial from the St. Louis Post-Dispatch.

Here are some portions of that newspaper’s simplistic screed.

…the deficit explosion…effectively disproved his theory that cutting taxes on the rich would increase government tax revenue. …Laffer continues to be unchastened…, even as Britain reels from a leadership shuffle caused by the catastrophic application of his very theories. Hand it to Laffer: Seldom does someone who is so often proven wrong have the gumption to maintain he’s right…His famous “Laffer curve” presumes to prove that tax cuts for the rich will spur economic investment, causing such strong economic growth that the government’s tax revenue would actually rise instead of falling. …Yes, the economy was robust in the 1980s after Reagan’s historic tax cuts. But that’s also when the era of big budget deficits began. …congressional Republicans and President Donald Trump in 2017 slashed corporate taxes in what they claimed was a necessary economy-booster… Then-Treasury Secretary Stephen Mnuchin’s famous vow that the tax-cut plan would “pay for itself” in growth — the very definition of Laffer’s theory — has since been exposed as the voodoo it always was.

Almost every sentence in the above excerpt cries out for correction.

For instance, Reagan and his team never claimed that the 1981 tax cuts would be self-financing (though IRS data shows that lower tax rates on the rich did produce more revenue).

There were big deficits because of the 1980-1982 double-dip recession, and that spike in red ink mostly took place before Reagan’s tax cuts went into effect.

And it’s absurd to blame the United Kingdom’s political instability on tax cuts that never occurred.

If Secretary Mnunchin claimed the entire tax cut would pay for itself, he clearly deserves to be mocked, but it’s worth noting that the lower corporate tax rate from the 2017 reform is very close to being self-financing.

Not that we should be surprised. Both the IMF and OECD have research showing that lower corporate tax rates do not necessarily lead to lower corporate tax revenues.

The bottom line is that the editorial board of the St. Louis Post-Dispatch obviously puts ideology above accuracy.

P.S. I can’t resist sharing one other excerpt from the editorial.

“The Kansas Experiment,” was a debacle. The state’s economy didn’t skyrocket, but the deficit did, forcing deep cuts to education before the legislature finally acknowledged defeat and reversed the tax cuts.

Once again, the editors are showing that ideology trumps accuracy. Here’s what really happened in Kansas. I hope we can have more defeats like that! Though I’ll be the first to admit that North Carolina is a much better role model.

In the case of business taxation, the most visually powerful evidence for the Laffer Curve is what happened to corporate tax revenue in Ireland after the corporate tax rate was slashed from 50 percent to 12.5 percent.

Tax revenue increased dramatically. Not just in nominal terms. Not just in inflation-adjusted terms.

Corporate receipts actually climbed as a share of GDP.

And this was during the decades when economic output was rapidly expanding.

In other words, the Irish government got a much bigger slice of a much bigger pie after tax rates were dramatically lowered.

Now let’s look at some evidence from a new study. Three professors from the University of Utah (Jeffrey Coles, Elena Patel, and Nather Seegert), and a Treasury Department economist (Matthew Smith) estimated what happens to taxable income for U.S. companies when there is a change in the corporate tax rate.

In response to a 10% increase in the expected marginal tax rate, private U.S. firms decrease taxable income by 9.1%, which indicates a discernibly more elastic response than prevailing estimates. This response reflects a decrease in taxable income of 3.0%arising from real economic responses to a firm’s scale of operations and 6.1% arising from accounting transactions via (for example) revenue and expense timing. Responsiveness to the corporate tax rate is more elastic if a firm uses cash (9.9%) rather than accrual accounting (7.4%), if the firm is small (9.9%) rather than large (8.6%), and if the firm discounts future cash flows at a lower rate.

The paper is filled with equation, graphs, and jargon, but the above excerpt tells us everything we need to know.

When tax rates go up, taxable income goes down (both because there is less economic activity and because companies have more incentive to manipulate the tax code).

Thus confirming what I wrote back in 2016 about taxable income being the key variable.

By the way, this does not mean that lower tax rates lead to more revenue. Or that higher tax rate produce less revenue.

Such big swings only happen in rare circumstances.

But it does mean that politicians will not grab as much money as they hope when they increase tax rates. And that they won’t lose as much revenue as they fear when they lower tax rates (and we saw that most recently with the 2017 tax reform).

I’ll close by noting that this is additional evidence for why we should be thankful that Biden’s proposal for higher corporate tax rates was not enacted.

P.S. The chart at the beginning of this column may be the most visually powerful evidence for the corporate Laffer Curve. The most empirically powerful evidence, however, comes from very unlikely sources – the pro-tax IMF and the pro-tax OECD.