STEVE INSKEEP, HOST:
And now let's ask about President-elect Trump's tax plan. He campaigned on a promise of big tax cuts. And his advisers on tax policy include Arthur Laffer. That's a familiar name to people who've followed politics for a long time because Laffer's work once influenced President Ronald Reagan's tax cuts, big tax cuts in the '80s, which reshaped the economy and also increased deficits. We reached Arthur Laffer at his home in Nashville, Tenn.
When you look at Trump's tax proposals, how closely do they match your ideas of what a tax plan should be?
ARTHUR LAFFER: I think they are terrific. I think the corporate tax in the U.S. today is not only global in scope, which is a mistake - we have the single highest tax rate in the OECD - and it's discouraging businesses, jobs, output, employment coming to the U.S. It's driving business away through inversions and through formation of companies elsewhere. Dropping that tax rate to 15 percent would have a huge impact on the U.S. economy and would have very little impact, if any, on tax revenues from corporations, from businesses.
INSKEEP: So you're making the argument that a tax cut, because it might stimulate economic activity, would actually lead to more government revenue.
LAFFER: In this case, yes, I do believe so. And if we lower that tax rate, I think we will have no more inversions, No. 1.
INSKEEP: We should remind people, when you say inversions, you're talking about a company moving its corporate headquarters to Ireland or wherever so that they...
LAFFER: Yes, thank you. That's exactly what I'm talking about. And No. 2, I think a lot of companies, both U.S. and foreign, will decide to locate their facilities here in the U.S. rather than abroad.
INSKEEP: So let me ask you about deficits as part of this picture because when we look at the total Trump tax plan, anybody who's scored this has found that it adds trillions to the federal deficit and to the federal debt over time. How big a disadvantage is that in your view?
LAFFER: You know, when you look at Donald Trump's proposals today, what I would do is I would take those proposals - I would take them seriously but not literally. Now, the one I would take literally is the corporate tax, which we talked about. But the ones I would take seriously are reforming the tax codes. If you go to the Brady proposal or the Paul Ryan proposals - now remember, all tax plans have to come out of Ways and Means.
INSKEEP: The House tax writing committee, right.
LAFFER: Yeah, that's how. And if you look at their proposals if combined with Trump's vision of the world - not literal proposal - I don't think you're going to have any huge increase in deficits on a static basis.
INSKEEP: So one more thing here - Steven Mnuchin, the designate to be treasury secretary...
LAFFER: Yes.
INSKEEP: ...Puts a different cast on all of this because he is saying, recently, that any reductions we have an upper-income taxes will be offset by less deductions so there will be no absolute tax cut for the upper class, people on the top. He says we'll be paying about the same. Are you comfortable with that?
LAFFER: Well, yeah. That's what we were talking about earlier. And what I'd like to do is see us get rid of all these deductions, exemptions, exclusions and loopholes and lower the rate dramatically. And you'd create enormous growth in the United States. That's exactly what we need.
INSKEEP: Is there a risk when you start lowering tax rates and hoping you will also eliminate deductions that the deductions get defended - they don't actually go away, and you just end up cutting rates and increasing deficits?
LAFFER: There's a risk in all policy going forward. But when you look at tax policy, what you really want to do is try to get bipartisan support, like we had under Reagan, with both our sets of tax bills.
INSKEEP: Well, that raises one more thing. Republicans in Congress have been openly saying, we want to get rid of Obamacare. We want to replace it with something else, but whatever we do ought to be bipartisan. If it's just one party, it's not sustainable. It doesn't work...
LAFFER: That's right. That's why it should be, yes.
INSKEEP: Would you say the same thing is true of changing tax policy - if it's not bipartisan...
LAFFER: Yes.
INSKEEP: ...Just don't do it?
LAFFER: Why, you know, you want to make it bipartisan. And you try to convince the others of your logic, and they try to convince you. And hopefully, you can make some ground. Now, I've done some stuff with Al Gore historically. And I'm all for a carbon tax if you were willing to offset it with a 100-percent static (unintelligible), income tax or payroll tax. So is Al. I mean, that's the type of bipartisan stuff I think we should be able to do. But this is...
INSKEEP: We better explain what you just said because you're saying that you would favor a carbon tax, which is a way to fight climate change, just so long as it's revenue-neutral. Some other tax should go down.
LAFFER: Yeah, an income tax or payroll tax, which is what Al Gore has always suggested whenever he's talked about a carbon tax. I think he's brilliant on this issue. The fear I have with a carbon tax is that if it's a standalone, it'll kill the economy. This is what Congress should be doing - is trying to find common ground. I mean, I think bipartisanship is very important.
INSKEEP: Do you think the Republicans in Congress and this president-elect would go along with that, or they would say, actually, that's not very important - we don't even believe it?
LAFFER: I don't know. I mean - but I do know I was called by a group of Democrats who are about 50-some members of the House - all Democrats - would love to do something with Trump on the tax codes and reforming them and making them pro-growth as long as they can put in some things like the carbon tax substitution. We need to get together where we have a growth agenda. And I think Trump is very willing to work on a bipartisan basis to get a good growth agenda. And I - and I laud him for all those efforts.
INSKEEP: Arthur Laffer, it's been a pleasure. Thanks very much.
LAFFER: My pleasure. Thank you.
INSKEEP: Arthur Laffer is an adviser to President-elect Donald Trump. Transcript provided by NPR, Copyright NPR.
