Debt and Taxes Are the Only Certainty
ARTHUR JR. GRAY, AND ARTHUR B. LAFFER
Taxes can have some of the darndest consequences. While there is not yet a Guinness book of the world's most unusual tax developments, seemingly uncalled-for events surely warrant a cursory tax analysis. To pervert an overused cliche, the ramifications of taxes range from the sublime to the meticulous. The surge of births in late December--just in time for the wee duffer to be a tax deduction--appears to have some nontrivial element of tax planning. The record recovery of the Reagan revolution, too, claims inspiration from an alteration of the tax codes.
But some tax effects are far from obvious to the layman and analyst alike. For years, the effects of state taxation were literally ignored as a factor determining state growth, employment, and output. Even today, we find an analytic vacuum when it comes to research on the returns of stock by location of fixed factors and state tax policies. If minuscule variations in the earth's environment can lead to dramatic evolutionary changes in the genetic structure of species, then surely tax changes can lead to profound variations in the organization of finances among American businesses. Incentives do matter and matter a lot.
In 1980, the year before Reagan took office, the maximum tax rate was 46 percent on corporate income and 70 percent on personal income. Interest expense