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Laffer: Real Problem is Government Spending

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    Former Reagan economic advisor Art Laffer on the cost of the fiscal cliff deal.

  • Duration 5:25
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Well congress -- the fiscal cliff by letting the payroll tax cut expire.

Also agreeing to tax hikes on higher income Americans but according to Goldman Sachs as chief US economist.

It's gonna cost the US nearly 200 billion dollars in consumer spending.

And with those spending cuts and site so in -- Wall Street Journal op Ed.

Speaker banners quoted as saying President Obama admitted that during their closed door negotiations.

While the president said quote we don't have.

Spending problem in this country.

-- -- -- art -- former economic advisor to President Reagan you know I guess art it's it's almost hard to know where to start with this but let's start with the notion.

That that the Democrats sincerely believe that this there's no spending problem in this country.

This is gonna make any sort of resolution that much more difficult.

Yeah I don't think I don't think it's all the Democrats by any means trust -- and it is really -- clearly is President Obama that's very true Steve -- piece by the way was really excellent went through a lot of the logic and I'm a huge fan of -- us of brainer I mean -- -- speaker Boehner is really great that you get a good job he had no choice but to let the operates go higher.

That's the killer in this economy and that will be and now the Democrats own it -- -- they're gonna have to live with it.

But -- also the killer though is as in -- listen every while watching a show got a check over the weekend -- he saw their checks didn't you know the payroll tax cuts expiring.

And I kind of thought that fell one of the president's pledge not to tax the middle middle class.

That is right so that's -- he pledged I think that's what he pledged.

But of all the taxes there are all taxes are bad Charles but the payroll tax is the least bad of all the taxes we have.

If you cut the payroll tax that will hurt the economy not help but.

Raising that payroll tax back up to where it should be.

Is that correct thing to do and for economics as well my view of the world so cutting government spending is the real tax problem we have.

And the payroll taxes not.

So -- where do we go from here because Goldman Sachs the senate does bill this fiscal -- bill.

We'll take 200 billion in disposable income on a -- economy 200 billion dollars that we.

You know let's that they you know that's the holiday season that's -- you know get -- Black Friday season I mean that 200 billion it -- What kind of an impact -- -- But do remember that the body of -- Two hundred billion out of the economy with a payroll tax hike coming back up.

But also do remember that you have 200 billion more in bonds available that can be used for capital investments that are.

Remember the world is double entry accounting you you can't bail someone out of trouble without putting someone else into trouble.

The real problem here -- government spending and the way I like to explain it and and I think it's clear is if you have two people in the world that's it.

Only two people farmer in farmer -- if farmer B gets unemployment benefits.

Who do you think pays -- Farmer a you know keep giving that person unemployment benefits doesn't stimulate the economy it hurts the economy lowering that payroll tax I believe hurts the economy.

Raising a back up is what should be done.

Okay but what about the fact that the economy is going to be slower we already have a very sluggish recovery we have had horrible we're right at as it stands so where do we go from there are days you know you know this better than anyone.

What's the scenario because of Democrats really stick to their guns here and they don't in -- listen and and they don't do anything with respect to real honest to goodness spending cuts were we gonna go.

They're gonna melt in the next year and a half Charles you know there -- a very untenable position they own this economy it's the worst recovery ever.

They've just pushed tax hikes on the people who make all the decisions which is really silly.

I -- the highest income earners not only pay the taxes themselves they employ everyone else.

Why would they wanna employ other people if they're not going to be able to profit from it so the silliest thing was raising tax rates of the highest in commerce and the Democrats.

Forced that issue in place and now they own this economy and frankly I think it's gonna perform poorly young hot -- is correct on that.

But not because the payroll tax because the highest income tax rates and capital tax rates and you know as we get down closer and closer to 2014.

-- -- the Democrats are gonna be hammered.

Because they made bad moves right now.

Of that three gala tonight in -- by the way it's obvious they don't agree with two you know they've got the media on their side in almost everything that goes wrong with this economy.

I felt that he might side are you do you know what the president got this -- -- that seems to be working pretty well.

Of the three potential battle grounds for the Republicans take a stand now debt ceiling.

Sequestration.

Or the continuing resolution -- -- should they used as they're sort of battlefield.

To say OK guys the -- -- greater all.

-- -- just the one thing they shouldn't do it shouldn't take a stand in stone and not allow negotiations in place they cannot appear to be obstructionist.

But other than that they can use these.

To -- -- I think lets the what you're saying is and you all -- of the battleground but don't be an obstructionist.

I think they are gonna appear to be obstructionist that they use any of them let alone all -- -- up.

You shouldn't hold it to where you have to have the mean if you use the debt ceiling and let -- go through.

It's a pretty nuclear bomb to be honest with the -- didn't work well with Clinton.

It didn't work well with the Obama earlier I mean it's not a good tool to literally hold onto -- -- but.

-- gonna get great concessions from the Democrats aren't really Arnold.

I'm gonna get all sorts of wonderful part I don't want to do -- I want to.

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