Economist lauds state’s supply-side emphasis

Kevin Rademacher

Friday, Jan. 21, 2005 | 10:52 a.m.

Economist Arthur Laffer has doled out advice to corporate executives, presidents, congressmen and students at exclusive universities around the country.

His heroes, however, are in Nevada.

"I remain a huge fan of Nevada," Laffer said Thursday at a meeting of the Nevada Development Authority. "You are my heroes. You are living proof that supply-side economics works."

Laffer's discussion championed moderation in levying taxes based on the concept that freeing up capital sparks investment, job creation and economic prosperity. He said the low-tax environment in Nevada has served to generate long-running growth while neighboring states have suffered through cyclical ups and downs.

It was no accident that the presentation was delivered just two weeks before the Nevada Legislature convenes in Carson City.

"It was very good timing," said Somer Hollingsworth, president and chief executive of the NDA.

Laffer, a San Diego resident, pointed to the success Las Vegas has had in luring businesses away from a California plagued by economic hurdles.

"It's a perfect example of what can happen when you do things right," he said. "If anything, you guys have kept us honest, at least more honest than we otherwise would have been."

He warned, however, that Nevada is not in a position to make mistakes. California Gov. Arnold Schwarzenegger is attempting to move that state in a more positive direction, Laffer assessed.

"This governor is different," he said. "I think there is a reasonable chance that he is going to be able to do some good things."

The economic success of California, Laffer emphasized, will affect the course of Nevada's economy.

"Your neighbors are very important," he said, pointing to a fluctuating East Coast example. "When Massachusetts raises taxes, New Hampshire prospers. When Massachusets lowers taxes, New Hampshire goes into the doldrums."

He said Schwarzenegger is pushing a redistricting plan in California that could create a more responsive Legislature driven by renewed "political competitiveness."

"It's the first step toward any chance of major reform," Laffer said. "It's all politics."

He added that Nevada can defend itself from an improved California by continuing to make smart fiscal decisions. To that end, he encouraged Nevada lawmakers to turn back the tax package it passed in 2003.

"You should probably undo what you did," Laffer said. "Cut the rates to what they otherwise would have been."

Such a move will drive job creation.

"The best answer to welfare is still a high-paying job," he said.

Laffer pointed to his son's recent decision to move their family business from San Diego to Tennessee, where there is -- like Nevada -- no income tax.

"If you balance the state budget, you knock the citizens' budgets out of whack," he said, encouraging spending limits to higher levies. "This is just accounting. Tax increases always lead to less revenue than expected. Tax cuts always lead to more revenue than expected."

Almost more difficult than deciding to raise taxes, he said, is deciding how to spend a windfall when it is created.

"With all that money sitting in the coffers it's hard not to spend it," Laffer said, adding that it typically leads to "frivolous activities."

Again, he pointed to California and Arizona, which have both taxed themselves into economic ups and downs while Nevada enjoyed consistent prosperity.

"Watch them carefully," he said. "You too could make a mistake. It is not impossible."

Don Snyder, president of Boyd Gaming Corp. and NDA chairman, said Laffer's presentation was not about setting an anti-tax tone as much as it was advocating a pro-business environment. He added that the state has the opportunity to set a positive course for the future amid good economic times.

"The opportunity we have is to operate from a position of strength," Snyder said, adding that preserving the business-friendly environment will continue to attract new industries.

"I think we have a core industry (in gaming) that is very healthy," he said. "We need to take advantage of that health to diversify."