A quadriplegic as it gradually took his life. He faced options of surgery, radiation and chemotherapy. I started asking the questions. So what are your priorities . Introduce them, i called up and said what should i say . This is exactly what he told be to say. He said, im short, fat, old, grouchy, and go to bed at 8 00. [laughter] now, that had nothing to do with his intellectual capacity. I suspect arthur visited more cities and countries this year than the collective of the table here. The wall street journal featured arthur an account of the greatest people to influence our daily business. Time magazine listed arthur in an article, the centurys greatest mind. Los Angeles Times listed arthur in an article, a dozen who shaped the 80s. This is weekly, this is a special edition, celebrate her 85th anniversary said he was the most constructive ideas in the last 85 years. Anything that has to do with destruction should have arthur listed. That brought a question, want to post a question with regard to arthur. What does Arthur Laffer and Marilyn Monroe have in common . They both achieved their celebrity status because of their curves. [laughter] im not going to ask for a vote of institute added to respect for arthur. Arthur laffer. [applause] thank you very much, tom. I had the pleasure of introducing tom not long ago when he got his award here from the manhattan institute, so it was a real pleasure in reverse. You are actually even a little bit funnier that i was. Just a little bit. Do any of you find this was unusual at all . All . Im from cleveland, ohio, and i dont know if you saw a late effects. They are getting all sorts of records. I think in buffalo it got up to 75 inches of snow. I remember long ago, do any of you remember jack kemp lacks remember jack . [applause] i remember jack. I called jack. He was in buffalo and i asked him, jack, whats the weather like in buffalo . He said, its clear and still. It snows clear to your ass and it is still coming down. [laughter] so let me if i can have a little fun. You might if i have fun with people here today . Is it all right . Its a fun topic especially after the election of november 4. [applause] especially after the election of november 4. Im going to sit about three 04 times just to be sure wasnt that amazing . Its not only the senate and the house, but did any of you see the governorships . My goodness. All seven taxcut republican governors won reelection. Sam brownback, john kasich, rick snyder, you know, mitch daniels. I mean, not mitch. Mike pence. They are the same person. They just switched i dont how they do that. And then if you look at the tax increasing governors. Three out of six of them lost their seats. We took massachusetts, the governorship of massachusetts which is pretty amazing. If you look what happened in maryland. We took the governorship there. Did anyone notice illinois . We took that one. This is really when you look at it, economics really does matter. The ones we didnt take, we didnt take california, but jerry brown did lose list supermajoritarian with the assembly and the senate. We did not take minnesota. But we did take the house in minnesota. In New Hampshire we did not take we took back the house in New Hampshire. Its amazing whats going on. It look at the number of state representatives, senate and house. We take the huge we picked up huge number of that as well. But i thought i would just go do some of the economics of states if thats all right. The book, you all got the book or something i got but i wanted to go through it with you. What we tried to do in this book was just put economics on the state level, clearly, and i hope im not going all of your heads today. If you two locations, a and b, if you raise taxes, people move from, to. Am i going went over your heads on this one . I had more fun doing this with steve and rick come and with travis brown but its really fun. Let it go through a couple and to go through california because i have a thing for california. Seeing i lived most of my life and finally i was in the governors council, and when he turned to the dark side, schwarzenegger, i thought i would get out of dodge. I still miss him. Schwarzenegger was very entertaining. I remember the first time i met with him, and i was having breakfast with him up at his house in l. A. And i met him a couple of times, but i didnt know him well at all. Went up there to have breakfast with him and i heard that his sharp wit was really amazing so i decided the best defense would be an aggressive offense. So i went up there and i said, governor, i just want to tell you very clearly how pleased i am to be with you today. And its just a real honor to be with you, but the truth of the matter is, i hope youre a Good Government and do really well. And with that he responded to me and said arthur, why are you economist so short . I said, where did that come from . Seriousness, he said no, no. Milton friedman couldnt have been more than four feet three inches tall. You, arthur, you remind me of donnie devito. You know i started with them in twins. So i never took that attack again. But let me if i can, the book. The first chapter starts with the fall from grace. There have been 11 states in the United States over the last 65 years that introduce the income tax. So what we thought we would do in this chapter is take a look at what happened to those 11 states. It started off with West Virginia in 1961 but ended up with connecticut in 1991. Normal states come if you look at them you have maine, rhode island, connecticut, new jersey, West Virginia, pennsylvania, ohio, michigan, indiana, illinois, nebraska. These are normal states but in this chapter we took the performance of those states the three years before the introduce the income tax. Are you all with me . Look at the primary metrics, population, labor force, all of these variables relative to the rest of the nation. We standardized by the size of the nation. Then looked at the same metrics, including state and local taxes. Then looked at the same metrics in the last two years. If you look at each of those 11 states, literally with not one exception, every single one of those states declined as a share of the u. S. Economy. Not one exception. Some of them declined by a law. Michigan, for example, when from 5. 2 of u. S. , the twopoint 7 . That is collapse. To be one of the introduce the income tax in michigan was . Romney. Sorry, i just had to mention that just for the crowd. If you look at my home state of ohio. I was born and raised in ohio. My mom and dad were both born and raised in ohio. Four of my grandparents, all four of my grandparents were born and raised in northeastern ohio. Seven out of eight of my great grandparents, i go back and visit my family at Lakeview Cemetery in cleveland. Have you seen cleveland . Is a bomb shelter. I mean, its a disaster. I could go on, new jersey. Just think of new jersey. Anyone from new jersey . New jersey in 1965, new jersey had neither an income tax nor a sales tax. Neither one. One of the fastestgrowing states in the nation, people from everywhere moving in new jersey and they had a balanced budget. When my student was governor, for hal have years ago, five yes ago, jon corzine, by the way just for those closure, see student. [laughter] that after reading all the stuff on ms global, an adventure highest property taxes, highest income taxes, slowest growth. Huge budget deficit. You could go on and no. West virginia. You cant make the state more poor than West Virginia. Yes, you can. For more teeth fell out. Just joking. Thats not fair, is it a . But its fun. It a look at the provision of the Public Service. If were sitting in the capital of one of these states that introduce income tax, what with the debate is like . Those were against the income tax would argue it would hurt growth. Those who are in favor, what with the argument . We need schools, highways, roads. What i did was i decided to get on the next step and look at the provision of Public Service in these states. I will go one a little more detail with you. I look at the number of fulltime public employees. We have detailed records. If you look at the number of fulltime equivalent employees for 10,000 per pop osha basics you can see what happened to the input. They are are some of these where can measure the output. Department of education, fourth grade and eighth grade english and math. Theyre all the same tests across the nation. If you look at these 11 states havthat introduce the income ta, only three of those states had improvements in there Public Services. Only three. They were just little beauty tiny amount. Eight states declined in the provision of Public Services relative to the rest of the nation. Six of those states declined by about. Thats chapter one. You can go detail for all of those. I then did the nine members of the brotherhood of the ring to offset the nine. I moderate. Im into it. What i did was i then looked at the comparison of those nine states with the earned income tax, compared with a nine states with highest income tax rate. If you look at those states, its incredible the difference. Than nine states with no current income tax kicked the heck out of the highest income taxed at. In every single category including tax revenue growth. Its amazing. If you take up the oil states which we did as well in that chapter, and even without oilproducing states, the nine states with no earned income tax did way better than the nine states with highest, with Public Services, too. Overpraise, all of these articles. There is a huge amount of Data Available for the 50 states over the last 75 years that no one caps any state those states, took this data back 50 years. Im looking at the tenure differences. Theres that once in your in the last 40 years, remember im using 10 year growth rate, not one single year in which the zero income tax rate states didnt outperform the highest income tax rate states the same number of states. Its just incredible the evidence. Then looked at one called piling on which is the next chapter its look at all of the nontax things. Have any of you seen the david on right to work . If you look at the difference in the performance of states with right to work and those without right to work, and its incredible the right to work states just what outperform the forced union of states. Its amazing. If you look at minimum wage in the states can if you look at percentage, the same results apply. I did the next chapter which was all mine which is the metric chapter. That one i dare you to read. It bores you but what i did do in the chapter is a deadend bibliography pages of articles in academic journals, all of them with the same results across the board. Then looked at give unto caesar. With irs data on states from 1992, the earned income year of 1992, reported 93 on the 20102011. If you look at where people are moving and where they are moving to, and what their income levels are, its astounding. We use one of these variables i didnt include which we didnt include in this book which is on the estate tax or the death tax in states. Tennessee has an estate tax, and florida of course doesnt. What i did in the state tax because i look at the number of states of the federal state tax filings in florida per 100,000 population, compared to the number of the states, federal and state tax filings in tennessee for 100,000, and the size of the estate. Florida has twice as many filings per 100,000 than is tennessee and the arts twice as large. People really do move. I was reminded, im from ohio. Do any of you remember Howard Metzenbaum . He was mr. He was mr. Death tax and sell. He was like 912 years old when he died. Six months before he died he decided to move to florida because [laughter] its funny, but the thing is true is his behavior was perfect. His words were bad. He did the right thing by moving to florida just before. He shouldnt have been arguing in favor of limiting estate tax for all of you before the. The last chapter of the book is, i go through all these arguments against and i discuss in which you might find funny. What i want to go through is texas and california. Here are the two giants of the planet. Texas and california. If you look at texas and california i want through and look at all the taxes on income in both states and that are i think in california i think i end up with Something Like 1800 separate taxes before i stopped. I wasnt at the end of the taxes. There were a lot more to go but i stopped there. If you look at all of the tax rates and you will have to just believe me on this, tax rates in california on income are higher than they are in texas, but they are not only higher, the tax rate, the effective marginal tax rate on the unit of income in california is about 65 higher than the effective marginal tax rate on the unit of income in taxes. Are you all with me . Theres 13. 5 in california, no Capital Gains tax but if you take all of us together. California marginal tax rates on Economic Activity are about 55 are in california. Point number one. Once you look at this 55 higher marginal tax we do in california than it is in texas, you know theyre going to be some weeks because im looking at your member back in the late 40s, early 50s we used to be working on cars. Back then used to measure or spar of cars. Of the engine. And, of course, as you know the horsepower of the engine is not effective measure. Its really what you want to know is what the horsepower is on the rear axle. Between the engine and their axle is something they call the parasitic leakage. Im going to take the concept of a parasitic leakage and look at tax rates the same but if you have tax rate in california 65 higher than they are in texas, to go from tax rate to tax revenues youve got all sorts of parasitic leakage is in the process. Number one, the Unemployment Rate in california is much higher than it is in texas, parasitic leakage is. The Participation Rate in texas are much higher than it are in california, parasitic leakage. If you look at which people. Rich people are moving out of california and into texas. Parasitic leakage. If you look at tax returns in california people higher lawyers, accounts, all these other favorite rappers. So that their income is sheltered. Parasitic leakage. You can all see the parasitic leakage is there going on. If you go from tax rates in california being 65 higher than they are in texas, his first parasitic leakage leads to tax revenues in california think about 25 higher than they are in texas. As a share of gdp. Statehood. Are you with me . Then you have the next parasitic leakage between tax revenues and public spending and this is all state and local government. And yet the next parasitic leakage between revenue and actual state spending on Public Services. You all follow me . Just an example, because of all the regulations and restrictions and requirements in california, if we decide we need to build more homes, what we had to do was look for a huge piece of property, 2003000 acres. Then you have to go through a permitting process that would take a little over two years before he could start anything. Once you start something that it would take you a number of years to develop it through. Texas, very, very easy. Prevailing wage. You dont have that in texas. You do have in california. Schoolteachers are all unionized in california. They are not in texas. In fact, from 1975 to the present, schoolteachers in california have put on 170 statewide strikes. In texas did you were a schoolteacher and destroyed you immediately lose her license to teach. There are none. Its sort of amazing. There are all these leakages. If you go from revenues as a share of state product to spending, you have parasitic leakage number two to 65 higher marginal tax rate in california and texas, 25 higher revenues when you get to spending, they are dead even. They are dead even. Then you go to the third leakage in the process and to think i will have some fun with you on this one. The third leakage is from spending, state spending. State and local government to the actual provision of Public Service. Let me go through a little fun stuff with you. On california and on texas. Texas has left poverty as a share of its population, 16. 5 than does california which is 23. 5 . California has the highest poverty rate of any state in the nation. As i mentioned, Unemployment Rate you go. California pays its educators 40 more for fulltime equivalent employees than does texas. I remember spending is the same in each state. Public welfare employees in california make over 56,000 hours per year to texas or 7 37,000. California pays its hospital employs 53 more than it does texas. California pays its Police Protection employs 70 more than does texas. California pays its i would employs 76 more than does texas. California pays its Fire Protection employs 86 more than does texas. California pays its corrections employees 93 more than does texas. California pays its state legislatures 95,000 per year. In all full disclosure they have cut their pay down from 113,000 in deference to the weak economy in california. Texas pays its legislators 7200 a year. [laughter] now, the provision of Public Service, i just got to go to this wiki. The annual cost of a prisoner held in texas, 21,390, or 58. 60 a day. Are you with me . In california the equivalent president cost taxpayers 47,000, or 129 per day. California bills one month a state title at an average cost of 265,000. One mile of highway in texas, average cost is a little over 88,000. Texas employees employs 345 fulltime equivalent employers and educators for every 10,000 of population where as california employs 231 fulltime equivalent employees per 10,000 in population. The u. S. Average is 286. As measured by the u. S. Department of education, californias student test scores are the fourth worst in the nation. Thats the best performance in the last 25 years. California usually is the Second Lowest in the nation only being beaten by mississippi or louisiana, and once by new mexico. But now their fourth worst in the nation. Texas scores are 29th highest in the nation. The california teachers i mentioned that to of the 5 estates, california, texas, new york, illinois and florida. California is those educational test scores were as texas has by far the highest. Texas employs more Police Protection employs for 10,000 inauguration than does california, 28. 9 versus 26point for. Texas has far more prisoners. This is one that really got me. Texas has far more prisoners per 100,000 of population, 923 prisoners per 100,000 population than does california which has only 621 prisoners. What would account for that . I view all people the same. Their proclivity for skulduggery and all sorts of criminal activity being the same. I dont understand why californias 50 more prisoners i mean, texas has 50 more prisoners than california but did you. Maybe its i do know. They dont go after them in california. I dont know what it is. The next one here, california prisons are currently running at 75 over design capacity. That means if a prison is designed of 100 people in california has 175 people. Texas prisons has 15 below design capacity. In fact the Supreme Court has ordered california as you all know that had to get rid of these they have to get down to 137. 5 even though theyre only down to murderers go. Murderers, rapist. Its shocking. I guess the Supreme Court gave him a stay of this a bit ago. Corrections has more almost 30 more highway employees per 10,000 publishing than does california. Texas ranked 23rd in the nation a state Road Conditions was california ranked dead last. Now, ive got to be in full disclosure to give you the counter peace. Theres one piece of evidence were california way outperforms texas, and forgive me for saving this to last but california has 74 more Public Welfare employees per 10,000 in population than does texas, and they pay those welfare employees 52 per person more than does texas. When you look at this the one thing that pops out to me in this book that really came through, this came through i was debating nor he on intelligence squared and he said i concede all your crap on lower tax, but Economic Growth but, frankly, i could give a damn. I care about the quality of life. I care about how things happen and what we can do and to make a quality of life higher. So im willing to pay less. The truth of the matter is, andn the ranges were talking about, the quality of life is directly aligned with the growth in state output and prosperity. Those states that cut their tax rates, that increase Economic Growth in the range of policies were we have them right now, their performances in the provision of Public Services also improve relative to the rest of the nation. And with that i will throw it open for questions. [applause] i will let him field questions but when he acknowledges you wait for the microphone so we can all hear your question. Great talk, thank you, professor. California is still somewhat anomalous in this respect. Many entrepreneurs and many Silicon ValleyBusiness Leaders that we talk to still sing the praises of their corner of california. Are you in denial or do they enjoy some shangrila that is not open to others . Yeah, the question is, a lot of people stay in california, a lot of them are very wealthy, i to produce. California is wonderful. To be real honest i love it. Idols of people here when i left california and went to nashville and had a problem going back with the auditors and all that sort of stuff. I had to put watercolor pictures on my wall of palm trees and dancing girls and beaches and all that sort of stuff. I played beach boys music in the background for three years. California is spectacular. Thats what it so interesting to the comparison. Once the threeyear statue limitation, and i can go back and really enjoyed california without taxes. But these guys, they do have a great life. From my standpoint i could have stayed in california. I can afford taxes. A lot of people to say i can afford the taxes i dont want to live the lifestyle. Is a lot else in life besides be a local economics. The reason i focus on state and local economics is thats what the government has as its sort of keyboard to play. They can change the sunshine. They cant change the mouse, the beaches. But what you can change what he allow fracking or not. California doesnt allow fracking. Texas does. California has for more reserves underground than does texas a texas has been and produces wealth out of them. Its amazing. Wing you look at this, another wonderful thing about california is actually to do really well in california. Unrealized Capital Gains arent actually but if youre of watch price of houses in california go up, its sort of like the Cleveland Clinic and Cleveland State university in downtown cleveland. You go through downtown cleveland, boards everywhere. Guys with brown paper bags. All of a sudden you see the Cleveland Clinic, beautiful building in lovely Cleveland State university which i always feel a little sick afterwards when i say thats a education in cleveland. Believe me. Why are they doing well . They are 501 c threes. Taxexempt activities do really well and i tax environment. In california you are one tax exempt activity is owning a home. You get the unrealized Capital Gains. Theres a lot else going on besides just taxes. Look at the migration patterns in california. California with a larger share of the u. S. 10 years ago than it is today. Its decline is happening faster and faster but if you look at the time periods of california. When we did a prop 13 and we got rid of, we index the end, tax. We got rid of you couldnt lead the growth in california from 1978 through 1990. And all the sudden came prop 98, although taxes, Office Document and the growth just stop. We were adding come in california we are adding a San Francisco a year in the state of california in that 12 year period. It was just incredible and then it just stopped. It stayed stopped. Any questions over here . Can you comment on new york with high tax structure, which is the for the future, especially with the new estate tax . The daily news, what was it yesterday . Whatever, i had an editorial in the new york paper here, not the new york times. They are silent. I send the paper in and no response. New york, just the clearest sign of whats going on in new york is the start of new york. Start of new york, the program. If you fit in the category seek it tax freedom. Thats a clear sign they understand taxes meditate if you look at the migration of personal incomes from states in 92, 93 to the present, new york is at the very bottom. New york is a devastating decline region of the u. S. I go to all of those numbers. My dear friend wrote a piece in 1974, when youre taxes reasonthe are now. Its true, they were. He wrote the poor little rich man about the new yorker goes through all this taxes and i can send for if i decide to buy a tax exempt bonds instead of starting a new business. But that is exactly whats happening in new york. It is really very, very said because this is the symbol of American Society today. Theres no place that represents capitalism than new york city. You are squandered it. We have plenty of room for all of you in tennessee. Its really fun. Let me just a joke but i paid for my house with my first years tax savings. Without a mortgage. Are there any data about states or municipalities that have done the reverse of this fall from grace that have come with enough time, to test whether or not one state has done the. One has reversed it. A number of states have cut their tax rates. I mentioned new york as. When you had governor kerry cut taxes, substantially, he was pretty good. One state has gone from an income tax take to resume a tax state the only one and that was alaska. Alaska did it with the discovery of oil to be kept the corporate tax. They have sales but they did get rid of the income tax in alaska. Alaska output growth is exclusively related to hydrocarbons, same thing with north dakota. Same thing with wyoming. There are about four or five states that really very large extraction industries, very teeny tiny populations and very large extraction industry. They really dominated the numbers if you let them stay in. But to hydrocarbons, especially oil, really make a difference and that, alaska is the only one to the are a couple of states that have tried to move forward on this period back in 1991, were going to get rid of the income tax. We did it by a buildup you just make sure the numbers came in so you didnt you one year with an automatic, couldnt come at the ravens didnt come in we would have got a lot of pushback. We try to do with eight bills going from zero. We had five years into this program. It was one of the highest taxed states in the nation, arizona was. It missed all the films of the 80s and were just coming on, just in the last three years of that when he was indicted federally, convicted and sent to prison. Needless to say that put a crimp in our proposals going forward. But now i got a call yesterday from jon kyl whos the new governor and so lets reignite the in jealousy for cant be the first it to get rid of the income tax. Who knows . We might get arizona. You are a bunch of states that have been tax cuts and you can see if you use a time series crosssection, examples im giving you are basically anecdotal, ninenine close. They are really a luster to of whats going on. Its not misleading but it took the crosssection analysis and to the metrics which i told you why growth rates differ. Every single state, every single year and you just look at those numbers and you can see. The results if i could ask you to switch to the federal level, and you were given a choice of three federal taxes to reduce, which would be your top 30 . I think the progressive income tax is the single worst tax ever, major tax. I think the estate tax is disgusting beyond belief. Here you are. You earn your money after tax. You can take that money, go to vegas, gamble, drink and you can smoke. Federal government says god bless you, go for it. But if you decide you want to use it to get your kids and family, you will get taxed up to 45 on the margin. I know of no tax that is more disgusting than the estate tax. The progressive income tax is pretty close. It is the exact antithesis. It leads to very vulgar behavior. Can i do one i dont need to pick on him. Is not a good friend of all yours and forgive me, a french guy from nebraska. Whats his name . Buffett . Warren buffett . [laughter] and if i can come Warren Buffett. Getting of human with a letter he sent to the near times . I, Warren Buffett, i pay less in taxes than my secretary. Do you remember that letter . He said and thats what people on my staff and i pay less in taxes than all of them. And then he went through and made a fundamental mistake of actually sing what is percentage of income tax was. He said i paid 17. 4 of income in taxes. He includes the payroll tax which is sort of bias against the rest of his employees but thats okay. Ill take that. He said i the 17. 4 of our income, and you will think thats a lot of money but the taxes i pay are less than 8 million. I know you think its a lot of money but its really not. Its only 17. 4 of my income. Im a math whiz, so hold on. I took a less than 8 million, seven by 934,000 whatever it was. Divide it by. 714 and i got his adjusted gross income. I then looked at the adjusted gross income. It was a less than 40 million. Thats a hell of a lot of money for your. This was 2010. Are you all with me on this . Thats amazing. He made a lot of money, paid a lot of taxes. And i said let me go back to chicago, university of chicago and sort of look at what a persons income is. I may shock you on this but a persons income, according to the chicago henry simon was what you spend, what you give away, and the increase in your wealth. Think that over a little bit. What you spend as part of your income, what you give away as part of your income, and then your increase in your wealth, the three of those together comprise your income. You all follow the on that . I saw Warren Buffetts letter in there and did all those calculations like a told you did, and then went to forbes 500. I looked at Warren Buffett net worth. Its pretty easy to do worn buffets net worth, a country called berkshire hathaway. Trade on exchanges. The beginning of 2010 year for which reported income from his net worth was about 40 billion. At the end of the year his net worth was about 50 billion. An increasing net worth of only 10 billion. I then went to the bill and Melinda Gates website, foundation website, i didnt go to i dont have a computer even. I went there on the website and look at that and lo and behold that your he gave 1. 75 billion to the bill and linda gates addition. They published the conditions and its bill and melinda are not there any longer. Its taken away. They have to spend in three years. So thats one and three quarters but i didnt go through his sons website or his daughters website. There are two sons of foundations that he gives to. I also didnt go to the discounted Insurance Premium payments the discounted now in anticipation of future outlays for insurance company. I didnt go to the difference in Tony Berkshire hathaway were as if you buy so companies under the shelter berkshire capital you have to pay Capital Gains tax buddy on the companies in the portfolio he would have had. I didnt do any of that. I look at the total amount and i got, i got Warren Buffett income in 2010 as being about 12, 12. 5, maybe 13 billion from what i looked at. Do you follow me there . I went back to his taxes which was a less than 8 million i calculated the percentage of income he paid in taxes and comes out to be about 61 hundredths of 1 of his income is what he paid in taxes. What things did you think you recommend to obama . Do you think he recommended taxing unrealized Capital Gains . Do you think he recommended to present obama that we should tax, tax free may be the first billion you get to the bill and linda gates or your Sons Foundation . Of course not. He didnt recommend any of that. He recommended raising taxes on anything he does pay taxes on any gets a congressional medal of honor for. This is where you guys have to be serious. We must tax all income at a single rate from dollar 12, and stock. [applause] and you got to do it on everything. I apologize to the manhattan institute. I love you guys. You should never be a 501 c 3 again in history. We were grandfathered in. You were grandfathered in what you are already given. But what you should do is get rid of all of these things. The low rate tasha i think jerry brown text of you guys dont take a flat tax works. You dont think people like it. In 1990 i did jerry browns flat tax which we got rid of all federal taxes, all of them. Rid of the income tax. We got rid of the corporate tax. We got rid of all payroll taxes, both employer and deploy. We got rid of the gift taxes. We got rid of Capital Gains tax, estate taxes, excise taxes, medicare taxes, medicaid taxes. We got rid of terrorists. We got rid of all of them, with one exception. We kept something called syntax. Syntax, i guess we americans dont like drunk guys smoking while they shoot each other. But the syntax our little bitty tiny tax but if you get rid of all those federal taxes, static revenue neutral, full employment for your tax bills, highest, you could replace all federal taxes today with a flat rate tax on personal an adjusted gross income and a flat rate tax on business net sales, call it valueadded, you could do that at a rate of 11. 8 of static revenue neutral. No laffer curve effect, none of that. Could you imagine what this country would look like today . If we had a flat income tax of 12 , a flat federal valueadded tax of 12 . Thats it. I mean, you wouldnt even have to file a tax return for gods sake. Your company osha 10 100 bucks, they seem to 88 and its all. If you know your neighbors offer 10 bucks, you have to write in a check for 1. 20. That is where we should go on growth. Thats literally the way. Spent i think we have time for one or two more quick questions. The gentleman back there. In addition to the legislated taxes you described, there are now systems shadow taxation, whether in the form of College Financial aid programs or the effect of Health Insurance subsidies. And i wonder if you study the effects of behavior of those sort of shadow tax systems and whether they are significant additions . They are. Every significant but all of these other the what i love is obamacare. I think obamacare is really wonderful. You know, whenever someone gives away valuable resources and unlimited quantity, they go bankrupt. I hope im not going over your heads on this one. Weve got to go back to Milton Friedman on this. I miss Milton Friedman for two reasons. One, i miss them terribly for good economics, and the other reason i misinterpret is because whenever i called him on the podium, i could actually raise the microphone. Just joking. Milton friedman to quickly insert all Government Spending is taxation. The tooth fairy does not work at the u. S. Treasury any longer. Father christmas is not an american tradition. Whenever the government spends, its taxation. Whenever they spend money, they have to take it from someone else. Government spending is taxation. You can go to all of these processes, all of the different ways in which they distort the marketplace. They all have very, very powerful effects. The problem is its gotten so arcane and complicated and convoluted cant even tell whats going on really. Each really very hard to figure out what the degree of intervention of chain income education. The damn city bus tickets. Its in every darn thing there is. One more . Arthur, in your longstanding and careful analysis of states relative to public policy, what are the political implications two years from now in 2016 of the messages that were sent by the electorate in our country . And for the record, 95 plus accurately predicted. In terms of public policy, tax policy and politics two years from now. In these thing about being my age, 74 going on 35 is you have experienced some things in life. Ive got to chile ive been to this barbecue before. The first time i was at this barbecue was in the late 70s, early 80s with you know him. At the time it smelled really good to me but i did know what was and now i know what it is. I think we are literally in 1970 again. The Election Results are in. They are solid. I think the corner has been turned. When i looked at him 2016, i think youll have a supplyside president. It does not have to be a republican, people. It doesnt have to be a democrat, liberal, conservative, left or right winger. Its economics. Economics is all about incentives. What weve had for the last 16 years is a redistribution of society. And whenever you reduced to be income, this is a math. This not ideology. Whenever you redistricting, you always reduce income. The problem is, whatever you take from someone who has more and give to someone who has less, are you with me on the redistribution . Are you following the . By taking from someone who has more, they have less and their incentives to produce are reduced. By giving to someone who has less, you provide them with an alternative source of income other than working. They, too, will produce less. Whenever you redistribute income to reduce total income and the more, the more you reduce total income and take it to the extreme which is a Kurt Vonnegut extreme but if you want 2 redistribution, you will have a zero output. Just to give you the example here. If we had 100 redistribution what we would do is we would tax everyone who makes about the average income, 100 of the excess. Okay . Everyone he makes a low the average income we would subsidize them up to the average income. Thats the 100 redistribution model. If we did that, if we actually tax as one who made above the average income 100 of the excess and subsidized ever below the average income of two the average income i will stipulate today, counselor, everyone will be equal at zero. Redistribution always reduces output. What is happening and whats happened, i dont member if your member acting agent days of johnson, nixon, ford and carter. I used to like to refer to them as the four stooges. The largest assemblage of bipartisan ignorance probably ever put on planet earth. They were redistribution is for the first order and, of course, that led to be still my heart growth. We have had the same thing. W. Was not my favorite. Im sorry. I hate to break it to but big spender, i think an awful president. And obama clearly is not my favorite. I think they are twins to be honest with you. What you are in store for is a big change in the process, and i would just finished. I used to tell the president , you know, its my professional judgment that as an economist, as a professor, that you truly are a certifiable genius. But, you know, so my colleagues at the university dont sort of concur in my assessments of your intellectual acumen. In fact some my colleagues at university dont think you are very bright at all. But the one thing my colleagues and i do agree upon is the one unique characteristic is your uncanny ability to select your for predecessors. Anyone following this because with johnson, nixon, ford and carter just cant look back. And in the same sense is really true that if reagan had been elected in 1976, im going to tell you he wouldve been a very different president than