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Real economic recovery or more trouble ahead?

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    Arthur Laffer offers insight on recent upswing

  • Duration 6:59
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More user who -- not bright smile -- times we are moving forward again.

Unemployment rates solid from 10% to seven point 8%.

Foreclosures.

Are the -- In five years.

Home values are on the -- stock market's double manufacturers government back assembly lines that could go back to work.

Welcome back -- The Journal Editorial Report I'm apology -- that was President Obama this week at a campaign stop in Ohio painting an optimistic picture of an economy.

On the upswing last month's unemployment numbers no -- help fuel that area as does news this week.

That new home construction reached its highest level in four years.

So is America on the road to recovery let's ask economist.

Art -- so Arthur welcome back good to have you here.

Thank you very much ball so we've got I think rebounding we've got consumer confidence.

We've got the job it's my it's still a mediocre jobs recovery but at least they're Som.

What's going on -- we are we see and really finally a good rebound.

I don't.

Think so at all -- I mean honestly I don't think that's the way to describe this economy we have the worst recoveries ever in US history.

When you look at the employment numbers there you see the participation rates dropping like -- stone right that's the reason the unemployment -- not -- 12% today housing starts dropped almost zero base for the last four years.

They're not anywhere near the average of the last forty or fifty years per 100000 population now it's true they are falling anymore the troops leveled out but it's right it's far from being a recovery and you -- sooner or later we're gonna run out of houses so we're gonna have to builds -- somewhere.

But if this is that is totally -- an incorrect description.

Of the economy today it really so level we've had a we've had three years really where we've seen in the end of the year the economy seemed to be coming back growth picking up and -- -- each time right next year with -- -- fallen off so where are you saying there -- another false on basically.

Yes I do I think there is a very serious problem on January 1 2013.

Which I call -- get -- I don't think it's a fiscal cliff it's a tax cliff right we're gonna see tax rates rise all over the place and Paul if you know they're gonna raise tax rates next year what do you do this year.

You accelerate all the income you possibly can in the 2012.

And there are lots and lots of ways of doing this and in many ways how to anybody got a 102 that I mean obviously you can -- you share what -- you take it capital yeah tell your share.

Short take your Ira solid -- and pay your taxes that go into a Roth IRA.

You can -- your selves out early you can buy all of your capital equipment this year get a 100% expense and you can do all those -- postpone all your costs to next year and take all your revenues this year and companies.

I mean I know some companies that are -- bonus and all of their.

Family employs the owners a huge amount and then just not gonna take -- come next year so there are lots and lots of ways and we have.

Lots of evidence how that happened in 2010 to 2011.

Right and also when Reagan did the other way.

It was a huge difference 198182.

Was zero real growth.

And then 1983.

That this year has been inflated way beyond what it should be even though and I feel bitter battle this it's still all at one point not at liberty to go.

That's not mediocre that's terrifying.

It is not only terrifying it should be much worse than it is and my guess and I'm wrong a lot so forgive me.

But if we go into 2013 I think we're gonna see -- drop off substantially in US economy and it's because of the tax would -- now I just huge.

By the way we OK but now I've talked to a senior.

Obama administration economic official a couple weeks ago he said look.

If -- -- -- this this tax argument really doesn't work if you just raise taxes on capital gains dividends on on the higher incomes that's gonna have almost negligible impact on the economy the big one that really matters on the middle class.

And President Obama wants to have.

Extend those in the last Republicans to help them so that tax cut that tax increase on the -- on on on people like -- NG go that doesn't matter.

That's what they say you know to me you can't you can't love jobs and -- job creators.

The people in the highest income brackets ball.

Are the job creators they have a CEOs of companies and allocate the resources there working for themselves just like you go and laugh or are.

And they're gonna make decisions that affect lots and lots of other people.

The guy -- -- from the street the guy who's running in the press is probably not the guy determines whether in fact they do a capital investment.

Or hire more people at the factory.

And that's what worries me the most you can't take the decision makers and -- them.

And then expect the economy to be god is just doesn't work.

That way -- another subject you know that's a big debate over tax your form this time and -- this campaign and the red Mitt Romney basically says in return for lowering the rates what he's gonna do is maybe he's used this is illustrative not that's a formal proposal but I don't -- I'll put a cap.

On the amounted deductions that individuals can take maybe 171000.

-- 50000 as high as that.

What do you think of that that proposal economically is that make sense that.

Yes it does that's very very clever of.

-- to have done that.

And obviously what he's gonna do is go through called a little deductions exemptions exclusions and all of those things and they're gonna pick and choose just like we -- in 1986.

On the flat broadening the base right -- lowering the rates we -- -- but that's really goes through the house committees in the Senate Committees to really choose.

Where you get the -- -- where you get the compromises on that.

But saying that we're gonna limit the deductions is the exact thing that Romney should have said and I have nothing to do with the Romney campaign by the way I -- but I thought that was just brilliant of them but but that means a big tax increase frankly for a lot of people because -- a lot of wealthy individuals who take a heck of a lot more than 171000 dollars deduction if you add it all up that short -- taxes overall.

Could go up.

That that's true but he's not talking about taxes I don't think.

What I think he said was he's been lower tax rate -- -- and that's what the key thing is that's where that that's where the marginal decisions are made that's what you want lower rates.

And a broader base.

You know you're gonna get someone on a static analysis to pay more in taxes for someone else -- that's always the case but what you really want to do.

If create a tax code.

That for every dollar to actually collect you create more economic growth.

And Romney's plan is exactly that plan just like what we did in 1986 Paul.

And it -- works it really works like mad and that's why I love the concept of Simpson -- that's why I love the concept of Rivlin Domenici.

I mean I would achieve little things here in New -- but the concept is exactly where we should go and I think that's what Romney wants to do okay art Laffer thanks so much for being here.

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