• This is a rush transcript from "The Journal Editorial Report," April 14, 2007.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," hold on to your wallet. Congress just lit a fuse for the biggest tax increase in history. We have the details as this year's filing deadline approaches.

    Media darling no more. Senator John McCain is under fire in the press for his staunch support for the war in Iraq. Will it sink his presidential hopes or pay off with the republican base?

    Our panel weighs in, after the headlines.

    (NEWSBREAK)

    GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    The millions of Americans struggling this weekend to decipher their complicated tax forms may find is hard to look on the bright side when it comes to the American tax code.

    But earlier this week I spoke with renowned economist Arthur Laffer and asked him if we do, in fact, have a better system than in decades past.

    (BEGIN VIDEOTAPE)

    ARTHUR LAFFER, ECONOMIST: It's much better, Paul. We have dropped the highest rates dramatically and broadened the tax base. Even though we have a long way to go, it is a lot, lot better than it was back then. Miles. Unrecognizably better.

    GIGOT: Better for incentives, business incentives, investor incentives? Is that what you mean, the economic growth part. It is not less complicated.

    LAFFER: No, no, it's not less complicated but incentives are better.

    You know, it's amazing. When Kennedy came into office, Paul, the highest federal marginal tax rate was 91 percent. That was on all income. I mean it wasn't just unearned or whatever. Just think had how high that is. Kennedy cut it from 91 percent to 70 percent. Now it is 35 percent. It probably should be lower, but it is well in the range of reasonableness.

    GIGOT: All right. Take us up to the present. You were a big supporter of the Bush tax, cuts particularly the ones of 2003.

    LAFFER: Yes, sir.

    GIGOT: Which brought the investment tax rates on capital gain and dividend down to 15 percent. Looking over the last four or five years, what's the record of those tax cut? Did they work?

    LAFFER: Oh, yes. They really worked. The thing that amazes me is, if you look at the deficit, I mean, — you know, the president was in a very tough spot when he took office. Nine months after he came into office we had September 11. We already had a collapsing stock market a year before he took office. So all of the things were working against him. And he did the tax cuts and strong defense.

    And you know, if you look at the economy today, there has never been a better economy on planet earth than the U.S. today. The budget deficit's one of the smallest in the last 35 years. Only 5 or 6 that are smaller as a share of GDP. The economy is roaring. The unemployment rate's 4.5 percent, very little inflation. It is a beautiful economy.

    I think Bush did a great job on the economy.

    GIGOT: But note, a lot of people disagree with that. And there is a big debate in Congress now with whether or whether or not those tax cuts, which expire in 2010, after 2010, should in fact be extended.