Cities Turn to New Taxes, Fees to Fill Budget Gaps

This is a rush transcript from "Glenn Beck," April 13, 2009. This copy may not be in its final form and may be updated.

GLENN BECK, HOST: It's a wild day here. David Buckner, who is a good friend of mine, is doing well. He was ill apparently this morning and just got a little light-headed, but he is fine. And we have medical professionals on their way to the set. And he is up and alert and fine.

Well, what we were talking about before the — before the break was when you have the treasuries full of toxic disease, what happens when they go? We are now talking about a system — and this is the question that I've had for everybody who I respect, I don't want to believe that we are having real problems that we can't get out of, but I have yet to meet the person that can show me how to dig our way out of this hole, because it ain't going to be done with the taxes.

To fill budget gaps with the cash, strapped cities are now getting now creative and they are just do doing new taxes and it ain't going to work. Nothing is off the table now with these cities.

We have Arthur Laffer with us. He is here — former Reagan economic adviser and co-author of "The End of Prosperity."

Art, new taxes and fees, can you help me try to figure out how you dig yourself out of the hole that we're creating here with our treasuries and in our cities, et cetera, et cetera, by just piling on to the federal government and getting out of it with taxes?

ARTHUR LAFFER, FORMER REAGAN ECONOMIC ADVISER: You can't get out of it with taxes because, of course, what happens, Glenn, is the more you raise tax rates, the lower output employment and production is and the worse the economy is, and you really don't collect as many taxes as you think you can.

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I mean, right now, the way I use the metrics here is if you look at total government spending, half of it is being paid for by taxes and the other half is going to debt. In order to have a balanced budget just by taxes, if there were no economic effects, you would have to double all federal taxes in the U.S. just to have a balanced budget.

Now, if you doubled all taxes, you and I both know that the economy would go straight south. It would lead to a disaster and you would collect a lot less than they think they're going to collect. So, there's no way they can come out of this with just taxes. It's got to be a lot, lot more than taxes.

BECK: OK. Well, I mean, here we are — I mean, we are trying to print the federal tax code here. We got four people on set. It's over 60,000 pages.

There is no way anyone can even understand this. It is just an absolute mess. I don't think we can print it by the time Tax Day comes, just print it. I don't think we can even print it.

LAFFER: It is amazing.

BECK: Yes, it is absolutely insane. The money that we spend in preparing our taxes, the money we spend in defending the taxes, the money we spend on the IRS going after and saying, "I need to audit you" — if we just had a fair or flat tax, two things would happen.

LAFFER: Exactly.

BECK: At least in my eye is, A, it would free up all of this work of the tax dollars of just chasing the tax. And the second part is, didn't we learn from Russia that when you lower the taxes and you make them flat that the revenue actually goes up?

LAFFER: Yes. And that's exactly right. I did Jerry Brown's flat tax. I don't know if you remember, when he ran for president in 1992 in the primary, in the Democratic primary against Clinton.

Well, he had a flat tax. He had no taxes, no federal taxes except for two flat rates — one on business net sales and one on personal adjusted gross income. The revenue neutral flat tax there is 11.8 percent.

And Russia — he made it 13 percent because he wanted to reduce the national debt as well and Russia just took that tax code from him. And it really worked in Russia. It would work beautifully here.

And I just don't see why — I mean, both parties, the rank and file, want it. I don't know why we just don't do it. It's the politicians that are keeping it from happening.

BECK: OK. Help me with this, Art, because I see that the — like in Connecticut, they have retroactive taxes that they are talking about now, going after people retroactively.

(LAUGHTER)

LAFFER: No.

BECK: You have already paid taxes on things and they're going to go back in time and say, "Yes, you need to cough up some more money."

(LAUGHTER)

BECK: You have the cigarette tax, which I actually heard somebody on FOX this morning, some woman was on defending it and saying, "Well, people are going to start — they're going to just stop smoking and that's good." No, because that's how you financed SCHIP.

LAFFER: Yes.

BECK: I mean, people don't understand. Obama may say he's not going to raise taxes but he's raising taxes everywhere. Before you even get to the federal government, your taxes have been raised.

LAFFER: Let me just do the one on the cigarette tax. If you raise cigarette taxes, as they say, the wonderful side effect is that people will stop smoking. But now, what you're going to do is raise taxes on employment, income, production — do they say the same things? Are they glad that income will be down, income will be down, production will be down? It will have the same deleterious effects.

That is the essence, Glenn, of supply-side economics. These guys, you can't raise taxes on the last three people working. It makes no sense whatsoever. And when you do raise taxes, if you collected money, all you're doing is balancing the government's budget by unbalancing the citizens' budgets.

It's crazy.

BECK: So, when these people are going to the tax Tea Party and I've said that there's — the taxes...

LAFFER: Congratulations, by the way.

BECK: What? I'm just attending. The tax Tea Party, you know, the media doesn't understand that the taxes aren't there yet. Oh, they're like, oh, these taxes aren't bad. When does this really start to hit, Art? When do — when do people really wake up?

LAFFER: It's starting to hit right now. As you can see in California, your friend — and by the way, I'm very glad he's OK.

BECK: He is.

LAFFER: But it started happening in California with the overspending, the unfunded liabilities. You're already seeing some of the cities and some of the districts in California threaten bankruptcy. I mean, you see that all over the nation. You're seeing some of the government bonds, some of the corporate bonds having problems.

I mean, in 1837, we had all of the states' principles bankrupt in the United States with the canal bonds.

You know, it really does happen and it can happen. And just because we're 100-some years later doesn't mean that it can't happen to us, it can.

BECK: All right. Thank you very much, Art. I appreciate it.

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