Art Laffer: Obama now 'owns' economic situation

New poll shows public dissatisfied with U.S. direction


This is a rush transcript from "Your World," January 2, 2013. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: All right, I would like you to take a look at this.

President Obama is heading into his second term and his march down Pennsylvania Avenue with more Americans feeling down in the dumps, period. Barely a quarter saying they are satisfied with the direction the country is headed right now. And that is the lowest number we have seen since going back to Ronnie Reagan.

No surprise to this Reagan guy, Art Laffer.

What are we take away from that?

ART LAFFER, FORMER WHITE HOUSE ECONOMIC ADVISER: I don't think things look very good, Neil. It is pretty bad, except for your waistcoat. I think your waistcoat looks wonderful.


LAFFER: And Kate was spectacular. She was just spectacular.

But the economy looks bad and Obama now owns it. After these votes and the fiscal cliff and all the negative about those votes that you and I can talk about, the good thing is, is now Obama owns the economy. He has got his tax increases, it is his. And I don't think the economy is going to look good for quite a while. And frankly, that bodes very well for 2014.


CAVUTO: With the exception of you -- and I know in the face of Bill Clinton's tax hikes when he first came to office, a lot of folks were very worried. You at the time were not because he was marrying it and especially in future years with welfare to work and real constructive shrinking of government.

LAFFER: Exactly.

CAVUTO: That was very different. So the effect of a tax hike now I suspect would be very different. Or maybe I'm wrong. Again, I would like to be wrong.

Could there be a scenario in which Art Laffer says this could work out?

LAFFER: No. I don't think so.

Do remember, while Clinton did raise the personal income tax rate, that is very true, remember, he cut the capital gains tax rate.

CAVUTO: Yes, he did.

LAFFER: He cut taxes on the elderly. He did all sorts of wonderful things in there on taxes as well.

He got rid of the capital gains tax on owner-occupied homes, if you will remember. It was pretty amazing what he did on spending. He cut spending by more than the next four best presidents combined. Clinton is a very different person that Barack Obama. And I don't see any hope, to be honest with you, except for a political change.

We lost our chance this time. But I think we will get it in 2014 now that he owns this economy. And all the Democrats were the ones who put it in.

CAVUTO: You argue that Republicans will do well in the midterms?

LAFFER: Oh, I think they're going to do really well in the midterm.

I view a Nixon-like second term for Barack Obama, to be honest with you.

CAVUTO: Do you?

LAFFER: And your poll numbers are showing exactly that type of drop. It happens very quickly.


CAVUTO: Because I look at bad poll numbers for Congress as well, much worse than that of the president.

LAFFER: That is true. That is true.

CAVUTO: You think that turns around?

LAFFER: Well, you do not elect a Congress. Each one elects a congressperson. And that is the big difference here.

You do really elect a president. Once the president's negatives get out of orbit, it really it is hard to bring them back in. W. could not do it and Nixon couldn't do it.

CAVUTO: Right.

LAFFER: And I don't think Obama can do it either. I think he only has got one term left.


CAVUTO: Well, that's the reality.


LAFFER: (INAUDIBLE) Thank you, Neil.

CAVUTO: Ronald Reagan when he agreed in the 1986 tax hike to raise taxes, even though they finished being a lot lower than they were when he came into office, he did agree with a commitment on the part of Democrats to cut spending.

At the time, the ratio was something like 3-1 spending cuts over tax hikes. That didn't pan out quite that way, but it certainly wasn't 41-1, the ratio of tax hikes to spending cuts now.


CAVUTO: That is what worries me, that there is really no oomph behind this deal.

LAFFER: Let me take you back. It was ‘82 that he did the tradeoff of 3-1. And that one did not work out.

He got the $98 billion tax increase. Remember Bob Dole pushing that through. He got a promise of three times as many. In ‘86 tax act, it was exactly revenue-neutral, not a dollar more, not a dollar less. And that's when we brought the rates down to 28 percent and created this enormous prosperity.

Barack Obama is no Ronald Reagan, believe me. And I knew Ronald Reagan. He was a friend of mine.


CAVUTO: You even did the head thing. You just did the head thing. That was brilliant.

LAFFER: I can do it a little bit, ya know. It was great.


CAVUTO: All right.

LAFFER: But this is all part and --

I am really glad we have gotten rid of this issue. Once this issue is off the table, it really becomes Obama's economy. And I hope the Republicans in the House hold firm on the debt ceiling and on spending cuts going forward, because now is their time to shine.

And I hope they do it. They have done a great job I think so far in the Senate and in the House. They didn't really have much choice. But now they have a lot of choice going forward and I hope they really exercise it well.

CAVUTO: I have my doubts. I have my doubts. But we know hope springs eternal. And you share your old boss' optimistic half-full-glass view of the world, and that is to be admired.

LAFFER: Oh, I really do. I'm really -- I haven't been this -- I think we are exactly at the bottom. It's the winter solstice and it's only uphill from now on.

CAVUTO: OK. Well, there you go.

Art, happy New Year, my friend. Good seeing you.

LAFFER: Happy New Year, Neil. It's great being with you. Thank you.

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