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Saturday, Apr 20, 2024

Noted Economist Bashes Frye Tax Plan

Arthur Laffer, the economic adviser to President Reagan and creator of the now-fabled Laffer Curve, put in his two cents Oct. 14 on mayoral candidate San Diego City Councilwoman Donna Frye’s proposal to raise the sales tax by a half a cent.

He joined mayoral candidate Jerry Sanders in front of the State Building in Downtown San Diego home of the state Board of Equalization, responsible for collecting sales tax.

“Sales taxes are most effective when applied on a regional basis, not jurisdiction-by-jurisdiction,” said Laffer. “Because consumers are mobile, if one jurisdiction raises its sales tax, consumers making large purchases will travel to surrounding jurisdictions where the price is lower. The result will be that the city of San Diego may actually realize lower sales tax revenues rather than the increase Councilmember Frye projects.”

The Laffer Curve, defined on his Web site, “implies that there is a maximum amount of tax that a government can raise, therefore there is a ceiling to the level of public goods which can be provided.”

During his Oct. 14 appearance here, Laffer added that, “Any tax increase in San Diego will have an exceptionally deleterious effect on the city’s poor, minorities and disenfranchised. The reason for this is quite simple. A tax increase in San Diego alone will drive businesses and jobs out of the city, and those who find it more difficult to relocate, like the poor and the disenfranchised, will suffer the most from losses. It’s basic economics.”

Sanders, who is running against Frye in the Nov. 8 mayoral election, said, “I disagree with Councilmember Frye on this. I don’t think San Diegans should be asked to pay higher taxes because of politicians’ mistakes.”

Frye, reached later that day, said that any plans for a sales tax increase would depend on the success of other efforts to reduce what she said is about $4 billion in deficits plaguing the city including the under funded pension, retiree health costs, infrastructure needs and litigation.

“If after making all the deep budget cuts, restructuring pension benefits and streamlining the bureaucracy, we still need revenues to fund core city services, only then would I ask the voters to consider a half-cent sales tax increase,” she said.

“Trying to sell your way out of this, by selling off city land, or issuing more bonded indebtedness, doesn’t make sense,” said Frye. “My plan addresses all these financial issues, with safeguards, to make sure these types of debts aren’t going to happen again.

As for Laffer, Frye added, “He is certainly entitled to his opinion.”

Pat Broderick


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