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McConnell: 'No evidence whatsoever that the Bush tax cuts actually diminished revenue'

mcconnelltaxcuts.JPG

There are fiscal theories that I disagree with, and that I think are cruel, and that make me upset. But very few actually make me sad. Sen. Mitch McConnell, however, hit my sore spot today. "There's no evidence whatsoever that the Bush tax cuts actually diminished revenue," he told Brian Beutler of TPMDC. "They increased revenue because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject." In other words, this is why Republicans don't think tax cuts need to be paid for. They pay for themselves.

Why does this make me sad? Because it's hard to see the country prospering when one of its two major political parties is this economically illiterate. McConnell isn't some backbencher. He's Senate minority leader. And he thinks there's "no evidence whatsoever that the Bush tax cuts actually diminished revenue."

There's an ontological question here about what, exactly, McConnell considers to be "evidence." But how about the Congressional Budget Office's estimations? "The new CBO data show that changes in law enacted since January 2001 increased the deficit by $539 billion in 2005. In the absence of such legislation, the nation would have a surplus this year. Tax cuts account for almost half — 48 percent — of this $539 billion in increased costs." How about the Committee for a Responsible Federal Budget? Their budget calculator shows that the tax cuts will cost $3.28 trillion between 2011 and 2018. How about George W. Bush's CEA chair, Greg Mankiw, who used the term "charlatans and cranks" for people who believed that "broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue." He continued: "I did not find such a claim credible, based on the available evidence. I never have, and I still don't."

There is some stimulative affect from tax cuts. They increase economic activity somewhat, and that means there's somewhat more taxable revenue for the government to pick up. But not much. Not nearly enough to cancel out the cost of a tax cut. It's important to remember that the Laffer Curve is actually a curve. You can no more drop taxes to 1 percent and make up the difference in revenue than you could increases taxes to 100 percent and sustain enough economic activity to fund the government. You'll recall that the last time we saw budget surpluses was under Clinton -- and higher taxes.

Further, if tax cuts don't need to be paid for because they generate so much taxable economic activity that they pay for themselves, then neither do unemployment checks. After all, the two work very similarly: A tax cut puts more money in your pocket. Unemployment insurance puts more money in an unemployed person's pocket. The difference is that the unemployed person is likelier to spend that money, which will generate more taxable economic activity than if that money is saved. That's why Mark Zandi, an adviser to John McCain's presidential campaign, estimated (pdf) that a dollar spent extending the Bush tax cuts would generate .32 cents of taxable economic activity, while a dollar spent on unemployment benefits would generate $1.61 of taxable economic activity.

In other words, using the theory under which tax cuts pay for themselves, unemployment benefits are a lot likelier to pay for themselves. But John Cornyn, another member of the GOP's Senate leadership, hasn't run the numbers. "I think the urgency of deficit-neutral extension of unemployment insurance has increased because of the size of the deficit and the size of the debt," he said. It's enough to make you very, very sad.

Photo credit: By J. Scott Applewhite/Associated Press

By Ezra Klein  |  July 13, 2010; 6:28 PM ET
 
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Comments

"Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle -- workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit -- why reducing taxes is the best way open to us to increase revenues."

Kennedy, John (President). Economic Report of the President, January 1963.

Posted by: rmgregory | July 13, 2010 6:32 PM | Report abuse

--"The new CBO data show that changes in law enacted since January 2001 increased the deficit by $539 billion in 2005."--

Klein, you dolt. You haven't shown that the tax cuts didn't lead to higher revenue. The increased deficit could have come on higher revenue but with even higher increases in spending.

Now go get those figures and come back, or you're the worthless hack everyone says you are.

Posted by: msoja | July 13, 2010 6:40 PM | Report abuse

RM, that's when tax rates were OVER 66% at the top end, and it's been proven to be total bs anyway, or do you just not read?

Ezra, your making the classic mistake that ll of us liberals make, we honestly think the Republicans care about anything other than lining the pockets of the people who control them, and who are them in many cases, the rich. Their an outright plutocratic political party and if they could kill every social service program and give they few dollars any poor person has to a rich person they will. If you're rich you're more of a citizen than a poor person. The Supreme court said so, so it must be true!(sarcasm)

Posted by: EricS2 | July 13, 2010 6:41 PM | Report abuse

Ummm, rmgregory, you're post comes across as at best uninformed and more likely misleading. Do you know what was the top marginal tax rate in 1963, and what it is today? Start with that question.

Posted by: moronjim | July 13, 2010 6:44 PM | Report abuse

As even the illiterate know, Laffer based his work in part on the experience of the John F. Kennedy's visionary tax cuts. But Laffer also cites more venerable sources:

"Ibn Khaldun, a 14th century Muslim philosopher, wrote in his work The Muqaddimah: 'It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments'."

Visionaries like Senator Kyl and former President Kennedy are often maligned, which is indeed sad.

Posted by: rmgregory | July 13, 2010 6:46 PM | Report abuse

Suggested question the next time you get to talk to McConnell, Kyl, or any of their ilk:

Q. Senator, does the Republican party believe that a main goal of the Democaratic party is to increase spending on government programs?

(Likely Answer: Yes, it is the overriding goal of their socialist agenda)

Q. Senator, does the Republican party believe that tax cuts stimulate the economy so much that they will actually result in increased overall revenue for the government?

(Likely Answer: Yes, that is the miracle of private enterprise and American exceptionalism, as laid down in the Gospel of Laffer, as interpreted by Saint Ronald Reagan)

Q. Senator, if Democrats want to increase government spending, and tax cuts lead to more government revenue, then WHY THE HELL DON'T DEMOCRATS FAVOR TAX CUTS and if Republicans want to decrease amount of money government takes out of the economy, WHY THE HELL DO REPUBLICANS FAVOR THEM?

Posted by: guesswhosue | July 13, 2010 6:52 PM | Report abuse

It's difficult to label the republicans as the party of tax cutters when we all watched democratic President Obama win the presidency by promising middle class tax cuts. And, he made tax cuts one third of the stimulus. Both parties are responsible for talking up tax cuts. That's sad.

Posted by: goadri | July 13, 2010 6:58 PM | Report abuse

Follow up: Ezra, don't be sad because Republithugs are economic illiterates. Be sad because they are evil lying b-st-rds. Look at their faces in this picture. They know they are spouting bullshit, and they clearly don't give a damn about it.

Posted by: guesswhosue | July 13, 2010 7:00 PM | Report abuse

" It's enough to make you very, very sad."

hope and courage.


Posted by: jkaren | July 13, 2010 7:02 PM | Report abuse

I agree. They're not economically illiterate. They know damn well they're lying through their teeth.

Posted by: SteveCA1 | July 13, 2010 7:03 PM | Report abuse

Not that I am sympathetic to GOP argument supporting tax cuts. But Ezra when you say -

"A tax cut puts more money in your pocket. Unemployment insurance puts more money in an unemployed person's pocket. The difference is that the unemployed person is likelier to spend that money, which will generate more taxable economic activity than if that money is saved."

Here is the difference. Tax cuts which go to well off and rich people make them to transform that saved dollar as the 'risk capital' whereas the dollar spend by the unemployed person does not create any 'risk capital'. The goal is to have more 'risk capital' created in the economy because that is what grows economy in the first place and that is what in the end creates jobs.

Ezra - question for the research desk: define formally what is 'risk capital', how it is generated and what contributes most to the 'risk capital' - unemployment allowance or tax cuts?

Again I am not supporting GOP tax cuts, but it is imperative upon us to get all these answers. Ultimately only factual answers are going to save this country from the bankruptcy which GOP may foist upon us by these unending tax cuts.

Posted by: umesh409 | July 13, 2010 7:09 PM | Report abuse

Yeah well last time I checked the wealthy STILL have their tax cuts and the economy isn't exactly roaring now is it?

Posted by: JRM2 | July 13, 2010 7:11 PM | Report abuse

I too agree. Mitch McConnell is the locus classicus of bad faith argument. He doesn't believe that stuff, or much of anything else he says.

Posted by: thehersch | July 13, 2010 7:11 PM | Report abuse

With all due respect, I think you're misunderstanding supply side economics. Primarily, you'll thinking from a demand side perspective, when the whole point of supply side economics is to effect the supply side. More specifically, the point of supply side tax cuts is not to be "stimulative," as you imply, but to increase incentives to work and save, and thus increase investment and productivity. Hence the comparison to unemployment benefits is not particular apt. Regarding Zandi's multipliers, I believe that's based on a liquidity trap situation: it's unlikely that supply side tax cuts will result in increased investment when demand has collapsed and we're already at the zero bound. Theoretically (and I believe there's research supporting this point), tax cuts are better for economic growth in other circumstances.

Don't get me wrong. I believe that the notion that supply side tax cuts pay for themselves is absurd. (And by the way, the next time you write a post like this, you should point out that Laffer himself has said that it's absurd, as well has supply side godfather Bruce Bartlett.) I also think that although marginal tax cuts can have some benefit (but the benefits can be wiped out if the deficits they cause are too great), I believe that the Laffer Curve is nothing more than a tautology (the optimal tax rate is somewhere between 0% and 100% -- duh), supply side economics primarily is a political philosophy rather than an economic one, and supply side's primary advocates are simply looking for an excuse to cut taxes for the well off rather than really believing in it as sound economics (which is the same reason they're now turning into the number one proponents of the flat tax). But, if you are going to talk about others being economically illiterate, and talk about how sad it is, I do think you need to get a more sound understanding of the basics and fundamentals of economics, or at least this particular area of economics. But then again, what do I know, I'm just a mathematically inept lawyer.

Posted by: JamesCody | July 13, 2010 7:13 PM | Report abuse

rmgregory, there may have been a learned Muslim philosopher who believed in tax cuts, but a more recent Republican president, Ronald Reagan, cut taxes and ended 2 terms with a huge deficit. Mr. Klein, McConnell may have made you sad, but I don't share your inappropriate surprise. The Republican Party has not said a serious word about any policy for the last couple of years. McConnell just made me write another check to the Democratic National Committee, the only grownups (however flawed) in government.

Posted by: ciocia1 | July 13, 2010 7:15 PM | Report abuse

Lowering taxes and handing out money via unemployment checks, both get money into the economy. But if you can't see that paying people to stay home is as likely to stimulate the economy as giving them incentives to earn more... well you shouldn't be sad at other peoples' ignorance.

Posted by: MrDo64 | July 13, 2010 7:18 PM | Report abuse

Lowering taxes and handing out money via unemployment checks, both get money into the economy. But if you think that paying people to stay home is as likely to stimulate the economy as giving them incentives to earn more... well you shouldn't be sad at other peoples' ignorance.

I'm not saying that's the only reason to pay the unemployed or we shouldn't do it, just that we should be clear why we are doing it.

Posted by: MrDo64 | July 13, 2010 7:21 PM | Report abuse

it's simple...
FY2000 federal receipts were 20.6% of GDP
FY2008 federal receipts were 17.5% of GDP

taxpolicycenter.org

Posted by: ftkyte | July 13, 2010 7:27 PM | Report abuse

I'm with the liberal side on this one.

There is no way anyone can look at the evidence and believe the Bush tax cuts didn't reduce revenue, relative to if they hadn't been enacted.

In 2000, federal tax revenues were $2,025.46 billion, nominal GDP was $9,951.5 billion. In 2003, these amounts were $1,782.53 billion and $11,142.1 billion. So GDP rose 12% and federal revenues fell 12%.

Federal revenues eventually rose, to take out the 2000 peak in 2005, but this doesn't mean much. The economy grows 4-6% most years, unadjusted for inflation, so naturally the general trend of taxes is to rise about 4-6% each year. Being unable to return to a previous peak for five years, despite this built in trend strongly suggests tax cuts reduced revenue, ceteris parabus.

Or look at the 1990s. From 1990-1993, GDP rose from $5,800.5 billion to $6,667.4 billion, a gain of 14.9%. Over the same time, tax revenue rose from $1,032.09 billion to $1,154.47 billion, a gain of 11.9%. Revenue as a percent of GDP did fall from 17.8% to 17.3%, but this was also a period of economic weakness, and I'm not sure how much of the Bush tax hikes had kicked in yet. But let's assume they had kicked in by 1993.

Both of these time periods are of equal length, both during a recession and jobless recovery, and both during the great moderation. When taxes were cut, revenues fell in nominal terms and the path of revenues greatly diverged from GDP's time path. When taxes were hiked, tax revenue grew and roughly matched the trend in GDP.

Data from here - believe this to be run by a tea partier, but the data looks good.

http://www.usgovernmentrevenue.com/downchart_gr.php?year=1990_2015&view=1&expand=&units=b&fy=fy11&chart=F0-fed&bar=1&stack=1&size=m&title=&state=US&color=c&local=s

Posted by: justin84 | July 13, 2010 7:28 PM | Report abuse

JamesCody, you did correctly define the supply-side thought process, but you did so incompletely. the point was not only to increase incentives to work and invest but also to reduce the size of government in the economy: cutting taxes without cutting spending doesn't do that, and therefore, there hasn't been a single true supply side tax cut yet from the gop.

Mr.Do: surely you jest. at current tax rates, there is plenty of incentive to earn more: even at draconian tax rates, there is always an incentive to earn more, since draconian is not confiscatory.

so the idea that lower tax rates are inherently stimulative is foolish: just because you can earn more doesn't mean your employer is going to provide you that chance.

meanwhile, the unemployed (and we know this: this isn't a guess), who have no income, spend every dollar. they don't sit at home: they create demand RIGHT NOW.

Posted by: howard16 | July 13, 2010 8:02 PM | Report abuse

Since the first comment brings up Kennedy's tax cuts, let's look at the details:

The United States Revenue Act of 1964, signed February 26th, 1964 by President Lyndon Johnson, reduced individual income tax rates (the top rate fell from 91 percent to 70 percent) and, reduced the top corporate rate from 52 percent to 48 percent.

The top rate was cut to 35% under Bush.

Of course, that's a bit of a misnomer because many of the people in the highest income bracket get their income from investments (or stock options), like CEO's, Stock brokers, etc. That is not classified as income, but as capital gains, so the rate for that fell to 15% under Bush.

This is what led Buffet to make his famous statement about how his effective tax rate was something like 17.7% when his secretaries was 30%.

No wonder income inequality has exploded in the US, not to mention the debt.

Posted by: nylund | July 13, 2010 8:08 PM | Report abuse

This blog is very useful as a gauge. Above, I presented two facts and a 1-sentence non-economic opinion. I'll stand by both of the facts -- Kennedy was indeed an outspoken supporter of tax cuts as a means of economic stimulus and Laffer did indeed cite multiple historical sources in support of his theories. I'll also stand beside my opinion that visionaries are often maligned ... and are often maligned without basis.

Having said that -- and having read the comments above -- I'll add that unemployment insurance is insurance paid through state and federal taxes. The state taxes (SUTA) are far larger than the federal taxes (FUTA). Like all insurance programs, a participant pays a fee and is promised a particular level of service. To get more service, one simply plans ahead and pays more fees: supplemental unemployment insurance is available for purchase. At the moment, every individual has the right to plan his life and spending as he sees fit: few employees plan ahead.

The government currently behaves the same way as most employees: funds can be saved for a rainy economic day... yet no party has done so. If a given employee had to pay 1% less in taxes, he would have 1% more to spend on supplemental unemployment insurance.

Leaving the red-herring question of stimulus (and the "I has a sad" argumentum ad misericordiam) aside and focusing only on the unemployment question, if economic analysis is so accurate -- and so long-lived that we can predict the effects of the PPACA 75 years from now -- why didn't the Clinton Administration anticipate today's crisis and raise the FUTA and extend FUEI benefits back in the 1990's?

Posted by: rmgregory | July 13, 2010 8:30 PM | Report abuse

Since the top 400 income earners in the US make 75% of their income from dividends and capital gains, the 400 highest earners in 2007 had an effective tax rate of 20% or less. These people earn, on average about $340 million a year.

I would like to know if "msoja" truly believes that someone who makes $340 million a year should pay a LOWER percentage of their income in taxes than he does, as I bet his effective tax rate is higher than 20%.

Note: this data uses 2007 tax rates and income level, but it was the most recent data I could quickly compile.

Posted by: nylund | July 13, 2010 8:32 PM | Report abuse

I left this out of the post because it was even older data, but I'll add it because the point is probably still salient now:

"In 2003, just 1% of all households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all capital income."

The point is, is that the top 1% of America got over 50% of all money made from capital gains and dividends, and under Bush, had this income, the majority of their income, taxed at just 15%.

The truth is, is that in America, once you get to the highest income levels, your effect tax rate is actually much much lower than the average middle class or upper middle class worker.

And, using accountants, lawyers, off-shore accounts, and tax shelters, its probably even worse than that. Or, as Leona Helmsley once said, "We Don't Pay Taxes. Only The Little People Pay Taxes."

Liberals find this troublesome. The GOP and Tea Party? Not so much. They quite like it this way apparently and will argue until their blue in the face that anything else is unAmerican.

Posted by: nylund | July 13, 2010 8:41 PM | Report abuse

http://www.washingtonpost.com/wp-dyn/content/article/2006/10/16/AR2006101601121_pf.html

"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."

Economists at the nonpartisan Congressional Budget Office and in the Treasury Department have reached the same conclusion. An analysis of Treasury data prepared last month by the Congressional Research Service estimates that economic growth fueled by the cuts is likely to generate revenue worth about 7 percent of the total cost of the cuts, a broad package of rate reductions and tax credits that has returned an estimated $1.1 trillion to taxpayers since 2001.

---

Maybe the Laffer Curve had some actual descriptive power back when tax rates were north of 70%. But this has been a closed issue, to anyone who cares about facts, for *at least* five years, maybe more like thirty. But the party that rode to power on resentment of desegregation has wedded itself to the bromide (not a principle) that the government is Always Bad and Wrong, unless it's acting against a domestic or foreign out-group. So economically we have *absolutely nothing* but brain-dead, fact-free, anti-tax fiscal insanity from the GOP.

Posted by: eelvisberg | July 13, 2010 8:56 PM | Report abuse

Senator McConnell said 'No evidence whatsoever that the Bush tax cuts actually diminished revenue'. Here are the figures:

Year $ billion Total Revenue
2000 9951.5
2001 10286.2
2002 10642.3
2003 11142.1
2004 11867.8
2005 12638.4
2006 13398.9
2007 14077.6
2008 14441.4

Why are you sad Ezra? The actual facts back him up. Your distorted "analysis" twists what the senator stated.

I always find your posts funny because you are so consistent in your blog formula:
1. State a common liberal talking point
2. Cherry pick data to back it up leaving out any contradictory information.
3. Find others form the 20% of the population that agrees with you and link to them so it seems like a consensus.

Posted by: cummije5 | July 13, 2010 9:51 PM | Report abuse

cummije5-- the issue is whether revenues are *lower than they would have been without the Bush tax policies*.

As was pointed out, "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute.

Posted by: eelvisberg | July 13, 2010 9:56 PM | Report abuse

nylund,

Capital gains and dividends are both taxed twice.

Consider a $100,000 investment which gains in value 10% per year over 5 years. It will be worth $161,051 after 5 years, netting a gain of $61,051, which sounds great. Of this a 15% tax is paid, or $9,158, netting $51,893.

However, lets also assume inflation of 3% per year. It takes $115.93 to buy what $100 could five years before. Suddenly, the total return of this investment is down to $31,025 - still not bad, but roughly half of the nominal gain. This is still a 5.55% annual real return, which isn't terrible (especially in the context of 2005-2010) but its almost half of the nominal return.

A 61% gain over 5 years is a pretty good investment. Lots of investments can create capital gains tax liability even if the investment failed to keep pace with inflation.

Dividends, of course, are taxed first at the corporate level, and the marginal corporate tax rate including state and local levies is ~39% at the margin, mean the top marginal tax rate on dividend income is actually closer to 50%, not 15%.

I'm not going to cry for the rich, as as you state they have sizable incomes. But I think it's good for all involved that they see some benefit in providing their savings to the capital markets. The higher tax rates are, the more the rich shift from buying stocks to buying yachts and ferraris, or from investing in equities to investing in munis.

Posted by: justin84 | July 13, 2010 9:57 PM | Report abuse

cummije5,

Those figures are for nominal GDP, not tax revenue.

But as eelvisberg says, the comparison should be to what would have happened without tax cuts. You could eliminate all taxes except for a flat 5% income tax, and someday due to economic growth and inflation you'll have greater revenues than now, but not greater revenues than if we had never cut taxes.

And as for cherry picking from biased sources, recall one of the sources was George W. Bush's own CEA chair. Ezra's on pretty solid ground here, and Sen. McConnell is in la-la land.

Posted by: justin84 | July 13, 2010 10:05 PM | Report abuse

eelvisberg - The statement that "revenues are *lower than they would have been without the Bush tax policies*" is not a fact. It is a debatable hypothesis. What Senator McConnell said is a fact based on actual historical data.

Posted by: cummije5 | July 13, 2010 10:08 PM | Report abuse

Amen.

Posted by: TomCantlon | July 13, 2010 10:21 PM | Report abuse

I find this whole flap a bit ridiculous on its face. So providing stimulus or unemployment benefits is fine, if you finance it, with X% tax hike.

Also fine is cutting taxes by X%, there's no need to finance that.

So, it's not ok to have new spending without paying for it... but a sequence of bills where you have one spending bill that taxes more, followed by a second bill that taxes less, that's perfectly okay.

Posted by: MattSully | July 13, 2010 10:27 PM | Report abuse

"The statement that "revenues are *lower than they would have been without the Bush tax policies*" is not a fact. It is a debatable hypothesis."

Sigh. Just like evolution, global warming, heliocentrism, and gravity, I guess, for you people.

Here on the planet Earth, every grown-up who's looked at this issue knows that Bush's tax policies reduced revenues, as even Bush's White House realized. But hey, what good are facts? You have a discredited ideology to uphold!

Cutting revenues increases revenues! We found the WMD! We were greeted as liberators! Wheee!

Posted by: eelvisberg | July 13, 2010 10:52 PM | Report abuse

justin84: "In 2000, federal tax revenues were $2,025.46 billion, nominal GDP was $9,951.5 billion. In 2003, these amounts were $1,782.53 billion and $11,142.1 billion. So GDP rose 12% and federal revenues fell 12%."

Ah, yes, but there was a little incident you may have heard about in late 2001 which knocked the wind out of things quite severely, to put it mildly.

Have a look at this Wolfram output, the jolt is unmistakable:

http://www93.wolframalpha.com/input/?i=U.S.+yearly+federal+tax+receipts+since+2000

And the trend is irrefutable, I do believe. And if you pull Klein's finger, he'll tell you another one.

Posted by: msoja | July 13, 2010 11:21 PM | Report abuse

Ezra,

The correct link for the Greg Mankiw quote seems to be this one:

http://gregmankiw.blogspot.com/2007/07/on-charlatons-and-cranks.html

Posted by: YamacDikmelik | July 13, 2010 11:39 PM | Report abuse

--"You'll recall that the last time we saw budget surpluses was under Clinton"--

As Karl Denninger said about precisely that, today, "That [...] is a damned lie."

Denninger doesn't provide a link, but this guy does, with the treasury's own data...

http://www.craigsteiner.us/articles/16

Posted by: msoja | July 14, 2010 12:31 AM | Report abuse

I hope that was tongue in cheek, because it doesn't make me, "very, very sad", it makes me very, very angry, because it shows that the Republicans are a bunch of intellectually dishonest hacks who care not a single whit about this country's long term future. That the GOP leadership will spout off whatever nonsense that will come to mind as long as it supports their predetermined ideology of shoveling American money back at the wealthy and corporate interests who fund their campaigns and whose bidding they are in Washington to do.

Posted by: thephantomblot | July 14, 2010 12:57 AM | Report abuse

The Bush Tax Cuts definitely reduced revenue and did not pay for themselves. Here is is, in simple chart form:

http://modeledbehavior.files.wordpress.com/2010/07/image9.png

from here on out, any tax cuts (or an extension of the Bush Tax Cuts) should be matched in the SAME Congressional bill with specific long-term spending cuts.

Because the long-term budget is now roughly in balance and you should keep it that way.

No more politician shenanigans. Tax cuts do not pay for themselves.

Posted by: Lee_A_Arnold | July 14, 2010 2:38 AM | Report abuse

Msoja: "--"You'll recall that the last time we saw budget surpluses was under Clinton"--
As Karl Denninger said about precisely that, today, "That [...] is a damned lie."

What is not a lie is that the Clinton budgets set-up coming surpluses. Alan Greenspan said so. That is why Greenspan okayed the Bush Tax Cuts. No doubt reconstituting the Social Security Trust Fund would prevent the privatization swindle.

Posted by: Lee_A_Arnold | July 14, 2010 2:48 AM | Report abuse

Where is the evidence that tax cuts created any jobs?

For every major tax cut I can find, the tax cuts were followed, not preceded by job losses and not job gains.

Given the population is constantly growing and the working age population is always growing, what we want to see is the employment to population over age 16 increasing after tax cuts, but for all tax cuts, that ratio falls. The peak rate of employment occurred when taxes were the highest in decades in 1999-2000, but with each tax cut, the rate fell, and then fell, and after the 2008 and 2009 tax cuts which were supposed to create jobs, the employment rate is as low as it was a year after the Reagan 1981 tax cuts killed millions of jobs.

I'm waiting for the great job market from the 2001 and 2003 tax cuts to create jobs to happen. How many decades does it take for tax cuts to kick in? And aren't they really just Keynesian deficit stimulus?

Posted by: mulp | July 14, 2010 3:20 AM | Report abuse

Where would our economy be had Bush not cut taxes----we'd be in the doldrums like Obama's economy.


The idea that during a fragile economy the government can spend money smarter than entrepreneurs seeking to exploit new business opportunities is silliness.

I'm not some extremists who thinks government should never spend money. But if the sole purpose of government spending is to stimulate the economy, by far the smartest thing the government can do is to simply not take the money from businesses in the first place----in fact don't take from businesses by the same proportion by which they are prospering---this definitively gives the most prosperour businesses the biggest payback which means the most prosperous can become more prosperous and by growing our ecoomy overall the lower rates of taxes end up bringing in more revenue anyway.

Ezra you are the sad one for not understanding this!

Posted by: FastEddieO007 | July 14, 2010 8:35 AM | Report abuse

At what point does the toadying Washington press corp look at McConnell when he spouts that level of bu11crap and just call him what he is, a no good lying weasel. The Bush tax cuts are, next to Bush's illegal, unfunded wars, the largest single reason for the deficits the Republicans hate so much.

Lies of this level should disqualify politicians from public office!

Posted by: pblotto | July 14, 2010 8:36 AM | Report abuse

There is no evidence whatsoever that Mitch McConnell has a functioning brain.

Posted by: Koko3 | July 14, 2010 8:40 AM | Report abuse

"Ah, yes, but there was a little incident you may have heard about in late 2001 which knocked the wind out of things quite severely, to put it mildly."

I'm sorry I just can't buy this. 2001Q3 might have been bad, but I don't think it can explain why revenues fell 12% from 2000 to 2003 even as GDP rose 12%. If 9/11 was the reason why tax receipts disappointed, why then did we not see an equivalent collapse in GDP? In real terms, revenues fell 17.1% and GDP rose 5.5%.

I'll grant you that GDP was higher in 2003 than it would have been without the tax cuts. I'll even let you assume that all of the real growth from 2000 to 2003 was due to tax cuts alone (and many economists would probably dispute that). Even assuming 0% real GDP growth without tax cuts, I don't see how we would have suddenly lost 17% of real revenue with constant tax rates. There is no historical precedent for seeing a revenue crash under flat to positive real GDP growth and constant tax rates.

"Have a look at this Wolfram output, the jolt is unmistakable:

http://www93.wolframalpha.com/input/?i=U.S.+yearly+federal+tax+receipts+since+2000

And the trend is irrefutable, I do believe. And if you pull Klein's finger, he'll tell you another one."

The trend eventually takes out the 2000 peak, but there was a strong revenue trend from 1990-2000 despite tax hikes. When taxes were cut, tax revenues fell.

Check out this trend. Revenue collection as a percent of GDP crashed from 20.35% to 15.84% from 2000 to 2004. Part of this is related to a weak economy, but the 1990-1992 economy was quite arguably weaker and revenues only fell to 17.21% of GDP in 1992. If we suppose that revenue would have fallen to 17.21% of GDP with the Clinton tax rates by 2004 - fair enough given a stronger economy in 2004 than 1992 - you'd have to believe GDP was 8.65% higher than it would have otherwise been in order for revenues to have just broken even.

I believe incentives matter and that supply side tax cuts boost growth. But a drop in tax rates from 39.3% to 35% isn't going to boost GDP by ~$900 billion relative to baseline over four years. That's just too much to hope for. How does a few percentage points really discourage that much economic activity? How come such a discouragement didn't register as a collapse in GDP when the top marginal tax rate rose from 31% to 39.3% in the 1990s?

http://www.usgovernmentrevenue.com/downchart_gr.php?year=1990_2015&view=1&expand=&units=p&fy=fy11&chart=F0-fed&bar=1&stack=1&size=m&title=&state=US&color=c&local=s

Posted by: justin84 | July 14, 2010 9:22 AM | Report abuse

In addition to being sad that neither party has the guts to tell the voters that we have to cut spending, I am sad that Ezra Klein is so deceptive that he calls tax cuts "money spent". Both theories are bogus, but leave it to Klein to drop down to the level of those he opposes so we can safely ignore both sets of idiots that refuse to cut spending.

Posted by: staticvars | July 14, 2010 9:56 AM | Report abuse

most small business owners file income taxes on personal returns. raising income taxes will suppress investment and job creation. vital resources to grow the economy are transferred to the inefficient cesspool of federal spending.

Posted by: smallbizowner1 | July 14, 2010 9:57 AM | Report abuse

I think McConnell means that tax cuts raise revenue for legislators who pass them. In this sense tax cuts do pay for themselves many times over and are a very good investment for the legislator.

Posted by: stevedwight | July 14, 2010 10:11 AM | Report abuse

cummije5:

Now post the numbers, IN CONSTANT DOLLARS, for the years that are actually relevant (2001-2009) instead of cribbing a year of Clinton's administration and chopping off the cliff at the end of Bush's.

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

Knock yourself out.

Posted by: lol-lol | July 14, 2010 10:26 AM | Report abuse

staticvars:

Why do right-wingers scream about the tax cuts in the stimulus package as not being paid for but get upset if anyone points out the Bush tax cuts weren't paid for either?

Posted by: lol-lol | July 14, 2010 10:29 AM | Report abuse

I would only add to this, that Ricardian Equivalence that conservatives are so quick to cite to argue against spending (even though it has no relationship with spending per se) actually says that there is no stimulative effect from tax cuts. I'm fine if R's stop using Recardian Equivalence as an excuse (since its almost never going to hold in reality) but if they stop using it for tax cuts, they really ought to stop using it to argue against spending.

Posted by: bepley77 | July 14, 2010 10:30 AM | Report abuse


I'm sort of disappointed you even took a swing at this. The policy argument is so patently absurd it's just nerd-baiting.

Posted by: ThomasEN | July 14, 2010 10:44 AM | Report abuse

Ezra you make the classic mistake of many journalist by thinking that you actually know anything about economics. If you took any economics courses in college, you were poorly served.

Posted by: warnerme | July 14, 2010 1:11 PM | Report abuse

Re: the first comment ...

JFK reduced taxes (top rate) from 91% to about 50% ... Totally different situation.

Posted by: earnric | July 14, 2010 1:19 PM | Report abuse

Republicans LIE. Righties believe.....NO research required.
Pitiful.

Posted by: angie12106 | July 14, 2010 1:43 PM | Report abuse

I tend to agree with Steven Pearlstein that once total marginal rates get above 50% that's when the disincentives kick in. Both Kennedy & Reagan were cutting tax rates that were well above that.

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/16/AR2009041604462.html

I believe we could get a similar stimulative effect through tax simplification that was revenue neutral. I.e. eliminate deductions, reduce the marginal rates and expand the tax base but keep the overall revenue going into the government the same.

Also, I don't see much difference in the following two statements:

"There is some stimulative affect from tax cuts. They increase economic activity somewhat, and that means there's somewhat more taxable revenue for the government to pick up. But not much. Not nearly enough to cancel out the cost of a tax cut. "

"There is some stimulative affect from government spending increases. They increase economic activity somewhat, and that means there's somewhat more taxable revenue for the government to pick up. But not much. Not nearly enough to cancel out the cost of the spending increases."

But I can't ever see Ezra making the second one.

Posted by: jnc4p | July 14, 2010 1:44 PM | Report abuse

Bush & Republicans gave 2 UNFUNDED tax cuts to Billionaires and Millionaires.
What did the Wealthy do with their savings? invested in corporations moving jobs to China.

"Tax cuts create jobs." - Bush - HAHAHAHAHA - in China.

Posted by: angie12106 | July 14, 2010 1:47 PM | Report abuse

It's REALLY simple, people - don't take McConnell's word for it but don't take Ezra's or the CBO either (after all, HOW MANY estimates of the cost of HCR has the CBO published - and they're still only guessing).

Simply check the TOTAL TAX REVENUE from 2001 through 2008 - and if you want to see the same from Reagan years, look at 1981 to 1989. Tax revenue steadily rose during both periods.

There are literally dozens or hundreds of mitigating factors - i.e. it's NOT simple to draw causation of "tax cuts CAUSE revenue increases" or "tax cuts CAUSE deficits" - but it seems pretty clear that during Reagan and Bush II terms, tax revenues increased dramatically.

It is disingenuous to promote the idea that a 3% decrease in the tax rate of the "RICH" under GWB caused all of our problems, then to turn a blind eye to Obama cutting tax rates as part of the stimulus.

Posted by: awolfson | July 14, 2010 2:57 PM | Report abuse

The classic argument is that, all else being equal, the increase in revenue base (ie, GDP) offsets the decrease in revenue share (lower %-rate).
So lets actually look at historical revenue (instead of taking a partisan's word for it):
Reagan: revenue increased 75.8% while expeditures rose 80.1%.
Bush: revenue increased 24.6% while expeditures rose 66.7%.
Tax revenues hardly rose dramatically during the Bush years.

However, Clinton beat them both for revenue growth, limiting spending, and cutting the deficit:
Clinton: revenue up 85.6%, while expeditures up 29.5%

Posted by: Denswei | July 14, 2010 4:11 PM | Report abuse

awolfson asks, "HOW MANY estimates of the cost of HCR has the CBO published?"

Well, DUH. At least one for each Health Care Reform plan submitted.

The role of the CBO (and other professional quants) is not to whip out a crystal ball and predict the future--their role is to take a plan and estimate it's affects in the future.

Such a ridiculous statement only illustrates the disengenuity of those making such statements.

Posted by: Denswei | July 14, 2010 4:37 PM | Report abuse

small nitpick: McConnell doesn't "think" there's no evidence. It just serves his purposes to pretend that he does. ie, yes, he's lying.

Posted by: daphne5 | July 14, 2010 7:11 PM | Report abuse

"The idea that during a fragile economy the government can spend money smarter than entrepreneurs seeking to exploit new business opportunities is silliness."

Well, taxes are really low so business and individuals are keeping a lot more of their money to invest "wisely" and they have had lower and lower taxes since 2001.

So, they invested it in building houses and shopping centers that no one could afford unless the private sector made lots of loans to people without jobs or incomes based on the bad lending driving up asset prices to support pump and dump private sector speculation, because the private sector was smarter than Al Gore who said oil prices were going up and pollution from fossil fuels was killing the economy.

The wiser people said oil did not pollute and if the government hand out public land for mining for free, and lets the mining companies pollute, the private sector will give us cheap energy without government subsidies and not pollute the environment.

Yep, the wiser than government people have given us strng sustainable growth, cheap energy, and clean environment by the government turning everything over to the private sector.

The bankrupt fishermen in the Gulf thank you for your assurances they getting rich from the wise private sector investments.

And big corporations have $1.9T in "cash", twice what they had in 2002, to invest "wisely" and create jobs. But in the past decade, at no time did all the tax cuts to boost that pile of cash to create jobs actually result in any jobs creation that matched the government directed unwise investment of the 90s when government stole all the cash.

The economy sucked from the tax cut funded wise private sector investment by 2006, and even better in 2007, and then in 2008, well before Obama took office.

And Obama did a Reagan and Bush and cut taxes to create jobs, and just like in 1981 and 2001 and 2008, the tax cuts led to more than a year of job losses.

Posted by: mulp | July 14, 2010 7:16 PM | Report abuse

McConnel is out of his mind. The Republicans were giving these tax cuts to create jobs, and they were moving overseas left and right. Now that they're overseas they pay nothing in taxes. Must be pretty good to be a Multi-National company, dancing around in Multi-National land free of tax-man. Our whole Government = Fail!

Posted by: HemiHead66 | July 15, 2010 1:25 AM | Report abuse

OK, how about this, we let the Bush tax cuts expire but we then get rid of the Departments, of Energy, Education and Housing, with their combined budgets coming out of spending, not reallocated somewhere else.

Posted by: ronjaboy | July 15, 2010 8:03 AM | Report abuse

McConnell just may be trying to prove that the republicans (AKA "fiscal conservatives") are worse at handling money than they would be, if it were the Bush tax cuts that reduced tax receipts. Even worse, if he goes ahead and claims the tax cuts increased revenues.

But hey, it doesn't take much to provide lip service to those who really value it... their voter base.

Posted by: EinsteinsGhost | July 15, 2010 1:43 PM | Report abuse

LOL, what a pompous windbag!

Lou
www.privacy-tools.se.tc

Posted by: clermontpc | July 15, 2010 2:35 PM | Report abuse

Klein, you still have a job? If I were as bad (and intellectually dishonest) at my job as you are, I'd have been canned long ago. I'll guess I'll just have to satisfy myself that every time you put pen to paper, you increase the number of people who think you're glib, vacuous smart aleck.

Posted by: rfburgh | July 15, 2010 3:00 PM | Report abuse

"Further, if tax cuts don't need to be paid for because they generate so much taxable economic activity that they pay for themselves, then neither do unemployment checks."

No, they don't.
Tax cuts are for people who work and are productive, unemployement checks are for unproductive people, atleast when one is a recepient of one.

Besides, leftists will never understand that an overtaxing govt is detrimental to concept of individual freedom.

Posted by: darkskin1977 | July 15, 2010 5:07 PM | Report abuse

That tax receipts dropped after Bush tax cuts is not even debatable. Note a steep drop in revenue as a percentage of GDP, from 20.9% in 2000 to 16.4% around 2004-2005.
http://greenewable.files.wordpress.com/2008/10/total-federal-government-receipts-as-a-percentage-of-gdp-1945e280932008.jpg

The question is, what was the point of TWO major tax cuts?

Posted by: EinsteinsGhost | July 15, 2010 11:09 PM | Report abuse

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