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The failure of conservative elites

revenue_clinton_bush.PNG

Lots of people -- in fact, lots of politicians -- quietly hold unpopular, or in some cases, ridiculous, policy positions. Occasionally, they even pursue them. But it's usually through stealth. They know that excessive transparency about what they actually think will only serve to harm them politically.

What worries me about Jon Kyl's hostility to offsetting tax cuts, and Mitch McConnell's decision to double-down by saying tax cuts pay for themselves, is the underlying assumption that these are popular, viable positions. It's one thing to believe that tax cuts should be added to the deficit, and it's another, crazier, thing to believe that tax cuts pay for themselves. But it's a whole other ball of wax to decide against keeping those beliefs to yourself. You can't stop people from privately cultivating wacky views, but you should be able to make people ashamed of them.

To a degree that people don't quite appreciate, conservative economic elites have attempted to do just that over the past decade. As Derek Thompson notes, pretty much every economist associated with the Bush administration made it a point to say that tax cuts don't pay for themselves.

*Greg Mankiw, CEA chair from 2003-2005: "Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don't find that conclusion credible for most tax hikes."
*Andrew Samwick, chief economist at CEA from 2004-2005: "No thoughtful person believes that this possible offset [from the Bush tax cuts] more than compensated for the first effect for these tax cuts. Not a single one."
*Ed Lazear, chairman of the CEA in 2007: "I certainly would not claim that tax cuts pay for themselves."
*Hank Paulson, Bush Secretary of the Treasury: "As a general rule, I don't believe that tax cuts pay for themselves."

But it looks like it didn't work. And the question is, what will these conservative economic elites do, or say, about it? Presumably, it's worrying that the leader of the Senate Republicans hews to an economic theory that would explode the deficit in the coming decades, and that suggests a willful ignorance about tax policy. And it's not as if there's an obvious check on McConnell: I asked Michael Steel, John Boehner's spokesperson, for his take, and he pointedly refused to disavow McConnell's comments. I also asked whether they would continue the Democrats policy of limiting the budget reconciliation process to deficit-reducing initiatives. He said he hadn't heard talk of such "hypotheticals."

Where does all this leave conservatives who worry about the deficit?

Graph credit: Paul Krugman

By Ezra Klein  |  July 14, 2010; 12:38 PM ET
Categories:  Economic Policy  
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Comments

The beauty of message discipline and repetition is that people will come to believe something as true even if it isn't.

So in the minds of many tax cuts pay for themselves, reality notwithstanding.

The real challenge for a media fearful of being called "biased" is calling out the liars when they make these kind of patently false assertions. The liars will still find a way to get their message out, but it will require more time and effort on the part of the liars, and less time and effort on the part of everyone else.

e.g. I didn't watch the ABC This Morning interview with Jowls or Rich Man's Rent Boy on the Sunday Morning show, but did the hosts challenge the assertion?

Posted by: JPRS | July 14, 2010 1:02 PM | Report abuse

"economic theory that would explode the deficit in the coming decades"

not if you cut spending to match. slash and burn.

Posted by: NoVAHockey | July 14, 2010 1:06 PM | Report abuse

ya because there's NOTHING else that has any effect on revenues other than tax cuts.

That's like DEMS that claim that the deficit would be reduced by PPACA. There's no way to tell because so many other factors play on it.

Its funny how that argument worked for you Ezra but now you don't want to give credence at all to this one.

Posted by: visionbrkr | July 14, 2010 1:08 PM | Report abuse

You're such a tool, Ezra.

The Left will never understand that businesses don't actually pay taxes - they either pass them on to their customers in the form of price increases or they pay for them by cutting expansion, R&D and HIRING.

Ummm, those are the 'rich' you're talking about, a lot of whom own small and medium sized businesses where most of the jobs are created.

Believe it or not, Obama is actually getting a much better year economically than he deserves, because anyone who can is taking profits and income in tax year 2010 rather than 2011, when taxes spike - and people have to start paying taxes on ObamaCare.

Next year is when the train comes off the tracks, and when Zero's approval ratings go below 40%.

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

A major problem is that many of the traditional media folks benefit from tax cuts for the rich, and so they have little incentive to report honestly on this. The conservative economists, once out of power, do look to the approval of their peers and so are being more honest. But will pundits and TV news readers and big-time reporters call tax cuts bunk?

Btw, polls do show that most people don't really care about tax cuts anymore. I think they finally figured out they weren't benefitting from them.

Posted by: Mimikatz | July 14, 2010 1:18 PM | Report abuse

It's not hard to understand why the Republithug message that you can have everytong you want from government (unless you are the wrong class or color) and not have to pay for any of it is a popular one. MSM feels like it has to keep tiptoeing around the fact that the current 'rage' in the electorate is about race, but, as a daughter of the south, I can assure you, IT IS ABOUT RACE, and its not going away as long as Obama is president, unless some miracle happens to light a fire under the economy a la the 1990's. (None on the horizon now.) Saddens me to have to say this, I had hoped we were getting past it, but Obama does not seem to get the point that blacks and women have to be twice as good to do half as well as white men. He thinks he can make his own rules, do things his own way. Hope this works out for him in the end, but I don't see much evidence of it at this point.

Posted by: guesswhosue | July 14, 2010 1:18 PM | Report abuse

Hi Ezra,

A question about the curve you show. Why dis the revenue increase from 2004 to 2008? From the curve it seems that the rate of increase was similar to that during the 90's. Is it possible that this is the effect the Republicans are talking about?

Posted by: dijon1 | July 14, 2010 1:34 PM | Report abuse

"ya because there's NOTHING else that has any effect on revenues other than tax cuts.

That's like DEMS that claim that the deficit would be reduced by PPACA. There's no way to tell because so many other factors play on it.

Its funny how that argument worked for you Ezra but now you don't want to give credence at all to this one."

I wouldn't give credence to 20 year budget projections for PPACA either. That said, the effects of PPACA on the deficit 20 years out are a ?, but the evidence is solidly against the Republicans on the claim 'tax cuts increase revenue', with the implication is revenue is not only higher than before, but higher than in an alternative universe where the tax cuts had never been enacted.

While the economy was weak in the early 2000s and that surely depressed revenue, we have a weak economy in the early 1990s with tax hikes to compare to.

Compare the charts on income taxes and FICA taxes in 2005 dollars I've linked to at the bottom. From 1990-1993, social insurance revenues fall sharply, but tax hikes keep income tax revenues more or less stable in comparison.

From 2000-2003, FICA taxes continued to grow, as the economic downturn was milder than 1990-1991, but income taxes absolutely cratered.

Income taxes collected $1,212 billion in revenue back in 1996 (2005 dollars again), but only $1,229 billion in 2003 - a gain of just 1.4%. GDP soared from $9,434 billion to $11,841 billion, a 25.5% leap. Social insurance taxes rose from $691.7 billion to $842 billion, a 21.7% gain.

Unless you think the tax cuts created a whole torrent of economic growth, they unambiguously reduced revenue relative to baseline (which we'll take as 21.7%, even though income at the top grows quicker and that is where the income tax hits hardest).

Tax cuts can generate a bit more GDP growth - a few additional investments are made, and the marginal entrepreneur starts a business, etc. But seeing 3.9% GDP growth during the Clinton years in the wake of two tax hikes and 2.2% GDP growth in the Bush years in the wake of two tax cuts suggests that this effect is very small. For a few percentage points change in rates up or down, GDP growth might change from its trend 0.1% or 0.2% down or up. This is real wealth generation, and it should compound over time and make our decendents reasonably wealthier, but it is not enough to be able to say the present value of revenue with the Bush tax cuts is higher than it otherwise would have been with Clinton tax rates in place.

I can't look at the data and honestly come away with any conclusion other than the Bush tax cuts reduced revenue.

http://www.usgovernmentrevenue.com/downchart_gr.php?year=1990_2015&view=1&expand=&units=k&fy=fy11&chart=30-total&bar=1&stack=1&size=m&title=&state=US&color=c&local=s

http://www.usgovernmentrevenue.com/downchart_gr.php?year=1990_2015&view=1&expand=&units=k&fy=fy11&chart=10-total&bar=1&stack=1&size=m&title=&state=US&color=c&local=s

Posted by: justin84 | July 14, 2010 1:36 PM | Report abuse

Regardless of the marginal tax rates, government income tax revenue historically is ALWAYS the same percentage of GDP. For example, income tax revenue as a percentage of GDP was the exact same when the marginal tax rate was over 70% as it has been this decade with the highest rate in the 30%'s.

That would imply that fiddling with the tax code to try to increase revenue is irrelevant. To increase income tax revenue, you have to increase GDP (since revenue is simply a function of GDP).

What is more likely to grow GDP, spending or tax cuts?

Posted by: mrw7z | July 14, 2010 1:37 PM | Report abuse

What year did Democrats take over congress?

Posted by: FastEddieO007 | July 14, 2010 1:39 PM | Report abuse

NoVAHockey: not if you cut spending to match. slash and burn.

True, so where are the proposals Kyl, Gregg, McConnell the turtle, etc. to actually cut the budget to offset the 678 billion in tax cuts for the wealthy and the 800 billion in estate tax cuts?

Those cuts are nowhere to be found because they don't have the guts to say they want to savage all domestic spending except for the military (1/2 of discretionary spending, BTW) in order to make the tax cuts revenue neutral.

Well, where should we cut discretionary spending to make up a 1.6 trillion shortfall over the next 10 years? Not proposing cuts to offset their tax giveaways to the rich makes them budget hypocrites of the first order.


crickets...

@JP:The Left will never understand that businesses don't actually pay taxes - they either pass them on to their customers in the form of price increases or they pay for them by cutting expansion, R&D and HIRING.

What about slimming profit margins or curbing CEO salaries and bonuses or other ways to pay expenses without passing on costs? Are you saying its impossible for businesses to save money for taxes? Is that not an option for companies facing higher taxes? Just wonderin'

"Ummm, those are the 'rich' you're talking about, a lot of whom own small and medium sized businesses where most of the jobs are created."

False, false, false. Dick Cheney is not a small business, but he claims that he is on his taxes. It is the same for lots of other wealthy people that get a big chunk of their income from investments. I don't think they deserve another huge tax break.

If a small business is generating profits, those profits get taxed at the business tax rate and it has nothing to do with tax rates paid by individuals.

Posted by: srw3 | July 14, 2010 1:40 PM | Report abuse

This graph tells a thousand words.

The tax cuts are shown to definitely cause an increase in revenue by their ability to cause phenomenal growth after the 9-11 internet bubble triggered recession.

Tax cuts definitively deliver stimulus dollars to the parts of the economy most likely to create new jobs by the proportion necessary to do so---the more likely a corporation is to create a job the more money they get!!!!

Why can't you libs get your mind around that concept!!!

This graph is a great argument for the negative feedback system where we decrease tax rates auytomatically to the extent the economy suffers shrinkage, but conversely start lifting rates to the proportion it recovers!

This idea is what we all should rally around. obama's stimulus has specifically failed because the most successful sectors in the economy refuse to buy-in to the hype that the economy is recovering because they know at the end of the day the high deficits will eventually show up on their tab as a tax increase....obama's stimulus may as well have been a tax increase, because that is the psychological effect it has had on small busninesses!!!

Posted by: FastEddieO007 | July 14, 2010 1:46 PM | Report abuse

"A question about the curve you show. Why dis the revenue increase from 2004 to 2008? From the curve it seems that the rate of increase was similar to that during the 90's. Is it possible that this is the effect the Republicans are talking about?"

Tax revenue depends on the tax base and the tax rate. While GDP isn't the tax base, the tax base is highly correlated to GDP. GDP typically rises about 5%/yr on average, and so do tax collections, although tax collections are somewhat more procyclical.

The important thing to note is that tax revenues normally rise over time as the base expands. That tax revenues grew very slowly from 2000-2007 (expansion to peak to expansion peak, taking out cyclical noise), combined with the fact the economy itself saw slower GDP growth under the low tax regime than the high tax regime is prima facie evidence that the tax cuts reduced revenue. The amount of growth necessary to actually generate higher revenues under the Bush tax regime than the Clinton tax regime is tantamount to suggesting the Bush tax cuts singlehandedly prevented an 1893-1896 style depression. The tax cuts surely have some growth effect, but cutting the top rate from 39% to 35% just isn't that powerful of an incremental incentive to create wealth.

Posted by: justin84 | July 14, 2010 1:49 PM | Report abuse

"The tax cuts are shown to definitely cause an increase in revenue by their ability to cause phenomenal growth after the 9-11 internet bubble triggered recession."

Or did low interest rates set off a real estate-finance bubble to replace the internet bubble?

And how did tax revenues grow so rapidly from 1992-2000?

Posted by: justin84 | July 14, 2010 1:58 PM | Report abuse

What many of my fellow conservatives don't often get is that tax cuts only can come close to paying for themselves if the existing tax rates are so "relatively" high that they severely suppress economic output. The Kennedy tax cuts in the early 60s are one of the best examples of this. Tax rates were so high in the 50s that people did not produce as much labor.

However, we do not have a relatively high tax rate in this country right now (the closest being the corporate tax rate). There will not be much economic activity created through any tax cuts now that come close to paying for themselves.

Do not be fooled by "dynamic scoring" in policy analysis. In general, policy cost analysis pretty much comes down to math.

Posted by: lancediverson | July 14, 2010 1:58 PM | Report abuse

Most Republicans that think like McConnell will decry any change to tax policy that raises government revenues as a "tax increase". Therefore, if they are correct that it would increase revenues, their tax cut would in fact be a tax hike. Conversely, to have a true tax cut that decreases government revenues, you would need to raise tax rates.

Posted by: zja1 | July 14, 2010 2:02 PM | Report abuse

One the one hand, McConnell is a dishonest swine, but he doesn't want to raise my taxes.

On the other hand, you're an honest, earnest, interesting fellow, but you write post after post after post after post after post after post after post after post after post after post after post after post in which you essentially say that you want to raise my taxes, big time.

I'll take McConnell.

Posted by: ostap666 | July 14, 2010 2:02 PM | Report abuse

@ostap666 : So you want to see the budget deficit continue to explode as it did when McConnell, Bush and CO were running the show?

Are you a deficit peacock too?

Aren't the repubs the ones calling for a balanced budget amendment? How do you get there removing 1.6 trillion in tax revenue and not proposing any way to pay for it?

Posted by: srw3 | July 14, 2010 2:10 PM | Report abuse

@ostap666 : So you want to see the budget deficit continue to explode as it did when McConnell, Bush and CO were running the show?

Are you a deficit peacock too?

Aren't the repubs the ones calling for a balanced budget amendment? How do you get there removing 1.6 trillion in tax revenue and not proposing any way to pay for it?

Posted by: srw3 | July 14, 2010 2:10 PM | Report abuse

Conservatives care about cutting taxes for the rich, not about reducing the deficit. The only way they want to reduce the deficit is to reduce the services government provides people, and the reason they want to do that is that they can then pass more tax cuts for the rich. It's all about the transfer of wealth from the middle class and the poor to the rich, who get them elected. The key point is that reducing the deficit and reducing the size of government are just stages in the process, not goals.

Posted by: Chris48 | July 14, 2010 2:13 PM | Report abuse

In other words, ostap666, its ALL ABOUT YOU, right? That makes you exhibit A in the explanation of why nothing constructive can get done in the current climate.

For the record, any tax hike for 'the wealthy' is likely to hit me, unless its related to capital gains or the excreble carried interest exemption. Fine, I'll deal with it. Only a moron would 'like' to pay more, but at least I recognize my role in doing what needs to be done.

Posted by: guesswhosue | July 14, 2010 2:13 PM | Report abuse

"Where does all this leave conservatives who worry about the deficit?"

With Paul Ryan's Roadmap for America's Future.

http://www.roadmap.republicans.budget.house.gov/

Posted by: jnc4p | July 14, 2010 2:15 PM | Report abuse

If you wanted to stimulate a fragile economy, would you choose A or B?
A - Have a polarizingly partisan politician like Nancy Pelosi hand pick specific interests and handout federal tax payer money to them by the boat loads based on her preference


OR


B - deliver money to businesses within the economy on a proportion based on the liklihood that they would create new jobs and exploit new business opportunities and expand the economy overall


If one were to assumes that a business's profits on a given year are an indication of the magnitude by which that that business might likley affect the economy by exploiting new business opportunities and expand, then 'B' is achieved extrememly efficiently by cutting taxes and having the effect of leaving the money where it will do the most good.

Posted by: FastEddieO007 | July 14, 2010 2:18 PM | Report abuse

".... cut discretionary spending to make up a 1.6 trillion ...."

i would go after the mandatory stuff too.

http://en.wikipedia.org/wiki/File:Fy2010_spending_by_category.jpg

if you more than 10%, you get a big axe. if you're under, a smaller axe. no more sacred cows. military, social security, everything.

Posted by: NoVAHockey | July 14, 2010 2:19 PM | Report abuse

justin84: "And how did tax revenues grow so rapidly from 1992-2000?"

Answer: we live ina day and age where we can predict what is really happening and especially economically, the markets try to react to as much advanced knowledge as possible.

Huge deficits that become more and more huge are interpreted by the business community as an eventually huge tax increase.

After Newt and the Republicans took control of congress, they took a big scalpel to the budget and began cutting in a very effective way and with some modest temperment by a politically shrewd President who was willing to co-opt the overall effect our budget was balanced in a way that was very responsible and eliminated the business communities fear of ever increasing tax burdens.

Similiarly, in the age of Obama, the business community is digging in and locking up their money for that fateful rainy day when we will need to balance the budget. The economy is frozen and not exploiting new business opportunities (other than the select few who got big checks from Nancy Pelosi!)

Posted by: FastEddieO007 | July 14, 2010 2:24 PM | Report abuse

Stamp666, I won't presume to speak for Ezra, tough I think he might agree. It's not that I want to raise your taxes. I hate paying my own taxes and I'm sure most people are the same. On the other hand, there are programs and services I want the government to provide. I'm sure other people have other programs and services that they want provided.

Through our representatives in government we decide whose program and service priorities get enacted. Now whether those are my preferences or yours, I think it's only responsible to have some kind of long term idea about how we're going to pay for it all, and we should be able to have grown up discussions about how we're going to do it. That means either taxes or spending cuts. I may not like how much we spend on the military, but that's not a debate I'm going to win right now. Still, my not liking it doesn't mean I should advocate fiscally responsible practices.

Posted by: MosBen | July 14, 2010 2:43 PM | Report abuse

I offer a brief Olive Leaf to my liberals on this graph.

Though it is quite clear from this graph that Bush's tax cuts were directly attributable to the immediate and fats recovery from the 9-11-internet-bubble recession, it is also clear that the stimulation was temporary. Though it would have likely dulled the sharp upward trend, I would advocate that tax rates be set inversely with GDP growth. As GDP growth declines (as was the case when Bush tax cuts were enacted). But as it begins to bounce back it would be prudent to stabilize the growth as well as make the budget deficits healthier to start increasing the rates.

What would be crucial though is a guarantee that rates would go back down were the GDP to start shrinking again!

This would be the most optimal tax-based capitalist economy possible!

Posted by: FastEddieO007 | July 14, 2010 3:02 PM | Report abuse

The tax cut espoused by the conservative elite come from the Laffer Curve named after Arthur Laffer which the model predicted that excessive tax rate would reduce potential revenues but also predict that insufficient tax rates, the rate below the optimum level for a given economy, will lead to a reduction in tax revenues which was overlooked. CBO Director has stated there is a disconnect between what the people expect for service to what they are willing to pay.http://www.cbo.gov/ftpdocs/110xx/doc11047/05-13-CBO_Presentation_to_AAAS.pdf

CBO has a historical table showing the effect of such policy on the revenue side.
http://www.cbo.gov/ftpdocs/108xx/doc10871/historicaltables.pdf

There's been variety of argument why they continued this model such as "starving the beast" to justify their economic policy in spite of the evidence that disproved it.

For McConnell's and Kyl's statement of the tax cut paying for itself demonstrates their lack of knowledge of economics and finance and geared toward a political position for partisan purposes to people who are ignorant.

I will keep saying this: If you want something, you have to pay for it there is no "but" about it. The Balanced Budget Enforcement Act of 1990 has a PAYGO that was strong from a fiscal standpoint. It included a budget rule requiring that, relative to the current law, any tax cuts or entitlement or other mandatory spending increases must be paid for by a tax increase or cut in mandatory spending. Coupled with supplemented caps on appropriation/outlay in discretionary programs. Unfortunately it expired at the end of FY2002.

Posted by: beeker25 | July 14, 2010 3:17 PM | Report abuse

After Newt and the Republicans took control of congress, they took a big scalpel to the budget and began cutting in a very effective way and with some modest temperment by a politically shrewd President who was willing to co-opt the overall effect our budget was balanced in a way that was very responsible and eliminated the business communities fear of ever increasing tax burdens.

Posted by: FastEddieO007
------
You neglect to mention that the BB Enforcement Act of 1990 and the Balance Budget Act of 1997 were one of many the cause of it which both parties worked together to get it right. However BBA of 1997 is also a culprit in the cause of medicare spending to go up eventually because of the doc fixes that are temporary that needs to be fixed permanently but the Republicans don't want to deal with having to pay for it.

You also neglect to mention the fact that the Republican argued during the Clinton years that the surplus was the cause of the Reagan's policies when facts don't support it.

Posted by: beeker25 | July 14, 2010 3:31 PM | Report abuse

If you wanted to stimulate a fragile economy, would you choose A or B:


A - Have a polarizingly partisan politician like Nancy Pelosi hand pick specific interests and handout federal tax payer money to them by the boat loads based on her preference


OR


B - deliver money to businesses within the economy on a proportion based on the liklihood that they would create new jobs and exploit new business opportunities and expand the economy overall


If one were to assumes that a business's profits on a given year are an indication of the magnitude by which that that business might likley affect the economy by exploiting new business opportunities and expand, then 'B' is achieved extrememly efficiently by cutting taxes and having the effect of leaving the money where it will do the most good.

Posted by: FastEddieO007 | July 14, 2010 3:41 PM | Report abuse

This chart shows what happens when B is chosen.

All one has to do is read the latest economic news to see what happens when a President chooses 'A'

Posted by: FastEddieO007 | July 14, 2010 3:42 PM | Report abuse

FastEddie,
"Answer [to how revenues could grow so quickly from 1992-2000 despite higher taxes than during the 2000s]: we live ina day and age where we can predict what is really happening and especially economically, the markets try to react to as much advanced knowledge as possible.

Huge deficits that become more and more huge are interpreted by the business community as an eventually huge tax increase."

But the 1980s saw pretty strong GDP growth despite the predicted deficits, and it wasn't until the 1986 tax reform act that top marginal rates came down below 50%. So you had high (but not Obama high) deficits, and high (higher than Obama) taxes, and good economic growth from 1982 on.

I'm not taking the liberal position here. I think tax rates matter and that lower taxes induce supply side effects to boost GDP growth. I think low but broadly based marginal rates help growth, and that tax compliance costs to the economy are high and meaningful. I just don't think the Bush tax cuts created so much growth that they paid for themselves. The economy normally grows a few percent each year, in spite of taxes and regulations. Slight changes in tax rates aren't going to change the story all that much.

Posted by: justin84 | July 14, 2010 3:44 PM | Report abuse

justin84 - I think Bush tax cuts paid for themselves inasmuch as it proved pivotal to turning around GDP from shrinking to growing.

At that point much after Bush's tax cuts became the semi-permanent law of the land, congress can make a new decision on how best to proceed (tax increases or budget cuts.


The fundamental languaging problem that Ezra is having with people like me can be summed up like this:

Tax Cuts UNCOMMITS money from Americans.

Spending COMMITS money from Americans.

It would seem the government shouldn't have to jump through as many hoops in order to UNCOMMIT the money of Americans for a given economic situation, especially were it a very broadly defined tax cut likely to affect every single American like Bush tax cuts did, and as extending them would do.

But COMMITING money for Nancy Pelosi's stimulus beneficiaries is a different story.

If UNCOMMITING tax payers money leads to deficits, than most of us would expect this new higher deficit will just be paid later on by most of those very same tax payers anyway, and after 9-11, I'm sure most Americans greatly appreciated the supply-side effects of preventing unemployment go up into the double-digits.


Most people expect that running deficits will ultimately result in a higher tax-payer burden in the future. If cutting tax-payer rates increases deficit, theres really no harm done to the tax payer overall.

Posted by: FastEddieO007 | July 14, 2010 4:15 PM | Report abuse

Repeating for EMPHASIS:

Most people expect that running deficits will ultimately result in a higher tax-payer burden in the future.

Thus if cutting tax-payer rates today increases the deficit today, theres really no harm done to the tax-payer overall, who expects that he will ultimately foot the bill later on, ideally through a lower rate. But some pressure to push for more efficient government certainly can't hurt the long term sustainability of our Republic.

Tax cuts are merely a very efficient way for the government to soften recessionary cycles.

So Ezra, what don't you get?

Posted by: FastEddieO007 | July 14, 2010 4:24 PM | Report abuse

@visionbrkr,

Of course the Wars and Medicare Part D added to the deficit too.

However, the conservative claim is that the "Bush-GOP Tax Cuts paid for Themselves". This is patently false. Ezra's graph focuses on revenue -- not the deficit.

Clearly the tax cuts didn't come close to paying for themselves. Part of the drop-off in revenues in 2000-2001 was due to the impact of the recession. However, the decline in revenues post-2001 was largely a by-product of tax policy.

Posted by: JPRS | July 14, 2010 4:38 PM | Report abuse

@fe007:Tax cuts are merely a very efficient way for the government to soften recessionary cycles.

This is false

Tax cuts are one of the least efficient ways to soften recessionary cycles. For every dollar of tax cuts $1.03 of extra economic activity is created. For every dollar of unemployment compensation spending, $1.60 of of extra economic activity is created.

Only republican math says that revenue reduction doesn't need to be paid for, but expenditures do. Talk about Alice in Wonderland...

"It would seem the government shouldn't have to jump through as many hoops in order to UNCOMMIT the money of Americans for a given economic situation, especially were it a very broadly defined tax cut likely to affect every single American like Bush tax cuts did, and as extending them would do."

The Bush tax cuts went overwhelmingly to the top 5% of all income earners, who end up paying a much smaller % of their income in taxes than the rest of the population, especially when payroll taxes are included.

As far as the federal budget is concerned, cutting taxes and spending on unemployment both add to the deficit. The question is who gets the benefits of that spending. The Bush tax cuts benefited the wealthy and the plutocrats, unemployment benefits go to mostly middle and working class people who have lost their jobs, mostly due to the wealthy and plutocrats cratering the financial markets and world economy. Given the amount of money that went to tax cuts for the already well off and plutocrats, continuing unemployment compensation is a pittance.

Posted by: srw3 | July 14, 2010 5:50 PM | Report abuse

srw3...your recitation of some academia conclusion that " For every dollar of tax cuts $1.03 of extra economic activity is created. For every dollar of unemployment compensation spending, $1.60 of of extra economic activity is created" has been proven quite plainly false by the combintaion of the chart above, which proved tremendous economic growth resulting from the tax cuts....and our current economic decline from Obama-Pelosi Stimulus...

Sorry but truth speaks louder than you.

Posted by: FastEddieO007 | July 14, 2010 6:18 PM | Report abuse

@fe007: Did you miss the quotes from the republicans in the post?

*Andrew Samwick, chief economist at CEA from 2004-2005: "No thoughtful person believes that this possible offset [from the Bush tax cuts] more than compensated for the first effect for these tax cuts [adding to the deficit]. Not a single one."
*Ed Lazear, chairman of the CEA in 2007: "I certainly would not claim that tax cuts pay for themselves."
*Hank Paulson, Bush Secretary of the Treasury: "As a general rule, I don't believe that tax cuts pay for themselves."

Given the same amount of money, I challenge you to find an credible economist that would say that in a recession tax cuts spur more economic activity than extending unemployment benefits.

Good luck

" which proved tremendous economic growth resulting from the tax cuts....and our current economic decline from Obama-Pelosi Stimulus..."

Was that the growth that left median wages flat for 8 years and created the fewest net job gains of any president since FDR, but allowed the incomes of the top 1% to skyrocket?

I seem to remember our economic decline starting somewhat before Obama got into office. Something about the previous president leaving the largest deficit in history, the stock market tanking, the financial system in ruins, unemployment rising, 2 failed wars, criminal regulatory incompetence, etc. for Obama to clean up.

In fact, the stimulus has shaved 2-3% off the unemployment rate vs no stimulus and added about 2% to GDP vs no stimulus. Feel free to try find credible economists that don't agree with these projections. The fact that Bush created such an economic catastrophe that the stimulus (which was too small) wasn't able to immediately reverse 8 years of profligate deficit spending and deeply flawed economic policy is hardly an indictment of its relative effectiveness vs no stimulus.

Posted by: srw3 | July 14, 2010 8:03 PM | Report abuse

srw3 - the decline started after the Democrats took over congress.

Incidentally the best years in the 90s happened after Republicans took over congress.

In fact by far the best economic record by congress is unquestionably Republican when you combine the frst six Bush years with the last six Clinton years. The only hiccup during that time was 9-11.

Posted by: FastEddieO007 | July 14, 2010 8:17 PM | Report abuse

srw3 - You're right. Bush was too busy liberating 27 million human beings from a brutal tyrant and sucking the oxygen out the world's terrorist supporting network.

Quite clearly in hindsight Bush should have taken a much stronger stand against the reckless monetary practices of the Democrats running congress which ultimately eroded investor confidence triggering a global economic meltdown:

http://www.kfor.com/kfor-timelinefreddieandfannie-9080306,0,5755717.story

Posted by: FastEddieO007 | July 14, 2010 8:24 PM | Report abuse

JPRS,

how can you say that for certain?

What if the economy tanks for the next 10 years and GDP is 1% over that time frame and the deficit balloons? It would be wrong of me or any other conservative to say, see PPACA raised the deficit on its own.

Likewise if GDP grew at 6% during that time frame and a surplus ensued then you can't necessarily credit PPACA.

The point is that its disingenious of BOTH parties to make claims like this when so many factors and moving parts go into affecting this.

Posted by: visionbrkr | July 14, 2010 8:24 PM | Report abuse

There are causes and effects.

To say "what if the Mets score 10 runs in every game but they still lose most of them then....."

If you cut taxes during a recession, the economy grows, GDP grows, but eventually your revenue stream becomes rate limited and it would be prudent to begin increasing rates.

But there is by far no better way to stimulate the economy than to deliver proportionally to the business interests with the highest profits. The highest profits are generally associated with the greatest capacity for growth.

Posted by: FastEddieO007 | July 14, 2010 9:35 PM | Report abuse

What chart are you guys looking at?

Revenues jetted up between 2002 and 2006, the years in between lowering tax rates across the board and the horrible putting of King Harry and Queen Nancy in charge of the economy.

Posted by: FastEddieO007 | July 14, 2010 9:40 PM | Report abuse

I always love the small businesses create jobs thing. "cut the taxes and small business will create jobs."

Except it is not correct. No businessman in his right mind hires more people when his taxes go down. They hire more people when the demand for their business goes up.

If his business plan is close to being competent, taxes have no effect on his hiring practices. It has an effect on his profit, not his hiring.

True, if his demand is high and he needs money to expand, extra net profits might give him enough to expand. Then again, if that happened, he should have no problem expanding.

But the first thing, the most important thing is demand. If they ain't coming, there ain't no reason to build it.

Posted by: edmichael | July 14, 2010 11:35 PM | Report abuse

edmichael,

while you're correct to an extent (that SB's hire when demand goes up) you also don't state another truth. That small businesses don't hire when taxes go up if demand is constant or even up minimally.

Current situation has demand at constant or ticking downward and taxes going up. And the geniuses in Washington wonder why there's not much hiring going on???

Posted by: visionbrkr | July 15, 2010 10:31 AM | Report abuse

One thing that is confusing about this is that capital gains tax rates and corporate tax rates actually are important to behavior and can pay for themselves. Income tax rates, not so much.

http://www.cbo.gov/doc.cfm?index=3856&type=0

Posted by: staticvars | July 15, 2010 11:07 AM | Report abuse

visionbrkr,

See, I don't believe that businesses stop hiring when taxes go up, and I do not remember when they were raised the last couple of years.

Especially when we are talking about small business, and explicitly if you are talking about the 22 million(sic) small businesses that McCain talked about.

If my business plan is workable, I make a profit based on demand. A 5% increase or decrease in my income taxes will not result in any action whatsoever. 10%? Doubtful. 20%? A chance.

Couple of things could happen to make me pay any attention.

There is an increase in the number of small businesses that pay the max tax rate.

Or when a 20% income tax increase or decrease happens. Then I may start to pay attention.

And that even ignores the well known fact that the majority of businesses in this country pay no income tax at all. If you are not paying any income taxes, you are not paying any attention to the income tax rate.

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

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