Tax cuts don’t pay for themselves

All of the Republican presidential candidates are competing to see who can spout a big lie about tax policy most convincingly: tax cuts pay for themselves.

Common sense says that's absurd. So does economic research. But that doesn't stop the Republican know-nothings, some of whom also disbelieve in evolution, from ignoring the facts.

What got me going on this was hearing disgraced former Rep. Tom DeLay holding forth on conservative talk radio today. He claimed that tax cuts generate increased revenue for government.

I thought, hogwash. But I hadn't done much research on this, so fired up Google this evening for what I figured would be some myth-busting.

I was right. Reputable economic research doesn't support the ridiculous notion that cutting government revenues somehow increases government revenues.

TIME magazine's business and economics columnist, Justin Fox, blogged about this subject in 2006. He adjusted for inflation when evaluating the effect of Reagan's tax cuts. Bottom line: it's false that tax receipts rise as a result of tax cuts. Check it out.

Recently Fox put up another post, "To repeat, tax cuts haven't increased revenue," citing Paul Krugman's look at the effect of population growth in addition to inflation.

Even economists who serve in Republican administrations don't believe in the voodoo economics crap. The Center on Budget and Policy Priorities provided more evidence of this in 2006.

Now a Department of Treasury analysis presented in the Mid-Session Review itself confirms what outside experts have consistently said — tax cuts do not come remotely close to paying for themselves.

In this study the Center shows that economic growth was about the same in the 1980s (Reagan tax cuts) and in the 1990s (Clinton tax increases). But growth in government revenues was much higher in the 1990s.

I've got a granddaughter now. I don't want her saddled with paying for the massive deficits that the Bush administration is financing with a U.S. Treasury Credit Card – borrow now and pay later.

Clinton left this country a huge budget surplus and good economic growth. Bush is about to leave us with a huge budget deficit and poor economic growth.

His tax cuts have been a disaster. The last thing the United States needs is another Republican president who sticks his head in the sand and ignores economic reality.

As a Washington Post columnist said about politicians' propensity to believe that tax cuts increase revenues:

Politicians are always speechifying about how the United States must lead the world in research to maintain its edge. But having the world's best economics research isn't particularly helpful if those same politicians are silly enough to tune it out. The truth is that American business excels at turning university research into world-beating products; the paranoia on this score is overdone. But American government is often lousy at turning research into policies. That's what we should fret about.

Comments

[TJ]

What evidence is there that democrats perform any better than republicans or the other way around? Most candidates on either side are flawed, corrupt, dishonest, beholden to special interests and helpless in a mess nobody understands although they pay lip service to knowing otherwise.

They are motivated by power. Who, in their right mind, would want the burden of the presidency if power wasn't their goal? Who knows what any candidate really wants to do, their motivations, capabilities, and potential reactions to what is presented to them in office?

All candidates spout dialog planned by their focus groups geared to their current target audience. That is why they perpetually contradict themselves. It is all calculated. All you hear is BS and rhetoric. It means nothing. Has any candidate in any election not been in favor of change? Yet the same crap keeps going on.

It takes years for some economic actions to reflect in the economy. Surpluses in the Clinton administration reflect policies set in motion years before he got in office.

But this is the system we have and we have to do the best we can with it. Who to vote for? Hell if I know, but I will go on a gut feeling based on the candidate that APPEARS to best support values that I have.

[Rain]

Good post on voodoo economics and too bad that so many people are like those in the Emperor's New Clothes. They want to believe the lies because it is somehow comfortable or they think they profit from it. The ordinary person did not with the tax cuts but you can't convince them that their pennies were really important to them as they are now going to be convinced a rebate will fix the economy. It's scary for what will come next when the time comes when the lies can no longer be hidden. It might be sooner than we think.

[TJ]

Brian wrote: "I was right. Reputable economic research doesn't support the ridiculous notion that cutting government revenues somehow increases government revenues."

My response: And why should increasing government revenues increase government revenues..in the long run?

The more government takes from the entrepeneur, who ultimately generates the revenues government takes, the more he is inhibited from expanding his operations, employment, and thus, government revenues shrink... in the long run. If there are expanded operations, the tax rate can be less and still generate more revenue because there are more people making more money to tax. Not only that, if more product is being produced, and more people have more money to buy it, the economy thrives and expands.

$10,000 x 2 = $20,000 x tax rate of 15% = revenue of $3000.

$10,000 x 4 = $40,000 x tax rate of 10% = revenue of $4000.

So, if an entrepeneur can afford, due to lower taxes, to expand his business and employ more people then there will be greater revenue. And if the employees have more disposable income, the cycle will continue generating more income, employment and prosperity.

The problem with the necessity for economies to expand in order to avoid recessions and loss of revenues is the effect on the environment. More business growth and consumption = more waste and stress on the environment.

Through innovation brought about by incentive to profit, it is possible that technologies may emerge that make it possible to expand with less environmental impact. However, stuff is stuff and it has to go somewhere. More stuff, more waste.

Ten Toyota Priuses on the road is worse than four Chevrolet Suburbans because even though the Priuses burn half the fuel, there are more than twice the resources used to produce them. Aside from the sheet metal and plastic, look into the environmental effect of producing the nickel batteries in a Prius and you will shudder. This is not a solution. Keep the old gas guzzlers running indefinitely and you protect the environment more than producing millions of new hybrids.

I drive a '91 Chevrolet Blazer which I bought used in '92. It gets 12 mpg on a good day. But who has been harder on the environment and spent more money overall..me or the person who has gone through three new economy cars in those years?

Also, one time a guy misjudged a turn, went too wide and hit the Blazer sort of head-on. He was in a Honda Civic. His airbag went off, broke his nose and drove a piece of his glasses into his scalp. The front end of the Civic was completely crushed and totalled. My Blazer had a dent on the bumper and some scratched paint. I was uninjured. I ain't braggin', just makin' a point.

Indigenous people thrived for millenia with minimal impact on the environment. Now that they are nearly gone, what damage and blight has been left behind? A few moss-covered mounds, piles of rocks, clay pot shards and arrowheads, that's all.

If our civilization were to die today, what would remain? Millions upon millions of hectares covered with junk that has a molecular half-life of 100,000 to 1,000,000 years.

Are we any happier than they? Are our lives more peaceful and fulfilled? Sometimes. Sometimes not. I'm not sure we have gained much from civilization except more efficient methods to deal with toothaches and ways to prolong old age (which is no picnic any way you slice it) an extra decade or so.

We need a new paradigm and I have no answers for what to do about it. The wheels have been set in motion. Let nature take its course, I guess.