"Tax Cuts Don't Pay for Themselves" - GOP Economists

[Toro]

One of the truly most bizarre and surreal aspects of the American political landscape is that, no matter what the fiscal situation may be, so many Republicans believe that cutting taxes increases revenues.

Rudy looks like an idiot when he says stuff like this. The problem is that so many of the base believe it to be the case.

"I KNOW THAT reducing taxes produces more revenues," Republican presidential candidate Rudolph Giuliani declares in a new television ad launched Thursday. "Democrats don't know that. They don't believe it."

There's a good reason for that: It's not true. Produces more revenue than what? Than if taxes had not been cut? No -- and no matter how many times Republican politicians caught up in the thrill of supply-side thinking pronounce that tax cuts pay for themselves, they cannot will it to be correct.

You don't have to turn to Democrats to refute this point; just read the studies and comments by Republican economists, including many from the Bush administration. President Bush's Treasury Department, analyzing the "dynamic" effects of making the Bush tax cuts permanent, found that even under favorable assumptions, the positive economic impact would make up for no more than 10 percent of the tax cuts' cost.

"I certainly would not claim that tax cuts pay for themselves," Edward P. Lazear, chairman of the president's Council of Economic Advisers, testified last year. He's not alone. In the 2003 Economic Report of the President, the council concluded that "although the economy grows in response to tax reductions (because of the higher consumption in the short run and improved incentives in the long run) it is unlikely to grow so much that lost revenue is completely recovered by the higher level of economic activity."

How unlikely? N. Gregory Mankiw, another former Council of Economic Advisers head in the Bush White House, concluded in 2005 that cuts on capital gains taxes could generate enough extra growth to recoup half the lost revenue in the long run; cutting taxes on wages could recover just 17 percent of the costs. An analysis conducted by the Congressional Budget Office under the direction of Douglas Holtz-Eakin, who had been an economic adviser in the Bush White House, found that, under the rosiest of scenarios, a 10 percent reduction in the personal income tax rate would generate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five.

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/30/AR2007113002190.html

 

[pegwinn]

I am not an expert by any means, but I think a combination of tax cuts and a reduction in .gov spending will spur economic growth.

Better than tax cuts of course is replacement of the current system with HR25 and the repeal of the 16th amendment.

Rudy opposes HR25 and one of his talking points is that it loses the home mortgage interest deduction. What a maroon.

 

[Paulie]

The only way a tax cut is going to help the economy in the long term is to keep the spending low.

The problem with the Bush tax cuts, is that his administration is spending money like it isn't lent and sold to us at interest or something. So how the hell is the economy going to strengthen, the budget stay balanced, and our debt stay low, if you're going to lessen revenue, but increase spending? It doesn't make any sense, does it?

 

[Mr.Conley]

I am not an expert by any means, but I think a combination of tax cuts and a reduction in .gov spending will spur economic growth.

Better than tax cuts of course is replacement of the current system with HR25 and the repeal of the 16th amendment.

Rudy opposes HR25 and one of his talking points is that it loses the home mortgage interest deduction. What a maroon.

Government spending increases economic output by raising GDP. Whether this is the best means of increasing GDP, best for the economy, best for the taxpayer, what's the opportunity cost etc. etc. is a more complicated question, but without question, government spending has a positive effect on GDP.

 

[BaronVonBigmeat]

Government spending increases economic output by raising GDP. Whether this is the best means of increasing GDP, best for the economy, best for the taxpayer, what's the opportunity cost etc. etc. is a more complicated question, but without question, government spending has a positive effect on GDP.

If that were true, socialism would have been a happy success. There's a reason why so many former socialist nations are abandoning it. Government spending is inherently unproductive.

Also, there is some bit of truth in the tax cuts = revenue gains bit, at least in the long run, at some rates. If Taiwan had set their taxes as high as Europe, it's unlikely they would have gone from african-levels of poverty to a first world nation in 50 years, and their tax base would be lower than it is today as a result. Of course there's a lot of other factors too--a transparent legal system, minimal red tape for economic activity, property rights, etc.

Plus there's the whole "were taxes really cut?" angle. Reagan signed off on income tax cuts, yes. But he also raised SS taxes. Were net taxes cut? I don't know. The whole point is to leave more resources in the hands of the private sector where it can be productive. If spending remains bloated, then those resources are still being gobbled up by government. You can borrow the money or inflate the money, but you're still drawing gasoline, steel, concrete, manpower, lumber, energy, etc. away from better uses.

 

[Mr.Conley]

If that were true, socialism would have been a happy success. There's a reason why so many former socialist nations are abandoning it. Government spending is inherently unproductive.

I'm arguing a more technical point. The money that government spends encourages economic growth through the Keynesian multiplier, increasing GDP; it doesn't just disappear. Take a look at the wealthy suburbs around DC for a good example. Now whether this is the most efficient use of the cash is another story.

 

[Toro]

Governments are institutions. Corporations are institutions. Sometimes governments do dumb things, but sometimes corporations do dumb things. It is more likely that corporations will contribute to economic growth because there is greater incentive to allocate resources more efficiently, but it is utterly false - both philosophically and historically - to say that the private sector always is better at generating growth than governments.

Markets create the most wealth for the most people most of the time, but they do not create all the wealth for all the people all the time. Markets fail occasionally, and there are losers in markets, which requires government intervention in the economy when markets do fail or when society deems certain aspects too important to be left to market mechanisms.

 

[BaronVonBigmeat]

I think it depends on what you mean by "generating growth". If you mean military, police, courts, a system of property rights, contract enforcement, etc. then yes I would agree. These are the things which private companies probably cannot do (or if they did, they would resemble mini-governments, like homeowner's associations).

If you mean that government needs to provide goods and services and engage in economic planning, then no. Besides, most of the market failures are either not failures at all (high gas prices), an unforseen side-effect of government intervention elsewhere, or better addressed by private charity.

 

[Bern80]

Government spending increases economic output by raising GDP. Whether this is the best means of increasing GDP, best for the economy, best for the taxpayer, what's the opportunity cost etc. etc. is a more complicated question, but without question, government spending has a positive effect on GDP.

You do know what the 'P' in GDP stands for don't you? What exactley does the government produce that spurs the economy?

 

[Shogun]

postal service, police service, fire protection, emergency service, prisons, and monopoly busting regulations just to mention?



What has free market capitolism done for nursing homes?

 

[Larkinn]

postal service, police service, fire protection, emergency service, prisons, and monopoly busting regulations just to mention?



What has free market capitolism done for nursing homes?

Oooh, can I add some?

Roads, bridges, tunnels, military, a judicial system. This is fun.

 

[Foxfyre]

Seems that most here do understand that Bush's tax cuts were a good thing for the economy and, without them, we would likely not be doing as well economically as we are doing. For the skeptics, here's a mini crash couse in the principles involved:

January 29, 2007
Ten Myths About the Bush Tax Cuts
by Brian M. Riedl

Ten Myths About the Bush Tax Cuts——and the Facts
Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts.

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.

Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.

Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.

Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.

Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.

Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.

Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.

Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

Expanded commentary here: http://www.heritage.org/Research/Taxes/bg2001.cfm

New York Times
TAX CUTS - INCREASED REVENUES
WASHINGTON, July 12 - For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.

On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.

Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.

Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be "significantly less than $350 billion, perhaps below $325 billion."

The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
Most of the increase in individual tax receipts appears to have come from higher stock market gains and the business income of relatively wealthy taxpayers. The biggest jump was not from taxes withheld from salaries but from quarterly payments on investment gains and business earnings, which were up 20 percent this year
http://www.nytimes.com/2005/07/13/business/13deficit.html?_r=1&oref=slogin

December 31, 2002
Tax Cuts Increase Federal Revenues
by Andrew Olivastro
http://www.heritage.org/Research/Taxes/wm182.cfm

 

[Larkinn]

Seems that most here do understand that Bush's tax cuts were a good thing for the economy and, without them, we would likely not be doing as well economically as we are doing. For the skeptics, here's a mini crash couse in the principles involved:

Ten Myths About the Bush Tax Cuts——and the Facts
Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts.

Yah think? You mean tax revenues are higher than they were in 1854 considering our population is vastly larger and money is worth vastly more?

Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.

And guess what...if there was additional revenue to pay for the additional spending, it would have lessened that budget deficit.

Pssh, try posting something less full of shit next time.

By the way...if the economy is so good, care to tell me why the federal government is thinking of stepping in to stop the massive increase in home foreclosures?

 

[Foxfyre]

Yah think? You mean tax revenues are higher than they were in 1854 considering our population is vastly larger and money is worth vastly more?



And guess what...if there was additional revenue to pay for the additional spending, it would have lessened that budget deficit.

Pssh, try posting something less full of shit next time.

By the way...if the economy is so good, care to tell me why the federal government is thinking of stepping in to stop the massive increase in home foreclosures?

Maybe if you bothered to follow the links I provided to the articles, you would see how......what word do I use?......silly?......your first sentence is.

You also would have seen that there would most likely have been less revenue without the tax cuts. That would have required reading a paragraph or two though.

The home foreclosures were a result of consumer stupidity or willingness to gamble--well over half were homes bought on spec as investments with hopes of turning a good profit--coupled with unscrupulous lending practices by mortgage companies. NONE of it had anything whatsoever to do with the tax increases other than that interest rates rose in response to a galloping economy.

Now perhaps you would like to take any one of those articles apart and show any evidence you might have other than hot air to show that any are full of sh*t?

 

[Larkinn]

Maybe if you bothered to follow the links I provided to the articles, you would see how......what word do I use?......silly?......your first sentence is.

My first sentence was responding to an obviously biased and prejudiced claim. Reading the articles would not have affected it at all.

You also would have seen that there would most likely have been less revenue without the tax cuts. That would have required reading a paragraph or two though.

http://www.cbpp.org/4-14-04tax-sum.htm

And there is an article for you saying the exact opposite. How exciting.

The home foreclosures were a result of consumer stupidity or willingness to gamble--well over half were homes bought on spec as investments with hopes of turning a good profit--coupled with unscrupulous lending practices by mortgage companies. NONE of it had anything whatsoever to do with the tax increases other than that interest rates rose in response to a galloping economy.

Thats nice. You said we were doing well economically, I disagree.

Now perhaps you would like to take any one of those articles apart and show any evidence you might have other than hot air to show that any are full of sh*t?

Why if you aren't going to bother defending the crap and just say "well read more". I start reading and find obviously biased and absurd statements, I'm not going to bother reading the rest.

 

[Foxfyre]

My first sentence was responding to an obviously biased and prejudiced claim. Reading the articles would not have affected it at all.



http://www.cbpp.org/4-14-04tax-sum.htm

And there is an article for you saying the exact opposite. How exciting.



Thats nice. You said we were doing well economically, I disagree.



Why if you aren't going to bother defending the crap and just say "well read more". I start reading and find obviously biased and absurd statements, I'm not going to bother reading the rest.

Well the current numbers from the treasury department already blow the numbers from your link out of the water while the numbers quoted in my link are holding up. And I also otherwise accept that you can't support your statements. Thank you for your time, however.

 

[BaronVonBigmeat]

What has free market capitolism done for nursing homes?

Erm...provided them?

 

[Kid Pickle]

Sometimes brilliance lies in the obvious, Baron. Or, perhaps, in not choosing to be blind to it.

Here's another obvious thing. Our money does not belong to the government. It is OURS! It belongs where we choose to put it. Perhaps the concept of personal liberty is lost on some people. When we choose to put it somewhere useful, it makes someone else money, and so on and so on. The more people making money, the more taxes people pay. The more taxes, the greater revenue.

How about this: the economy is not static.

One more: people who do things out of self-interest and choice, expect results. When people expect results, results happen or. The government by and large doesn't expect results. It measures things in money spent, political capital gained. People in the government just want to keep their jobs. They keep thier jobs by spending money. It doesn't matter if anything valuable happens. In fact, if you solve the problem, you cannot be justified in asking for more funding, losing your job.

Socialists seem to think that people are too stupid to handle thier own money and the government is all wise and practical. Reality is that most folks take their resources pretty seriously, trying to use them as effectively and efficiently as possible. And if they don't? Oh, well. Remember, it is THEIR money. The government is full of inexpert people with virtually unlimited funding and no real personal interest in efficiency or results because, hey, it's someone else's money. Who do you trust?

I get tired of the whining about the lack of tax revenues. If we cannot afford everything, it is time to stop spending on some things. It is time to prioritize, check results, and shut some stuff down! I know libs think that we cannot possibly survive without our myriad government programs, but it can be done. In fact it may be surprising how many things turn out not to be problems but political fodder and how many people actually try to DO SOME THINGS THEMSELVES (perish the thought)!

 

[Kid Pickle]

here's a graph, if you're into that sort of thing...

 

[Bern80]

Oooh, can I add some?

Roads, bridges, tunnels, military, a judicial system. This is fun.

the orpeate phrase in my question would be "that spurs the economy". So go ahead a convince me that delivering the mail, building roads, etc. spurs the economy.