The claim that lower taxes are increasing revenues overall? In other words, are tax cuts self-financing? Better yet, do they pay for themselves? Sebastian Mallaby:
Nobody serious believes that tax cuts pay for themselves, as I noted
last week. But most senior Republicans flunk this test of seriousness.
In
January, George W. Bush declared that, "by cutting the taxes on the
American people, this economy is strong, and the overall tax revenues
have hit at record levels." Regrettably, this endorsement of what his
dad called voodoo economics was not a one-time oversight. The next
month, Bush told a New Hampshire audience, "You cut taxes and the tax
revenues increase."
Yet the administration's own economists' contradict the wishful thinking:
Mankiw is a top-notch economist hired by Bush and Cheney to advise them. And last year he published a paper [PDF] on how far tax cuts pay for themselves, reporting enthusiastically that this self-financing effect is "surprisingly large."
How
large, exactly? Mankiw reckons that over the long run (the long run
being generous to his argument), cuts on capital taxes generate enough
extra growth to pay for half of the lost revenue. Hello, Mr. President, that means that the other half of the lost revenue translates into bigger deficits. Mankiw also calculates that the comparable figure for cuts in taxes on wages is 17 percent. Yes, Mr. President, that means every $1 trillion in tax cuts is going to add $830 billion to the national debt.
"Voodoo" economics? More like "hoodoo voodoo, chooka-chooky-choo-choo" economics.
Here's something of a truism; something that initially seems stupid to even write down, but a truism increasingly obscured by ideological jibber jabber: Deficit spending increases the deficit. There.
Recent Comments