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Taxes are just the Symptom
Posted by: Jon Henke on Thursday, September 13, 2007

Megan McArdle responds - brilliantly, I think - to Jonathan Chait's new book, The Big Con. Chait takes on the "ridiculous claims" that "cutting tax rates increases tax revenue", about which McArdle points out "tax cuts, at least in the narrow range of marginal rates in which American tax policy seems to be stuck, do not "pay for themselves" by increasing the revenue that the government collects." We are, in short, indisputably operating on the left side of the Laffer Curve.

But Chait went farther than merely correcting the deluded idealogues - he attributed motives to the Right. McArdle objects, pointing out that there are alternative explanations that don't require one to assume "that Republicans are somehow uniquely corrupt, partison, ideologically blinkered, and, of course, stupid."
My view of American politics over the last 25 years is that Democrats and Republicans have been conducting a proxy war over the federal government's share of the economy. Liberals would like it to be bigger, for sincere and honest reasons. Republicans would like it to be smaller, also for sincere and honest reasons. But that argument is ugly and fraught. If you try to cut any subsidy, no matter how outrageous, the recipients get angry and vote against you, while the other voters yawn in disinterest [...] However, people also aren't really all that fond of new spending. They say they are in favor of it, of course, at least as long as that spending is funded by taxes on someone else. New spending funded by tax increases on the rich often polls quite well.
[...]
The explanation for the fact that public policy diverges from polls, then, may be (I think, is) that polls are at best a crude measure for determining what the public favors. Especially because polls about spending proposals are necessarily vague. [...] That's why the bulk of new spending over the last twenty-five years seems to be concentrated in one place: the elderly. It's the only group we all identify with, at least prospectively.
[...]
Is it any surprise that having been stymied by the public from doing anything but play around the margins of spending, Democrats and Republicans have invested totemic powers in marginal tax rates, where they have slightly more leeway? Republicans fetishize Reagan's tax cuts, crediting them with any growth at all that occurred during the 1980's—having hit my full 6'2 around 1984, I occasionally fear that I will show up as an exhibit in a supply-side memo.

Democrats, meanwhile, invest a ferocious amount of energy in denouncing even cuts which cost a relatively small amount of revenue, such as the capital gains and dividends tax cuts, the repeal of which would raise perhaps 0.1% of GDP, or about 6.5% of this year's projected budget deficit. Politicians and pundits profess the rather silly belief that if we restored the tax levels of 2000, we'd approach something like its level of economic growth too.

This not to take a "pox on both their houses" approach so much as to point out that the whole country is investing a disproportionate amount of energy in taxation as an issue. Changing the level of capital gains and dividend taxation would not visibly alter the income distribution, budget deficit, or any other goal that Democrats are looking to advance; it's simply too small a matter to make much difference. Yet because over half the cut went to the rich, this is often Exhibit A in the diatribes against the Bush tax cuts.
[...]
I prefer my explanation because it doesn't rely on believing that thirty years ago the Republicans, suddenly and for no apparent reason, become eviler, while simultaneously—luckily for them!—the American public, suddenly and for no apparent reason, became stupider. So stupid, in fact, that they couldn't find the lever to vote for the people they actually agreed with.

Happily, my explanation also does not require that I insult the intelligence of my opponents.
Spending is the issue, taxes is just a symptom.
 
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It’s always bothered me that conservatives point to an increase in tax revenues as a justification for tax cuts, as if the government taking more money from the hands of the people is a good thing. Why on earth would a conservative applaud giving the government more money and thus power than it already has? The government should take from the governed only the amount necessary to fulfill the government’s constitutional obligations. From a conservative viewpoint, it’s hard to tout the success of tax cuts by celebrating the fact that the government has more money.
 
Written By: DIffus
URL: http://
The popularity of the argument stems from it having something for everyone.

One of the main arguments along this line is,
Lower rates ==> more growth ==> more revenue

* Lower rates = less interference in each person’s life
* More growth = America more competitive
* More revenue = more money to go to X pet project

Assuming that the argument has merit... what’s not to like?
 
Written By: Bryan Pick
URL: http://www.qando.net
What’s not to like is the bloody fact that it rationalizes theft.

I know, I know: I’ve rejected the assumption.

Someone’s got to do it.
 
Written By: Billy Beck
URL: http://www.two—four.net/weblog.php
Both Republicans and Democrats think of the citizens as milch cows. (For those of you who don’t know what a "milch cow" is, ask your redneck dairy farmer friends what it is. I think Mr. Beck understands.)

Typical of the statist mindset, they both think that government is entitled to revenue to suite their wishes, not for the sake of performing properly delegated duties in conformity with the proper functions of government (and, NO, Erb, a welfare state is not a proper, nor a constitutionally authorized function of government).



 
Written By: Sharpshooter
URL: http://
This does suppose that someone can do something about social security which is the sacred cow of American political religion. In the real world I put 3% of my pay into an annuity. When I retire I will get roughly 30% of my pay every year as a minimum. In the American social security world, I put in 13% of my pay every year into a plan that will pay me 15% of my pay every year. Why is this so hard, for citizens to give up?
 
Written By: Orlando Armaswalker
URL: http://
Jon,

We’re indisputably operating on the RIGHT side of the Laffer Curve. Not on the left.

Also, keep in mind that one of the primary complaints of conservatives about the FEDERAL gov’t in particular, is its tendency to distribute funding inefficiently due to the removal of the governors from their constituencies. Consider:

" Six weeks after a fatal Minneapolis bridge collapse prompted criticism of federal spending priorities, the Senate approved a transportation and housing bill Wednesday containing at least $2 billion for pet projects that include a North Dakota peace garden, a Montana baseball stadium and a Las Vegas history museum.

That’s not the half of it.

Total spending on transportation "earmarks" next year is likely to be about $8 billion, when legislative projects from a previously approved, five-year highway bill are factored in. A newly released report by the Department of Transportation’s inspector general identified 8,056 earmarks totaling $8.5 billion in the fiscal year that ended in October, or 13.5% of the Transportation Department’s $63 billion spending plan.

The inspector general’s report found that the vast majority of earmarks — project-specific spending instructions written into bills, usually by lawmakers — were not evaluated on their merits, and that many "low-priority" earmarks often squeezed out more important projects.

Want to know what had to be cut from the bill in order to get the North Dakota Peace Garden? Oh, just a silly little project that would have updated technology in air-traffic control towers. But the Peace Garden wasn’t the only beneficiary of freeing up funds from making air travel safer. California will also get a "mule and packer museum". Perhaps Americans can start traveling by donkey instead.

Senator Tom Coburn attempted to stop the pork party, to no avail. He offered an amendment that would have forbidden earmarks on transportation bills until all deficient bridges had been properly updated. That just barely failed — by a vote of 82 to 14. Eighty-two Senators voted to prioritize pork over infrastructure maintenance.

In fact, the pork comes to one out of every eight dollars spent on transportation now. In the past eleven years, earmarks have increased a whopping 1150%, while the dollar value of the pork has increased over 300% in the same period. Ninety-nine percent of these earmarks bypassed planning agencies, meaning that the monies got no review for prioritization. How many bridges could have been repaired with that money over the last decade? How many baseball fields in places like Billings got built instead?

Eight billion dollars would build 32 new St. Anthony Bridges. How many hundreds could it have repaired? And that’s just this transportation bill."

Mr. DIffus,

Conservatives, when supporting tax cuts, are supporting GROWTH in the economy. The fact that additional revenues are generated is immaterial, because it is a SMALLER PORTION of the total wealth generated by the GROWTH spurred on by the tax cut.

 
Written By: NewEnglandDevil
URL: http://
NewEnglandDevil,
You state this:
We’re indisputably operating on the RIGHT side of the Laffer Curve. Not on the left.
And then don’t even attempt to prove it. Jon and everyone here agrees with what you said after that of course. Just not sure why you claimed Jon was wrong, and then failed to even make an argument for it.
 
Written By: ChrisB
URL: http://
ChrisB,

If every time we lower taxes we get a rise in revenue, by definition that is consistent with our being on the right of the Laffer curve. If we were to the left, then lowering taxes would lower revenue.

Yours, TDP, ml, msl, & pfpp
 
Written By: Tom Perkins
URL: http://
Spending is the issue, taxes is just a symptom.
Not a direct symptom either, because spending can be sourced from or directed to debt.
 
Written By: unaha-closp
URL: http://warisforwinning.blogspot.com/
If every time we lower taxes we get a rise in revenue, by definition that is consistent with our being on the right of the Laffer curve. If we were to the left, then lowering taxes would lower revenue.
Wrong. Revenues would have gone up in the absence of tax cuts, too. Unless you want to argue that the US economy would have crated and remained completely stagnant if we hadn’t lowered rates by a very small amount - that the entire business cycle had been repealed, and growth was impossible without a small tax cut - then tax revenues would have gone up regardless of the tax cut.

Incidentally, Bush’s own economic advisors acknowledge that the tax cuts wouldn’t come close to paying for themselves. A Treasury Department dynamic scoring analysis came to the same conclusion.

Regarding current tax rates, there is no serious economist who argues that cuts will increase revenues, and no empirical research that suggests it.
 
Written By: Jon Henke
URL: http://www.QandO.net
If every time we lower taxes we get a rise in revenue, by definition that is consistent with our being on the right of the Laffer curve. If we were to the left, then lowering taxes would lower revenue.
Wrong. Revenues would have gone up in the absence of tax cuts, too. Unless you want to argue that the US economy would have crated and remained completely stagnant if we hadn’t lowered rates by a very small amount - that the entire business cycle had been repealed, and growth was impossible without a small tax cut - then tax revenues would have gone up regardless of the tax cut.
OK, to quibble.

If you cut the tax rate, and tax revenues subsequently increase faster than the economy as a whole is growing, then you are arguably on the right side of the Laffer curve. I believe we’re there now because, despite congress’ horrible spending habits for the last ~6 years, the deficit is dropping like a rock and far exceeding CBO estimates. The last time I checked, we were slated to balance the budget in the fourth quarter of ’08 or the first quarter of ’09. Granted, that’s just one metric and it isn’t definitive, I believe it holds some weight.
 
Written By: NewEnglandDevil
URL: http://
The last time I checked, we were slated to balance the budget in the fourth quarter of ’08 or the first quarter of ’09. Granted, that’s just one metric and it isn’t definitive, I believe it holds some weight.


Do you mean an actual balanced budget, or a budget that is balanced by taking the 16% in payroll taxes that almost every American pays (half trillion a year?) that goes into that nebulous lockbox, otherwise known as the General Fund.

Deficits are higher during recessions as unemployment reduces revenues, but deficits typically go down toward the end of an economic growth cycle, and in the end it should be at least a wash. The theory that Bush has done something good by having the potential to balance the budget by the very end of the cycle (if we don’t have another dip before ’09, I’d be very surprised) is just goofy. He should have been running surpluses by the midpoint in the growth cycle.

Deficits 9 out of every 10 years are going to strangle this country, but eventually, Grover Norquist will get what he wants, when most of the tax revenues go towards debt service, government WILL shrink to a size small enough to drown in a bathtub.

Too bad we’ll still be paying for the big forever anyway.

Cap
 
Written By: Captin Sarcastic
URL: http://
[D]eficits typically go down toward the end of an economic growth cycle, and in the end it should be at least a wash. The theory that Bush has done something good by having the potential to balance the budget by the very end of the cycle (if we don’t have another dip before ’09, I’d be very surprised) is just goofy. He should have been running surpluses by the midpoint in the growth cycle.
Do they really? I see no evidence of this, other than under Clinton. As he was the only president to end up in a surplus since....???? I’m not sure that there’s any demonstrable trend that confirms your analysis.
 
Written By: NewEnglandDevil
URL: http://
Do they really? I see no evidence of this, other than under Clinton. As he was the only president to end up in a surplus since....???? I’m not sure that there’s any demonstrable trend that confirms your analysis.
You see no evidence?

Does that mean you looked at a graph of deficits compared to a graph of economic cycles?

If you had, you would have see higher deficits during the recessionary times and lower deficits as the economic cycle matured, occasionally ending with balanced or close to balanced budgets. The problem is that cyclical deficits SHOULD be a wash, but they are not because all deficit spending is not cyclical. However, if GWB and the Republican Congress he had for most of his term wanted to have any pretense of economic responsibility, the cyclical deficits would have been cancelled by cyclical surpluses, which of course were wiped out by massive spending coupled with tax cuts.

Cap
 
Written By: Captin Sarcastic
URL: http://
My good captain,

Your entire premise is that the gov’t should be running a surplus half the time.
[D]eficits typically go down toward the end of an economic growth cycle, and in the end it should be at least a wash.
...
He should have been running surpluses by the midpoint in the growth cycle.
Again, and perhaps I wasn’t clear enough, when have we ever had a surplus similar to what you describe? It certainly isn’t since the great depression.
the cyclical deficits would have been cancelled by cyclical surpluses,
that is clearly your policy preference, that we should run a balanced budget. I get that. But there is no historical evidence, at least since the 30’s, that this policy has been practiced. It certainly isn’t economic truth. It’s nothing more, and nothing less, than a policy preference.
 
Written By: NewEnglandDevil
URL: http://
that is clearly your policy preference, that we should run a balanced budget. I get that. But there is no historical evidence, at least since the 30’s, that this policy has been practiced. It certainly isn’t economic truth. It’s nothing more, and nothing less, than a policy preference.
It’s not just a policy preference, it was a platform of Republicans for the last 50 yearss... "fiscal responsibility" if that rings any bells.

My point is that Bush has NOTHING to be proud of, the exact same deficit scenario or better would be likely if a sleeping monkey were in the White House.

In other words, the tax cuts were irrelevant...
The last time I checked, we were slated to balance the budget in the fourth quarter of ’08 or the first quarter of ’09. Granted, that’s just one metric and it isn’t definitive, I believe it holds some weight.
... making this statement irrelevant

Cap

 
Written By: Captin Sarcastic
URL: http://
wrongo sarcastico,

The tax cuts spurred growth, which helped the economy.

The reason the last statement is relevant is that people believed that the tax cuts "wouldn’t pay for themselves." The point is, without the growth, the deficits are likely worse, and the growth doesn’t happen without the tax cuts.

Finally, you’re a one trick monkey when it comes to economics. You seem to believe that the deficit is the end-all be-all of the economy. It’s not. Why don’t you look at the deficit as a percentage of GDP? We’re at historic lows by that metric.

In any case, if you’re pissed about spending - who writes the bills? It isn’t Bush. And if you wanted him to veto every bill that came across his desk until it was perfect - you do realize that within the first year of his presidency he was trying to fight a war and get us out of a recession at the same time?

whatever.....
 
Written By: NewEnglandDevil
URL: http://
The point is, without the growth, the deficits are likely worse, and the growth doesn’t happen without the tax cuts.
Really?

Care to back that one up?

Let me help you...

America has had growth in every decade since the Civil except for one, during the Great Depression. Do you want to make the case that we have been cutting taxes since the Civil War?
Finally, you’re a one trick monkey when it comes to economics
No, I am simply on topic. Taxes, spending, the difference between the two... right on topic.
In any case, if you’re pissed about spending - who writes the bills?
From January 2001 until January 2007, it was the Republican led Congress... you know, the fiscal conservatives, and each and every red cent they proposed was signed by the President, that other conservative, with not one single veto.
The reason the last statement is relevant is that people believed that the tax cuts "wouldn’t pay for themselves."


They didn’t. They haven’t. They won’t.

Your argument is that the tax cuts paid for themselves because the tax cuts CAUSED the economic growth since the tax cuts were passed, and the economic growth, caused higher revenues to be taxed at lower levels for a net increase in revenues.

This assertion (and to be precise here, when I say this, I mean your assertion suggesting the tax cuts CAUSING either THE economic growth, or increasing economic growth enough to make the differenc)

is either:

A. False
B. Unproven by you
C. Unsupported by facts
D. Unsupported by history


Read this (or for more, read this)
Pop Quiz: Did the Tax Cuts Bolster Growth?, by Daniel Altman, NY Times: Politicians from the president on down have lately been saying that the tax cuts passed in 2001 and 2003 were responsible for the quick growth of the economy starting in mid-2003. That growth has since tapered, but ... it’s worth asking — are they right?

I decided to pose that question to a large group of mainstream economists through an informal survey. The answer, in a nutshell, was no.... But there was a lot more to the story. ...

Last week, I sent e-mail messages to the 177 members of the National Bureau of Economic Research’s program on economic fluctuations and growth. ... The e-mail message had just one question:

“Which factor was most important for the economy’s growth from mid-2003 through the end of 2006?” It offered the economists five possible responses:

a. The tax cuts signed by President George W. Bush.
b. Pent-up demand following the recession, the corporate scandals and the invasion of Iraq.
c. Both (a) and (b) were important.
d. Neither (a) nor (b) was important; it was the regular business cycle.
e. There’s no way to tell now.

...Forty-nine economists responded to my message, including many of the best-known names in the field. Of these, only five, about 10 percent, said that the tax cuts were the most important factor in the economy’s growth.

Two were Nobel laureates known for their conservative views — Robert E. Lucas Jr. of the University of Chicago and Edward C. Prescott of Arizona State University. Two other professors, Martin S. Feldstein of Harvard and Gary D. Hansen of the University of California, Los Angeles, qualified their answers by mentioning other factors. ...

But the majority, 30 economists, answered neither or supplied an answer not listed. Robert E. Hall of Stanford wrote that “the U.S. economy recovered from every single recession it ever had, so the growth in 2003-2006 was generally part of the normal cyclical recovery.”
Growth happens after recessions, it’s pretty much why there is an AFTER after recessions.

Cap
 
Written By: Captin Sarcastic
URL: http://
Couple comments on your last response, and I’ll leave it at that as I"m sure we aren’t going to agree.

1) You’re going to complain about someone else making statements without a fully footnoted research paper?

2)
Do you want to make the case that we have been cutting taxes since the Civil War?
Did I ever assert that? I believe that we’ve had more growth when we cut taxes than when we raise them, and I believe that in some respects raising taxes tends towards slow growth, stagnancy, or recession.

3)
(NED)Finally, you’re a one trick monkey when it comes to economics
(CS) "No, I am simply on topic. Taxes, spending, the difference between the two... right on topic."
You need to take a reading comprehension class. FYI - I didn’t say you were off topic.

4)
(NED) "In any case, if you’re pissed about spending - who writes the bills?"
(CS) "From January 2001 until January 2007, it was the Republican led Congress... you know, the fiscal conservatives, and each and every red cent they proposed was signed by the President, that other conservative, with not one single veto."
In other words, you’re projecting at the only target you can articulate (Bush, as opposed to congress - keeps it personal), and you’re deceptively ignoring the point I made about WHY Bush might feel constrained NOT to veto spending: Just as Reagan did before him, Bush has a war to fight.

5) Thank you for providing evidence that my argument is at least plausible and perhaps likely. I don’t know how many other Nobel laureates answered his survey, but I’m guessing he would have mentioned them: both that he mentioned favored my position. Additionally, a professor from Harvard and another from UCLA (both prestigious business schools, as are ASU’s and Chicago’s) at least considered the tax cuts helpful. (He doesn’t mention the fifth).

6) The quote that you finished off the article with, and with which you apparently agree, is laughable for the position it represents.
Robert E. Hall of Stanford wrote that “the U.S. economy recovered from every single recession it ever had, so the growth in 2003-2006 was generally part of the normal cyclical recovery.”
Using that logic, we could enter a millennial long dark age (perhaps precipitated by a nuclear exchange), during which economic growth is non-existent, but the moment growth occurred (after say, the first 1,000 years of the nuclear dark age) he would be correct. After all, there was a recession (depression), and then we recovered.

What it suggests is that economic policy has NO effect on the economy, which actually undermines your presumption that debt and deficit will eventually crush our economy. After all, even if the US does go bankrupt, we’ll recover.
 
Written By: NewEnglandDevil
URL: http://
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URL: http://aufauccakebt.com/
 
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