Time: Tax Cuts Don't Boost Revenue

Justin Fox penns an excellent piece for Time:

If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, "does produce more revenue for the Federal Government." Presidential candidate John McCain declared in March that "tax cuts ... as we all know, increase revenues." His rival Rudy Giuliani couldn't agree more. "I know that reducing taxes produces more revenues," he intones in a new TV ad.

If there's one thing that economists agree on, it's that these claims are false.

Of course, what the world needs is something more than the occasional spot-on feature. What's needed is a world in which this information filters into daily coverage. If a politician gives a talk about economic policy whose central premise is false, this should be the story of the day. If a politician persists in saying things that aren't true, he should be branded a liar -- a "serial exaggerator," whatever -- a person possessed of a political strategy dependent on making false claims, and blessed or cursed with a character that lets him keep on doing it.

Comments

Why does it seem as if the reputations of economists who don't repudiate their bosses statements remain intact?

Shouldn't Mankiw's reputation suffer because Bush was ignorant or lied repeatedly? It seems to me that the economics profession needs to do a better job of self policing when it comes to this kind of thing. Mankiw and people like him should be shamed.

Posted by tomboy | December 9, 2007 11:07 AM

I totally agree with you, Matt. In keeping with big media's obsessive need to appear non-partisan, they can always couple this truth-squading of Repub lies with a line or two about how Al Gore sighed during that 2000 debate.

Posted by Jeff S. | December 9, 2007 11:35 AM

You know, you're right, but then again, why is it so hard for some Democrat, it needn't be a high ranking one, to get on TV and call a lie a lie? Seriously, it's that simple. It will be covered, and all they have to do is say "supply side stupidity" "lie like a rug about taxes" and "tax cuts for the rich".
Of course, they don't because they're afraid to fight for government, for services as a good in themselves, but has happened, you do that, and suddenly the playing field is so skewed that your opponent gets away with the abovementioned stuff.

Posted by markus | December 9, 2007 1:02 PM

"If a politician gives a talk about economic policy whose central premise is false, this should be the story of the day. If a politician persists in saying things that aren't true, he should be branded a liar -- a "serial exaggerator," whatever -- a person possessed of a political strategy dependent on making false claims, and blessed or cursed with a character that lets him keep on doing it."

Of course we all have an agreed upon set of standards that would make implementing this idea a snap.

Abysmally stupid post.

Posted by kafka | December 9, 2007 1:16 PM

It is amazing that the media doesn't ask each GOP candidate, ad nauseum, "since you believe cutting taxes raises revenue, how much more do we need to cut taxes to balance the budget?"

I imagine it wouldn't take much of this questioning to cause a "shift" in their views on tax cutting...

Posted by McKingford | December 9, 2007 1:22 PM

Seriously, it's that simple. It will be covered, and all they have to do is say "supply side stupidity" "lie like a rug about taxes" and "tax cuts for the rich".

Sure it'll be covered. Prefaced with "Democrats disagree". More he said/he said. Which accomplishes nothing. Until the *media* begin to call out the lies, Republicans will be liars.

It is amazing that the media doesn't ask each GOP candidate, ad nauseum, "since you believe cutting taxes raises revenue, how much more do we need to cut taxes to balance the budget?"

I'd prefer to have them ask "If cutting taxes raises revenue, then cutting salaries must raise income.....so you'd surely be willing to have your salary cut by 3/4?"

Posted by flory | December 9, 2007 1:43 PM

"Tax cuts don't boost revenue" is an not "excellent piece".
It is a poorly written piece. The body of the article does not support the title since tax cuts can, but only under certain circumstances, increase revenues.
The point that needs to be made is that Republicans have knowingly and misleadingly used this as a justification for supporting all tax cuts at all times, regardless of whether the tax cuts increase revenues or not.
Buzz

Posted by Buzz | December 9, 2007 1:50 PM

Where can I find a report that clearly concludes that tax cuts, cannot spur growth, that makes up for the revenue lost by the initial tax cut?

I'm not an econ whiz, I'd just like to see the data myself . . .

Posted by nattyb | December 9, 2007 2:47 PM

Does anyone remember Walter Mondale?

Republicans say cutting taxes generates more revenue because, of course, it often does. There are lots of easily documented examples. ALL tax cuts don't, and we may in fact not be very close to the point where increases would reduce revenue. But even if the tax cuts in question don't generate more revenue for government, they certainly amount to more revenue for voters.

Bottom line, this post is idiotic advice. If you want to make the case that Americans aren't taxed enough, and that it is your view that Washington knows what to do with your money better than you do, say so and prepare to accept political defeat. Don't expect that trying to say that by playing with words, or accusing Republicans of playing with words, will fool anyone.

Posted by Robert Powell | December 9, 2007 2:55 PM

Now try to follow this very slowly and carefully, because apparently there is something hard about it.

If Republicans REALLY believed...

...that tax cuts RAISED revenue...

...they would OPPOSE TAX CUTS.

This is NOT your daily moment of Zen. The game is to IMPOVERISH the government and REDUCE its ability to enforce laws and regulations. If higher tax rates did that, then it would be hooray for higher tax rates! But they don't, so it isn't.

Posted by Frank Wilhoit | December 9, 2007 3:12 PM

Few economists reject the legitamacy of the Laffer curve although many would argue that the USA is not on the right hand side of the curve (where tax cuts do increase revenue). In my view the top of the curve is long and mostly flat and the USA is at such at a point where neither tax rate cuts nor tax rate increases have any very noticeable effect on revenue. However they no doubt have an effect on private sector output which is a more significant source of human welfare.

Revenues seem quite robust. Can anybody here name any country that cut tax rates any time in the last 100 years and suffered a decline in revenue that lasted for anything more than a few years?

Posted by Terje Petersen | December 9, 2007 3:25 PM

Picture this graph: vertical axis (Y) = $ revenue, horizontal axis (X) = % tax rate.

(1) Common sense gives us 2 (x,y) points: (0,0) and (100,0). (Don't make an ass out of yourself by asking why.)

(2) We know from experience that for 0 0

Obvious conclusion: if all (x,y) points are graphed, the resulting line has a positive slope up to a certain x, then a negative slope until x = 100.

The only argument is where the inflection point is.

Public Finance 101

Posted by kafka | December 9, 2007 3:28 PM

(2) was written (but for some reason didn't post as):

(2)We know from experience that for and x greater than 0 and less than 100, y is positive.

Posted by kafka | December 9, 2007 3:36 PM

still doesn't make up for publishing Joke Line.

Posted by Gore/Edwards 08 | December 9, 2007 5:38 PM

The only argument is where the inflection point is.

I believe you mean the maximum. An inflection point is where the second derivative = zero, i.e. the tax rate where altering the tax rate has the greatest marginal impact on tax revenues compared to other tax rates within some range around the inflection point (e.g. 70% is an inflection point if altering taxes from 70% to 69.99% or 70.01% has a larger impact than a 0.01% alteration* at any other point from 65% to 75% [even if the impact may be greater at some other inflection point, say 89%, that is out of the range])

An extremum (where the first derivative = zero) is a point at which the tax revenue is at its highest (maximum) or lowest (minimum) for any tax rate within a range around the extremum. (e.g. 75% gets you the most revenue for any tax rate between 70% and 80%, and 90% the lowest for any rate between 88% and 92%).

*Of course, in calculus the alterations are infinitely small, but for the real world 0.01% is a good enough approximation of that.

Posted by Glaivester | December 9, 2007 8:46 PM

I saw that "Mad Money" guy Jim Cramer from CNBC try to shut down any debate that tax cuts create revenue by simply saying that the debate was over...nice.

I think the supply siders are rightly nervous now. With out a Iraq/Afghanistan, it might be easier for these snake oil guys to disguise (again) the mendacity of tax cuts for the rich and their false benefits, but with the economy going down and the deficit going up, it will be clear to most honest people that supply side economics is a scam.

Posted by Patrick | December 10, 2007 8:51 AM

If anyone quibbles with this piece, I suggest they visit the OMB website and look at the history of government revenues going back to President Washington. You will notice that revenues plunged immediately after the Reagan teax cuts. "Over time" they recouped. But over time, the population increases, inflation naturally increases gross dollar revenues, etc. The tax-cuts-increase-revenues myth is very reassuring, so it is repeated over and over again.

Posted by Matthew | December 10, 2007 11:28 AM

I guess I'm gonna make an ass of myself and ask why you assume 100% taxes collects no revenue. The Soviet Union had the second largest economy through most of the 20th century and it's tax rate was essentially 100%. Of course it was far from the most efficient way to allocate resources, but it was also far from collecting no revenues for the government.

Posted by Tony | December 10, 2007 2:47 PM