Straight Talk

Rudy Giuliani says straightforwardly that tax cuts increase revenues, but the fascinating element of Chris Wallace's efforts to ask Republicans about this issue comes when he talks to John McCain:

WALLACE: Do you believe the tax cuts pay for themselves or do you believe that they add to the deficit?

MCCAIN: I think they stimulate the economy. I think that one of the first things we have to do that I forgot to mention is make these tax cuts permanent, because we've got to give some certainty to families and businesses all over America that these tax cuts will not expire and then give them the effect of a tax increase. So I believe they stimulate the economy, but, Chris, you've got to cut spending.

I'm proud to have been a member of the Reagan revolution, a foot soldier. And we cut taxes, but Ronald Reagan knew we had to cut spending at the same time. And that was our great failure as a party, is we cut taxes and then we let spending get out of control.

And frankly, it cost us a great deal. If we had adopted the tax cut package that I had, which entails spending cuts, then we would be talking about more tax cuts today.

It seems that he doesn't really want to just flat-out lie, Giuliani-style. At the same time, he hardly dares tell the truth. After all, when you're the Consensus King of Straight-Talk and your base wants you to say some nonsense, you have to avoid telling the base that the nonsense they want you to say is nonsense. So instead he gets in with some Reagan mumbo-jumbo: "Ronald Reagan knew we had to cut spending at the same time." If by "knew we had to cut spending" you mean "increased defense spending enormously and caused a huge deficit at which point he turned around and raised taxes" then this turns out as accurate.

Comments

I guess it all depends on what your definition of "taxes" is...

Posted by Roddy McCorley | January 13, 2008 2:37 PM

"Ronald Reagan knew we had to cut spending at the same time."

So why didn't he?

Posted by ~~~~ | January 13, 2008 2:38 PM

On the one hand, I kind of have to admire McCain for being able to dodge the question without running afoul of GOP orthodoxy. It is true, of course, that tax cuts stimulate the economy (so does spending, incidentally); it just doesn't stimulate it enough to generate sufficient revenue to offset the lost tax revenues.

However, I do see fertile ground for *flip-flop* on the Straight Talk Express. After all, McCain voted against the Bush tax cuts - and I'm pretty sure it wasn't because they were temporary. Indeed, the sunset provisions of those cuts were inserted to make them palatable to people like, well, McCain. Even so, McCain voted against them - but now he says they are so good they should never end...

Posted by McKingford | January 13, 2008 2:41 PM

If tax cuts "stimulate the economy", or "pay for themselves", or result in increased revenue, then why exactly does spending need to be cut?

Posted by sherifffruitfly | January 13, 2008 3:53 PM

McCain has always been a complicated story, a political work in progress. There's evidence that, back in the year 2000, McCain actually was relatively honest in public, said more or less what he actually thought, and on social issues was politically rather more liberal than he is now. Rove & Co proceeded to administer a 'Nice guys finish last' lesson, and that was the end of that. There's nostalgia for those good old days among the press corps, but who can really say what McCain believes at this point?

Posted by MattF | January 13, 2008 4:33 PM

I don't want to go all Hart Rudman commission here but interest on the debt in fiscal 07 was $430 billion dollars. The Cheney's of the world know that their due, deficit spending, is starving the Government beast Nordquist style. It's been a win win situation for them for 25 years.
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

That's all water under the bridge of course. It's pretty hard to argue that the deficit spending over the age of conservatism didn't 'stimulate' the economy but it's pretty easy to say that it didn't stimulate it much.

Any fiscal stimulus plan now won't do much good macro wise because the problems are structural.

The deficit is going to soar without any new spending because tax receipts are going to crater. Receipts have held up well because of the huge capital gains taken over the last few years in the financial arena. Taxes not taken and money still spent is still fiscal stimulus.
http://wallstreetexaminer.com/blogs/winter/?p=554

Posted by rapier | January 13, 2008 4:51 PM

sherifffruitfly gets it right. McCain's answer to the question is basically a "no." Good for him.

Posted by Led | January 13, 2008 4:54 PM

I was going to write that McCain is trying to sound good to the conservative base but saying the truth. Rereading the quotation, though, he really doesn't make it clear why he thinks we have to cut spending--that it has any particular connection to the question of whether tax cuts raise revenue. So yeah, like Matt said, he's completely dodging the question.

Posted by Justin | January 13, 2008 5:53 PM

McCain's answer to the question is basically a "no."

Wow, that's some straight talk: "basically a 'no'."

Posted by ed | January 13, 2008 6:06 PM

Giuliani was my mayor, at one time. Not that I voted for him. I don't think that anybody in pundit-space has noted Giuliani's odd attitude to the truth.

Most politicians will obfuscate and even prevaricate, but few of them will outright lie unless they can't help it. The costs of being caught in a lie are big, and politicians take their words seriously. (Even Bush is reluctant to lie, if you notice some of the word games he has been playing with torture or wiretaps.) There is also the legal culture in which many politicians were raised. "It depends on the meaning of 'is'" is one thing, but a flat lie usually doesn't come from a lawyer representing a client.

Giuliani never minded lying, despite his prosecutorial background. On the other hand, he HATED obfuscation, spinning, or the lesser forms of prevarication. I think it is an integrity thing for him. Obfuscation is weakness, and excessive respect for the audience. There is a certain kind of Luciferian integrity in the lie absolute, when an obfuscation would serve as well.

Which goes, of course, to show that he is crazy. Which readers of this blog knew all along.

Posted by Joe S. | January 13, 2008 6:52 PM

Am I missing something? Did the Bush tax cuts not increase tax revenues to record levels? All tax cuts do not increase revenues, but some certainly have. It just depends on which taxes are cut.

Certainly Congress deserves some of the blame for the increase in the budget. Particularly in the 1980s and 2000s.

Posted by kbo | January 13, 2008 6:52 PM

Did the Bush tax cuts not increase tax revenues to record levels? All tax cuts do not increase revenues, but some certainly have.

Correlation doesn't necessarily apply causality. In a not-in-recession economy with an increasing population, tax revenues should be expected to increase every year.

Since you seem to be an authority in the field, kbo, which specific tax cuts can you measurably show have resulted in increased revenues? Please cite examples.

Posted by James Gary | January 13, 2008 7:02 PM

Bush tax cuts and Reagan tax cuts both resulted in significantly higher tax revenues. In Reagan's case a doubling of tax revenues. Yglesias lazily dismisses this out of hand without even bothering to put up an argument. Furthermore, he dishonestly attributes the deficit under Reagan all to defense (who had to rebuild the military after Carter), without noting the out of control non-military spending at that time by a Dem controlled Congress.

James Gary raises a fair question as to cause-and-effect relationships between economic growth and tax cuts. A casual observation says that there is a strong correlation between tax cuts and economic growth (Kennedy, Reagan, Bush cuts as examples, all followed by strong economic growth), but it would be nice to see some studies.

Posted by Erudite Hillbilly | January 13, 2008 7:53 PM

http://www.treas.gov/press/releases/reports/revenue%20growth.jpg
http://www.heritage.org/Research/Taxes/images/chart2_lg.gif
http://delong.typepad.com/sdj/2007/12/justin-fox-on-a.html
http://www.myheritage.org/Issues/MythBusters/DeficitsTaxes.asp

Clearly, this is not a cut-and-dry issue.

Posted by kbo | January 13, 2008 8:27 PM

"In Reagan's case a doubling of tax revenues."

From what I've read the following two years saw a decrease in tax revenues and finally after those years tax revenues started to get back to their pre-cut levels. In a growing economy, even if taxes are cut, revenues will eventually be higher than they were a few years ago. The real question is did the tax cuts cause it, or did revenues increase despite the tax cuts?

I agree that our deficit problem is mainly because we spend too much money, but since Republicans have overseen the largest increases in government spending the last two decades I hardly trust them to do anything about it. Increasing taxes to pay for the current level of spending would be bad for the economy, so they only solution is to decrease spending.

Posted by JordanT | January 13, 2008 8:40 PM

Dudes, you'd better look at your numbers again. Even Laffer has backed off the idea of tax cuts stimulating revenue enough to make up for the amount lost.

Posted by grumpy realist | January 13, 2008 8:40 PM

I would be overjoyed if the GOP candidates had to take a class at the University of Chicago, since our professors are supposedly the intellectual backing for their idiocies.

I say this, of course, because my professors would fail them miserably and thus aid the curve :)

Hell, George Stigler probably would have been so been so annoyed by them he'd have them dropped off in Washington Park.

At 2 am.

With racist signs around their necks.

Posted by Greg | January 13, 2008 8:42 PM

I alluded to this above, but one thing that goes entirely unnoticed - or at least unmentioned - is the stimulative effect on the economy of deficit spending.

I think it's pretty clear that the tax cuts did not "pay for themselves", even if revenues are today higher than they were prior to the cuts. As others have noted, inflation and population growth explain these.

But how about the fact that the US has been running $500B deficits? You don't think that has been a stimulant on the economy? Why do people point to tax cuts as the reason the economy was humming along, instead of the fact that the federal gov't was overspending by 1/2 a trillion dollars a year? Just by way of example, until the very last couple months of Bush's first term, the *only* net new jobs in the US were government jobs.

How's that for a "free market" Republican...

Posted by McKingford | January 13, 2008 9:50 PM

But how about the fact that the US has been running $500B deficits?

It's just like in The Matrix--counter to the First Law of Thermodynamics, the machines were able to use humans as net energy-producers through the use of a "special type of fusion." Deficit spending produces net revenue-increases in exactly the same way!

Posted by James Gary | January 13, 2008 9:56 PM

McKingford -

Bush has never been a Free Market politician, at least the way the Chicago School defines it.

Neither have most Republicans, despite Prof Friedman's best efforts to obscure the issue.

The fact is, Republicans are pro-business. Thus, Bush will put tariffs on steel imports to support American steel producers (not to mention their socially conservative Pennsylvanian and Ohioan employees), or bail out the airline industry, or try to bail out the banks hit by the sub primes, or so on.

A *real* supporter of the Free Market would argue that these actions are as inefficient as taxing productive citizens. Rather, because the Chicago School argues persuasively for things like lower income tax rates, its tenets have been adopted by wealthy business leaders and their political friends.

Frankly, according to my professors, you let uncompetitive businesses die, not prop them up, like Bush has been doing. Unfortunately for the Free Market, people about to be or already put out of work because they were employed at bad firms still get to vote. So we get pro-labor platforms and pro-business platforms, but I guarantee any of my Econ professors (as opposed to one of our distinguished law professors) who ran on what they teach me would get run out of town on a rail.

Posted by Greg | January 13, 2008 10:38 PM

"In Reagan's case a doubling of tax revenues."

One reason that tax revenues increased during the reagan years was because taxes were sharply increased in 1982, 1983, and 1986.

Posted by Tyro | January 13, 2008 10:50 PM

Democrats should consider employing some of this magical thinking, make the Republicans call them on it.

Posted by Mike | January 13, 2008 11:06 PM

I alluded to this above, but one thing that goes entirely unnoticed - or at least unmentioned - is the stimulative effect on the economy of deficit spending.

There's little much doubt that deficit spending has a stimulative effect on the economy. Certainly for a while at least. The difference between govt spending increases and tax cuts, is that with govt spending you have bureaucrats spending other people's money on politically driven projects, whereas with tax cuts, you have more money for individuals and business owners to spend and invest with their own money... making investments and spending decisions with their own money at stake. It should be clear to most people which of the two is the most "stimulative" to the economy.

Posted by Erudite Hillbilly | January 13, 2008 11:47 PM

It should be clear to most people which of the two is the most "stimulative" to the economy.

Oh, it's perfectly clear to me. The anecdotal pork-barrel bridge or dam provides no stimulation to the local economy, ever, and a billionaire investing his additional not-taken-by-the-taxman-millions overseas always stimulates American economic growth. That's the clear-to-most-people answer, right?

Posted by James Gary | January 14, 2008 12:37 AM

The anecdotal pork-barrel bridge or dam provides no stimulation to the local economy

Yeah, another politically driven 'bridge to nowhere' type project is going to be better for the economy than new manufacturing plants, right?

Posted by Erudite Hillbilly | January 14, 2008 8:51 AM

"I'm proud to have been a member of the Reagan revolution, a foot soldier. And we cut taxes, but Ronald Reagan knew we had to cut spending at the same time."

I don't understand this. If tax cuts provide the stimulus to the economy that these people claim, then it shouldn't be necessary to cut spending, merely to freeze it, and that only temporarily, while the increased revenues resulting from the tax cuts eliminate your deficit. See, even the people advocating this nonsense know deep down that it doesn't work.

Posted by mrgumby2u | January 14, 2008 1:36 PM