NO, CUTTING TAXES DOES NOT RESULT IN HIGHER TAX REVENUES

From the New York Times, Nobel Prize winning economist Paul Krugman weighs in on GOP demands to make hundreds of billions in Bush-era tax cuts for the wealthy permanent, in spite of the conservative party's relentless demands for eliminating the budget deficit:

Redo That Voodoo

But the real news here is the confirmation that Republicans remain committed to deep voodoo, the claim that cutting taxes actually increases revenues.

It’s not true, of course. Ronald Reagan said that his tax cuts would reduce deficits, then presided over a near-tripling of federal debt. When Bill Clinton raised taxes on top incomes, conservatives predicted economic disaster; what actually followed was an economic boom and a remarkable swing from budget deficit to surplus. Then the Bush tax cuts came along, helping turn that surplus into a persistent deficit, even before the crash.

But we’re talking about voodoo economics here, so perhaps it’s not surprising that belief in the magical powers of tax cuts is a zombie doctrine: no matter how many times you kill it with facts, it just keeps coming back. And despite repeated failure in practice, it is, more than ever, the official view of the G.O.P.

More here.

And to think, I actually used to believe this shit. Indeed, by the time I was eighteen years old I was so well versed in the bullshit jargon of Reaganomics that I was able to win my district in extemporaneous speaking, which advanced me to the national speech tournament where I ultimately ranked fifteenth in the nation. Ah, those were the days! I was a young conservative, and every morning was morning in America. Back then, I believed in God and Jesus and the magical power of tax cuts. It was as though anything was possible.

Of course, the older and wiser version of myself now understands that anything is not possible, especially the notion that cutting taxes actually results in greater tax revenues. I mean, I'm still holding onto the possibility of God, but can just no longer accept the weird wonder of tax cuts. Because, you know, when you cut taxes, the government gets less money. No way around that.

Okay, I'll admit that interesting things can happen, economically speaking, when you write the tax code in specific ways. That is, you can encourage or discourage particular behaviors, which, depending on the circumstances, may very well result in economic activity that generates more tax revenue than would have existed without such tax manipulation. But you've got to be very specific with how you write tax law.

Indeed, some of Reagan's tax cuts were quite beneficial: former Reagan economist Paul Craig Roberts insists that:

The supply-side policy used reductions in the marginal rate of taxation on additional income to create incentives to expand production so that consumer demand would result in increased real output instead of higher prices. No doubt, the rich benefitted, but ordinary people were no longer faced simultaneously with rising inflation and lost jobs. Employment expanded for the remainder of the century without having to pay for it with high and rising rates of inflation.

That is, supply side tax cuts were, for Roberts, all about ending the horrible inflationary spiral that arose in the 70s, an extraordinarily specific use of tax cuts for an extraordinarily specific problem.

But to the best of my knowledge, Roberts never asserts that all tax cuts always result in greater tax revenues. He probably stays away from such a notion because it isn't true.

I mean, think about it. How does this actually function? Conservatives say that tax cuts for the rich are invested, which results in taxable business expansion and activity, which results in more employment, which is also taxable, which results in more consumer spending, which is also taxable. But does it really add up to replacing, or even increasing, lost tax revenue from the original tax cuts? We've been on the tax cut train for thirty years now, with a few exceptions here and there, so we have a real world answer to that question: no, tax cuts do not result in greater tax revenues. Generally, the wealthy, who are the biggest beneficiaries of GOP tax cut religion, simply pocket the money, or spend it on bullshit that doesn't really stimulate the economy.

Actually, I've read at least a couple of arguments over the last few years asserting that heavily taxing the rich, instead of cutting their taxes, forces them to spend their money wisely, sheltering it in investments, so the government can't get it, that end up stimulating the economy. That is, the opposite of tax cut mania may actually be the key to a healthier economy. But like I said, the tax code can do some interesting and unexpected things depending on how you write it.

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