Do tax cuts pay for themselves? No.
We’ve had some debates here about tax rates and tax cuts and one of the sub-debates within that is whether tax cuts pay for themselves, meaning that tax cuts spur enough growth that total tax intake is at least as high as it would have been without the tax cuts.
The short answer is no. No serious economist either on the left or the right believes that. In fact many conservative economists have gone out of their way to point out that the “tax cuts pay for themselves” argument is false and to please not mix them together with the cranks (mainly at National Review or the Bush administration) that still claim or imply this.
As reported last October :
Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."Economists at the nonpartisan Congressional Budget Office and in the Treasury Department have reached the same conclusion. An analysis of Treasury data prepared last month by the Congressional Research Service estimates that economic growth fueled by the cuts is likely to generate revenue worth about 7 percent of the total cost of the cuts, a broad package of rate reductions and tax credits that has returned an estimated $1.1 trillion to taxpayers since 2001.
Why do we still read that tax cuts pay for themselves if not even conservative economists believe this? Because that’s what much of the GOP base wants to hear as National Review’s recent interview of John McCain shows. Greg Mankiw , the former Chairman of the Council of Economic Advisers explains that:
But unfortunately, fealty to the most extreme supply-side views is de rigeur in some segments of the Republican party.
Will the base accept they are wrong? I doubt it.
CLARIFICATION: The purpose of this diary is ONLY to address those that still claim or believe that tax cuts, specially the Bush tax cuts, pay for themselves. There are people that believe this. It is not meant to address what taxes are best or worst or what levels of taxation we should have, something I have not opined on. It is not meant to address other, possibly related, issues.
CLARIFICATION 2: What does “tax cuts that pay for themselves” mean? It means that the tax intake after the tax cuts is at least the same as it would have been without them. Another way of looking at it, and what Vaird is quoted as saying is that tax revenues today are lower than they would be without the tax cuts. So if we have X revenues today, without the tax cuts we would have Y revenues, where Y>X.
This is important. This is the CORE of this diary. There are people who think we can have a free lunch, that we can cut taxes and still get as much or more revenue as we would have otherwise. No serious economist from either side that any of the tax cuts have this property of paying themselves.
Notice that there are a bunch of related issues, such as the growth impact of the tax cuts or what the optimal level of taxation is, that I am NOT addressing in this diary.
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For an example from the Flemish government see this link http://www.dirkvanmechelen.be/persberichten.php?id=124 In dutch but the important part is the table. They show tax revenues before and after cutting taxes on gifts between private individuals. There have been a few more cases like this in Flanders (taxes on house sales for example and inheritance tax)
While I agree this is a bit of a special case that probably does not apply in the US (cutting taxes that were relatively easy to evade from a high base) and most of the time the government is a net loser when cutting taxes. But that is not the important question. We need to frame the question differently : is the government a better spender than the private individual? And is that (possible) optimized spending worth the loss in tax revenue? Surely a much harder question to answer...
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)No. The government is obviously less efficient at allocating resources than the market is. If economic efficiency were the only thing that mattered in life, I'd be a libertarian for sure. But those of us who quaintly continue to call ourselves "liberals" believe that, while the market is very efficient, there are some things it does not do well and cannot be trusted with. Three off the top of my head would be the Tragedy of the Commons, the prevention of monopolies, and the assurance of a minimal standard of living for people who cannot/will not take care of themselves. There are also issues relating to information imbalances, e.g. labeling requirements on food, assurance of fair lending practices, etc.
--The other day I heard that ignorance and apathy are sweeping the country. I didn't know that, but I don't really care.
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| parent )If the market is always better at allocating resources, then there is no reason not to trust it. All the flaws you put forward show instances where the market is not necessarily the best possible spender.
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| parent )Conflating two different meanings of the word "best". From a market perspective the best way to deal with, say, crack babies is to let them die, but it's hardly the best way from a human perspective.
--The other day I heard that ignorance and apathy are sweeping the country. I didn't know that, but I don't really care.
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| parent )if they enhance the long term growth in capital (hard and soft) formation and the related economic efficiencies which follow.
The simple question is, who makes better investment decisions the private or the public sector. Second and related, what is the optimal mix in the decision making process.
--“Let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God’s work must truly be our own.”
John F. Kennedy
January 20, 1961
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)1) Yes.
2) Now there's a wrangling worthy of a democratic process.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )Mr. Gabriel,
My counter-point is that I have demonstrated that SOME of the Bush tax cuts have indeed paid for themselves and continue to do so.
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)Your posts read like someone who doesn't understand calculus but is convinced he knows more than MIT's math department.
All I can say is that if you think you proved it you should write it up and send it to an academic journal. I'm sure they'd love to read it.
--This place is my vacation.
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| parent )And outraged demands that others buy into how you read your chosen experts.
Pretty typical "debating" techinque from you Gabe.
Less than helpful.
--The Jingoist
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| parent )The US treasury Department, the Congessional Budget Office (led by a supply sider) and two former Bush adminstration economists, including the former Chairman of the CEA?
Those "chosen" experts?
--This place is my vacation.
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| parent )No one denies the linear math, the question is the effect of the incentives.
Luis specifically points to the idea that not all taxes are the same; and that some recent tax cuts have in fact paid for themselves.
The real question is have the recent tax cuts reduced revenue to the detriment of the economy or the government services. Not whether the recent tax cuts have "reduced revenue."
Your "reduced revenue" is a straw man - no one voted for the entire package of tax cuts in order to maximize government revenue, instead it was with the idea that spurring the economy by cutting rates would still generate sufficient revenue for the government.
Now, we know that Federal tax revenue has increased, your shading it as "reduced" is actually a well accepted hypothetical, not the gospel you'd like us to believe. That is the recognized reduction is in what a higher rate would have achieved with the same economic activity, not a reduction from what was collected in prior years.
But as Mac notes, that's not the important question, whether we could maximize tax revenue.
--The Jingoist
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| parent )is most certainly not a strawman. I don't know why people voted for the tax cuts and don't really care since that is NOT the topic I am addressing. I am addressing people that think that the tax cuts pay for themselves. That is all.
--This place is my vacation.
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| parent )No one says all the time.
--The Jingoist
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| parent )The short answer is no.
Sure, I'd like to beleive that by charging more I'd drive my balance down, but wanting to believe won't make it so.
Same with tax cuts - cutting taxes won't increase revenue any more than running up my credit card will reduce my indebtedness. Why there's any serious debate about this is a mystery.
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)People cling to all kinds of irrational beliefs.
--This place is my vacation.
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| parent )Mr. Clem,
http://www.theforvm.org/diary/luisalegria/tax-reform-of-2003-dividends
http://www.theforvm.org/diary/luisalegria/cbo-prediction-failure
These require a great deal of explanation by the tax-cuts-do-not-increase-revenues people. The CBO (like all the other official agencies) has been badly understating its revenue forecasts since 2003 for exactly this reason, and is doing it again this year.
More generally, people respond to tax cuts in several ways, among them (as per my examples) changing their tendency to recognize capital gains or companies tendency to retain or distribute accumulated profits to their stockholders. These do not imply economic stimulation, just a change in behavior.
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| parent )Taxation cannot be lumped into one basket. Taxes vary widely, and can be characterized as regressive or progressive, sales taxes versus income taxes. To make any sense of "higher taxes", we must know who is paying the tax, how much tax he is paying, what impact those taxes have on the economy and personal income.
A far more cogent debate centers on expenditures. These, too, fall into different camps: as with our own budgets, some are fixed obligations, others are disposable income. Some are outright stupid: not paying off credit cards when the bills come due.
Some of us are old enough to the confiscatory tax rates under Carter, Nixon's wage and price controls. It is simplistic to say less taxes means less income: to my mind, Luis has amply demonstrated lowering taxes in specific areas has increased commerce to the point where there is a net gain in revenue collection. This cannot continue indefinitely, to be sure, I believe in progressive taxation, since it impacts the smallest number of people. Regressive taxes such as sales and consumption taxes impact far more people, and usually poorer people.
C'mon, people, cut Luis some slack here. He's done his homework, to my satisfaction anyway.
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| parent )Cause or effect - in the current economic environment what with the wealth distribution and growing stock market, OF COURSE revenues are up.
He most certainly hasn't demonstrated that they'd be lower if you cut the tax rate in half. Activity would be lower, sure, I'll buy that. But total revenue? He hasn't come close to demonstrating that would be lower.
What he demonstrated was that the CBO projections are consistently too low, and then set the real revenue after cuts against the too-low projections and concluded that the tax cuts created the growth - AKA that those CBO projections would have held had we not cut taxes.
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| parent )Mr. Dionysius,
Or at least made a good argument as to cause and effect.
- Capital Gains and Dividend income are way up vs the peak of the last business cycle, several times what we saw in 1998-2000.
- The increases in both Capital Gains and Dividend increases are concurrent with the JGTRRA rate cuts.
- Asset appreciation over the last three years has been much less than during the peak of the last business cycle - equities have been stagnant in comparison, real estate has been slowing down and peaking, etc.
What can we conclude ?
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| parent )Leads to realized capital gains - that negative savings rate, in dollar terms over the whole economy is probably bigger than the cut in capital gains taxes
Mortgage refis lead to capital gains - that's way, way, way, way bigger than the cut in capital gains and is I suspect the key driver in a higher rate of capital gains recently.
Income stratification means more money is in situations where it receives dividends or is subject to capital gains - this is also significant.
I agree that the cut probably spurred some additional movement. I just don't think a cut in half of the tax rate more than doubled (tripled?) the movement, which is what would be necessary for your statement to be correct.
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| parent )Mr. Dionysius,
And -
Mortgage refis are way down since 2004, not up, since interest rates went up.
Dividend income has also tripled, at least, vs the last peak (as it had done at the time of the last available data which is 2 years old). This is a specific category of income, but dividends do not increase because of stratification, you should rather say it helps cause stratification. Where did that money come from to generate dividends ?
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| parent )of stratification as well as an abettor of stratification - one of those, the rich will keep getting richer while the poor are slowly locked out if you leave everything to themselves philosophy that us liberals tend to believe, you may differ.
Anyways, the income stratification happening presently is just the shape of the economy - automation, outsourcing, etc. Capital is becoming cheaper while (domestic) labor is becoming much more expensive. These things are all much bigger than the capital gains tax cut.
I can support the capital gains tax cut, even, if it wasn't done when we already had a deficit. I can't support the top-heavy income tax cuts - why couldn't Bush have just cut taxes for the middle class if he was so big on it.
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| parent )Mr. Dionysius,
Don't seem to have "paid for themselves" at all, in part I think because they were in fact oriented towards the lower income quintiles and amounted to very little in effective reduction of marginal tax rates. This is a useful table to show what actually did happen -
http://www.nber.org/~taxsim/marginal-tax-rates/plusstate.html
The top quintile pays over 80% of the taxes that are likely to respond to incentives. If one wants to move tax collections closer to the "sweet spot", the high point of the Laffer curve if you will, it is tweaking in this area, "tax cuts for the rich", that will yield results.
Compare the results of tax collections in 2002-2003 vs what did happen in 2004-2006, after the very effective 2003 JGTRRA, which dramatically reduced taxes on dividends and capital gains.
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| parent )When we talk about "tax rates", which tax are we talking about here? Capital gains? Income tax, AMT? Dog licenses?
I don't believe Luis is talking about spending ourselves rich here. I have excellent reasons to agree with you and disagree with him, but let's get specific here.
There exists a parabola, wherein too much tax inhibits economic growth tending towards one zero on the X axis, and too little tax starves government below its ability to do its job. Too much tax, as in the Nixon-Ford-Carter years, was demonstrably bad for the economy. Lowering taxes puts more money in circulation, and here's where Liberals get it right, but if those dollars end up at the liquor store, they will be promptly recaptured in sales taxes.
Luis and I both agree the CBO models are low, and he posits tax cuts created money motion. I don't buy into his argument completely, every time I get going on trying to pin him into a model-driven discussion, he waves his hand dismissively and tells me it's all too complex.
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| parent )the "miracle years' of the US economy, from roughly 1945 to 1973, had some of the highest marginal rates ever.
Or look at tax revenues as percentage of GDP in countries across the world. The ones with the lowest tend also to be the poorest.
--This place is my vacation.
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| parent )Just because taxes are low doesn't make it a great place to live. Low taxes = dirt roads and no policemen.
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| parent )I would agree that a consumption tax is very different from an income tax but I don't see what the important distinction is between AMT and capital gains taxes.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )Mr. Neponset,
Between ordinary income (wages, interest, etc.) and cap gains.
Ordinary income tends to be unavoidable; without some tricky accounting it has to be be realized. But people usually have an option to put off realizing Capital Gains. And transactions can often be delayed or structured so as to avoid them entirely. However, this can come at an opportunity cost.
Thus a significant reduction in cap gains rates is a big and immediate incentive for a behavior change.
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| parent )As a Liberal, that's why I'm for lowering cap gains. Some old couple who salted away their money get beaten up every time they sell stocks to pay for their retirement.
Current tax policy discourages younger people from investing for the long term. What's the point of owning investment instruments if you're going to get a beating when you sell? Sure, there are routes to avoiding some taxes on some investment income via a 401K , or other more clever tax dodges, but we're not a nation of investors, because of the ruinous taxes of cap gains.
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| parent )My only problem with this statement is that investment behavior really didn't change with the '96 capital gains decreases.
I do know of people who are sitting on assets instead of selling them because of concerns regarding capital gains taxes -- what baffles me is that inflation is apparently not part of the calculations for long-term investment? I mean, sure, ignore it for a yearlong purchase to make the math easier, but if someone holds ground for 50 years, inflation alone is going to cause it to quadruple in price (at least).
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )in one sentence.
Fine, if it makes sense to inflation-adjust capital gains, it also makes sense to allow the mortgage interest deduction only to the extent that the interest is greater than inflation.
Hey, tens of millions of Americans just lost the mortgage interest deduction entirely or nearly so. Suddenly the plan doesn't look so good.
Indexing only capital gains is just more heads I win, tails you lose.
--The purpose of torture is torture. —Orwell
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| parent )In terms of the mortgage deduction, we're only talking about one year, so the interest on the mortgage may be a vaguely reasonable approximation of the real interest -- or, at least, 2/3 of the real interest. We may make a policy decision to round for the sake of simplicity.
This really isn't true for an asset held for 20 years. That stuff adds up.
--It's impossible to debate if people simply hold beliefs that have no grounding in reality.
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| parent )I can't summon up any facts one way or the other, I'll take your word for now, I can't imagine people who won't protect as much as possible under a 401K, at least. Could you point me at anything which would confirm your position, I've been preaching More People Oughta Invest for a while now. I can't imagine people not investing, it's slow suicide.
I have a few ideas why ordinary people not investing, none of which are relevant. I have a suspicion they don't know how investing works for the little guy: it seems like a big guy's game. But then, I'll never understand why anyone would get a variable rate mortgage or run up their credit cards, either. Won't go broke underestimating the intelligence of the ordinary American.
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| parent ):) . . . Seriously, I do agree.
--The K Codes explained HERE.
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| parent )There are tons of other things which go into AMT calculation. Worst thing about AMT is this: it's not indexed to inflation, so it captures more taxpayers each year. It's a monstrously unfair tax.
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| parent )...I agree that it is monstrously unfair but I don't understand why we need to specify what type of income tax we are discussing before we can decide if income tax cuts pay for themselves.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )yet in the interests of reasonableness, it seems only fair to note the parabola I describe. Lowering a fundamentally progressive tax like income tax on the very wealthy makes Liberals suspicious: it looks too much like a payback for Bush's Base, and I dare say it is a payback. A Liberal like me says, "hey, wait a minute, if the rich pay less tax, doesn't that imply less taxes collected?" Apparently, the answer is more complex than it might seem at first glance.
Maybe I'm defending Luis from sheer perversity. Luis Alegria's math seems to work: the CBO models aren't accounting for the true amount of tax collected, and I don't have a good answer why they routinely under-predict. I'm a model maker, I build these contraptions, the actuaries feed them data, and I have to go back to the drawing board like Wile E Coyote at least twice a week to tune them.
I don't think Luis is an advocate of Supply Side, but I have my own Liberal version of Supply Side. I don't care how rich people get, as long as more poor people climb out of poverty and into the middle class. In the course of this migration, the rising tide floats all boats. The middle class is increasingly falling victim to the AMT, a beartrap invented to catch the Very Rich, but now catches far too many taxpayers. That's what happens when we invent these traps, it's easy to demonize the Very Rich saying, "oh, those rich guys, let's soak them, they can afford high taxes." Be careful what you ask for, when you legislate bear traps like AMT, you might get it. Those whom the gods would destroy, they answer their prayers.
Taxation ought to be taken away from the politicians: the tax code has grown to brobdignagian proportions, and one man's loophole is another man's safety net. I believe econometrics and taxation obey the laws of every other dynamical system, and can be modeled. The goal of such a model must provide an effective taxation strategy. In the course of developing such models, we can eliminate regressive taxation, market distortions caused by tax avoidance strategies and budget deficits. There is no excuse for our current piecemeal taxation strategy and all this shouting: the Dismal Science ain't politics.
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| parent )it should have been indexed.
--“Let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God’s work must truly be our own.”
John F. Kennedy
January 20, 1961
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| parent )Mr. Gabriel,
Is that they all but ignore behavioral effects on tax collections, which is a proclivity of economists as their models all hinge on macroeconomic effects. Note that they assume that the argument is that tax cuts will increase revenues through economic stimulation. This is definitely the case with the CBO. It is a blind spot.
Now, that does not mean that all tax cuts can lead to increased revenues. The tax cuts of 2001 certainly didn't. But that doesn't mean it doesn't happen.
As for proof, I have shown two cases of tax cuts that have unquestionably raised revenues. What are you going to believe, theory or your own eyes ?
Actually I expect that the "interesting" effects of the 2003 cuts will stimulate a new discussion on the subject before too long.
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)... serious can pretend that there is no Laffer curve, Mr. Alegria. But many on the supply side don't grasp their own theory -- they pretend the curve is a straight line. If the tax rate were zero, then we'd really have boffo revenues!
--More Wagster!
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| parent )Mr. Wagster,
But the more common error is in fact to pretend that there isn't. The standard forecasting rubric for tax revenues (as used by the Federal agencies) is effectively linear.
You are comparing the erroneous (or actually I don't know how erroneous, that "zero tax rate" thing is a strawman) ideas of a tiny minority versus the equally erroneous ideas of the conventional wisdom. What is the more significant problem here ?
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| parent )Yes, there is a Laffer curve. The thing is, we're solidly on the left hand side of it so lowering taxes lowers revenue rather than increasing them. Were tax rates high enough that we were on the right hand side of the curve then lowering taxes would increase revenue. But we're not.
Even Reagan figured that out eventually.
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| parent )Mr. Clem,
We have a lot of taxes. There are a lot of ways to cut them. We may be on the left or right of the curve depending on circumstances. I have presented data to show that we were on "the right hand side" of two at least.
Reagans tax increases were a tiny fraction of what he had initially cut - he cut the official marginal income tax rate from 70% to 50% and then to 28%, raised later by the first Bush administration to 31%. That was an adjustment in search of a "sweet spot" it seems to me.
http://www.truthandpolitics.org/top-rates.php
The effective marginal rate changes less drastically because of shifts in who is paying, exemptions, behavior, etc. Have a look here -
http://www.nber.org/~taxsim/marginal-tax-rates/plusstate.html
The effective rate in 2006 on wages and interest has not moved much, and is more or less at 1980's-early 1990's levels. The tax cuts of 2001 were very slight, rate-wise. But oddly enough, dividends and cap gains rates are dramatically lower since 2003 (JGTRRA)- and voila, revenues from dividends and cap gains are dramatically higher.
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| parent )Mr. Alegria, the idea that tax cuts inevitably spur revenue growth is a touchstone of what used to be the dominant political party in the United States. You'd be hard-pressed to find a Republican candidate who would nay-say that.
--More Wagster!
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| parent )Mr. Wagster,
The anti-taxers had and have various arguments - some state that tax reductions improve economic growth, others that the state is too large, others, indeed, that these can increase tax revenues. But nobody that I know of has stated that tax collections will be maximized at 0% rates.
The official planning and forecasting bodies of the government are a much more significant matter.
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| parent )That they should not use my reductio ad absurdum formulation.
--More Wagster!
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| parent )I don't think Luis has denied that at some point in time tax reduction will lose positive economic impact due to loss of government services.
Nor has Luis denied that at a probably earlier point, tax revenue will be adversly impacted due to low rates and minimal boost.
But I think the primary issue is the progressive/libertarian split on the justification of taxes:
Progressive view taxes as owned by the State; the question is only how much to levy and how to spend.
Libertarian view on taxes is that the revenue is taken by the State from the rightful owners of wealth; there is an initial question to be answered: how much of a levy is just.
--The Jingoist
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| parent )The debate here is whether tax cuts pay for themselves something a small group of supply siders claim even though it's considered nonsense by economists from both the left and the right.
The justification of taxes is a separate issue. What taxes are best or how much we should tax are issues I did not address. We can always debate that.
--This place is my vacation.
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| parent )Just like this diary, it is only a strawman fallacy.
It isn't worth arguing, and it isn't worth anyone getting upset about or insulting other's knowledge.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )At what point does accusing someone of making a straw man argument become, uhm, a straw man argument?
--To think is not enough; you must think of something -- Jules Renard
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| parent )Really? You should tell that to Luis and Larry Kudlow. They sem to think there is a debate.
BTW, what is a strawman fallacy?
--This place is my vacation.
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| parent )...where you ignore someone's real position and instead erect a substitute position (a straw man) that is easy for you to shred apart. The substitute is usually a distorted, exaggerated or misrepresented one like... well, this diary.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )From NRO:
From Ron Suskind on Paul O'Neill, via Brad Delong:
More 2003 supply-side spin, via Spinsanity:
Jack Kemp on Cheney in 2000:
Bush and Cheney in 2006:
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| parent )Gabe states "tax cuts do not pay for themselves."
In opposition we state, sometimes they do, you cannot make a definitive categorical statement.
Now, has the treasury recieved more income on an annual basis after that Bush tax cuts, than before them?
If so, then we can afford them, unless the resulting deficit impedes the economy (assuming spending still exceeds income - a safe assumption).
Now, interesting to note, Gabe's point - "meaning that tax cuts spur enough growth that total tax intake is at least as high as it would have been without the tax cuts" - is not the same thing the "expert" stated - "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard.
The entire purpose of the tax cuts is not that future government revenue will be maximized, and a tax cut does "pay for itself" if the revenue is measurably larger than before, not if the tax revenue is maximized. The debate is whether the increased economic activity was increased partially/primarily by the cut. It is a question of how much to attribute to the incentive spur.
Those R sources do not say what Gabe claims - hence he is arguing a strawman.
Yep, politicians are arguing with sound bites, claiming authorship of good things and running from the bad.
But no one argues that 35% of x is larger than 50% of x, just that x will be larger in the future if more of it is invested in the economy, and not in taxes.
--The Jingoist
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| parent )I would take that to mean: the federal budget sees no change or a surplus after a tax cut, without cutting services.
Agreed that increasing total revenue (above inflation) should not be the goal: but that is exactly what Cheney et al. appear to be saying.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )Mr. Jordan,
A tax cut would "pay for itself" if it increases or maintains equal revenues vs what would be expected sans cut - a deficit or surplus requires the cooperation of outlays, an entirely separate matter. Focus on revenues.
Cheney - "because the President's package will generate new growth, it will expand the tax base and thus increase tax revenue to the federal government ultimately."
Cheney said very clearly I think that the tax cuts he had in mind (what became the JGTRRA of 2003) were meant to pay for themselves in just the way I said, there would be more collected in these categories than would otherwise be expected. It seems that he has been completely vindicated, and O'Neill was proven wrong.
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| parent )then you'd be proving the diary wrong in this one case. Do the numbers support this contention?
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )Mr. Jordan,
That is the gist of my various posts on this subject -
http://www.theforvm.org/diary/luisalegria/tax-reform-of-2003-dividends
http://www.theforvm.org/diary/luisalegria/cbo-prediction-failure
I showed that there was otherwise unaccountable growth in dividend incomes and capital gains after the JGTRRA of 2003. Far beyond CBO predictions both pre and post tax cuts in the one case, and far beyond the previous historical maximum in the other.
We may have another such effect (but probably indirect) in the case of corporate profits.
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| parent )Viard is saying exactly what I am saying. What do you find confusing?
Saying that tax cuts don't pay for themselves is exactly the same as saying that revenues are lower than they would be without the cuts.
--This place is my vacation.
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| parent )You are claiming that pro-tax cut proponent say 35% of x is more than 39% of x. They are not. WE are saying that the economic activity stimulated by cuts (x gets bigger) in taxes will lead to increased tax revenue.
Whether the tax rate hits the sweet spot is an exercise in academic minutia.
Have tax revenues increased since the 2003 tax rate decreases?
If so, then the tax rate bet made by the pro-cut voters paid off. Sure you can make the argument that the economy would have grown anyway, but you actuall have to make that argument, not blather on that "it coulda been more."
The fact that the Federal deficit grew is a spending issue, not a tax one.
--The Jingoist
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| parent )it seems you are confused what "tax cuts pay themselves" means. It means that the tax intake after the tax cuts is at least the same as it would have been without them. So it's not enough to say that tax revenues grew in nominal terms.
That's what both Viard and Mankiw are referring to. Both recognize that without the tax cuts tax revenues today would be HIGHER than what they are.
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| parent )I'm assuming you do believe in the Laffer curve, so I'll address your formulation with that assumption. Since the Bush tax cut, Federal Revenue has increased.
http://taxprof.typepad.com/taxprof_blog/2005/12/growth_in_feder.html
http://www.heritage.org/research/features/budgetchartbook/index.cfm
Why Not?
Are you saying we think that 35% is bigger than 40%?
--The Jingoist
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| parent )inflation, population growth, and what growth of GDP would have been in the absence of tax cuts, even assuming arguendo that it would have been lower. The naive argument is to take the curve of govt tax collections, which has a general upward trend for all of these reasons, and make a straight horizontal line extrapolation to create the baseline against which post-cut revenues are measured. (Even then, in the case of the Reagan cuts, it became necessary to pull of dishonest tricks like combining the revenues from taxes that went up, like FICA, with taxes that were cut.)
I'm reminded of the children's story The Phantom Tollbooth and its subtraction stew, of which the more you ate the hungrier you were.
--The purpose of torture is torture. —Orwell
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| parent )When I'm the one making those caveat's?
This was way down stream, but sums up my points.
I agree, linear progressions that purport to represent complex mechanisms are simplistic and too often used to grind axes, not illuminate through debate of the actual issues.
Now, looking at the charts at my links, it does not appear that population growth or inflation can come close to the dramatic increase in revenue 2003-2005.
--The Jingoist
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| parent )How about a little specificity?
I made clear that I was addressing one point only, people who claim that tax cuts pay for themselves, something Greg Mankiw addresses as well.
What’s the ‘real position’ I ignored or distorted?
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| parent )“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )Here’s your first comment:
Notice there is no specificity of any kind. This is now your third post in this diary and you still have not said what the ‘real position’ that I supposedly ignored or distorted is?
Why not save us all time and explain, clearly, what it is that I distorted.
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| parent )I'm not trying to be an ass, but I sincerely don't see it worth the time or the effort to explain the fallacies in your diary. The topic is too complex to be either as black and white as you attempt to frame it, and to be honest, I don't get the impression you're all that interested in the nuance given how you overstate the positions of those economists that do support your view. Economics is not a hard science, and it isn't a binary right or left.
Further, my message was to both you and Luis. It isn't worth arguing about, and it really isn't worth insulting each other.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )I don’t think you are being an ass but the topic I am addressing is not that complicated. I even clarified further in the diary what I was referring to.
There are still people that think that the tax cuts pay for themselves. That’s why McCain said what he did to the National Review. Bush himself as well as Cheney keep repeating this. So it’s not a strawman argument or something only some lunatic fringe believe.
And it is simply wrong as Mankiw and other conservative economists acknowledge. Other parts of the tax debate are very complex but this one isn’t. This one is simple. Tax cuts have not paid for themselves as the CBO, Mankiw, and the US Treasury all recognized.
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| parent )IF you'd instead stated, "Do tax cuts pay for themselves? Yes!"
I'd feel the same way. NOBODY can state definitely the future affects of tax changes, let alone the proportions of same. Viard's statement is total BS because he has no means to discern what revenue would have been without the tax cuts. He also fully knows it is a wag on his part, and that he's overstating it for rhetorical reasons.
Dynamic Scoring is a work in progress and there is still a long way to go. There's the entire causation versus correlation problem that cannot be resolved here. The Laffer Curve has no numbers, and nobody knows exactly the shape of the curve. We don't know, and can't know where we are on the curve at any given time. Additionally, all tax cuts or increases are not equal, and how each may flow through the economy will differ because investment is highly elastic relative labor or consumer stimulus. You can't measure a million micro decisions at the macro level because they can't be isolated from other... [blah, blah]
Further, you are misstating both what McCain and Cheney said. Each stated that there has been an increase in revenue after the tax cuts, neither said, 'tax cuts paid for themselves'.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )if you are going to go the it's-all-complicated-and-we-can't-know-anything route then there's not much to debate.
Viard is a good economist and Mankiw is an even better one. This topic has been studied over and ober and no serious economist thinks the tax cuts pay for themselves. If you wish to ignore this consensus it's your choice.
--This place is my vacation.
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| parent )"if you are going to go the it's-all-complicated-and-we-can't-know-anything route then there's not much to debate.
You have it backward, there is much to debate (that's the point), and the only one here claiming there isn't are people who say insulting crap like:
"This topic has been studied over and ober (sic) and no serious economist thinks the tax cuts pay for themselves. If you wish to ignore this consensus it's your choice."
Overstating what serious economists actually say, and ignoring the limitations of what they can say with certainty, isn't a very serious method. Thanks though for confirming my first impulse, this is a total waste of time.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent )...and ignore diaries as unworthy as this one.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )those first impulses are more often right than wrong.
--"We should not tie the hands of law enforcement in the effort to bring these terrorists to justice"- Leon E. Panetta
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| parent )The K Codes explained HERE.
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| parent )gunga, gunga-galunga.
--"We should not tie the hands of law enforcement in the effort to bring these terrorists to justice"- Leon E. Panetta
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| parent )I love that scene. Supposedly it was ad libbed. The comic genius and illicit drugs required to come up with that off the cuff is astounding.
--Over here on E Street, we're proud to support Obama for President. - Bruce Springsteen
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| parent ).
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )isn't whether the Lama was a big hitter. He most assuredly was.
No, the really big question is whether the base of that glacier with the ten-thousand foot crevasse is retreating due to global warming.
--Excess on occasion is exhilarating. It prevents moderation from acquiring the deadening effect of a habit. - W. Somerset Maugham
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| parent )while he's tracking down the Lama's ball.
--"We should not tie the hands of law enforcement in the effort to bring these terrorists to justice"- Leon E. Panetta
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| parent )both singular, I think...
--The K Codes explained HERE.
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| parent )varmints.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )the guerrilla army destroying the planet by one expelled flatus at a time.
--"We should not tie the hands of law enforcement in the effort to bring these terrorists to justice"- Leon E. Panetta
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| parent )is the worst offender of all.
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )But one important safety tip...
If you happen to be near a gorilla when that happens, don't make a big issue out of it.
--Excess on occasion is exhilarating. It prevents moderation from acquiring the deadening effect of a habit. - W. Somerset Maugham
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| parent ).
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )The K Codes explained HERE.
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| parent )just this text
--It's not only redundant, it's also repetitive
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| parent )which is nice.
--"We should not tie the hands of law enforcement in the effort to bring these terrorists to justice"- Leon E. Panetta
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| parent )why do you bother posting?
I'm sorry but there isn't that much debate about what I am talking about. There is debate about other, related issues but NOT about what I am talking about. In fact, there is plenty of consensus, which is my point. Read my sig.
--This place is my vacation.
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| parent )There's no debate. It's only a straw man, you and all the "serious" economists have shredded it, and you've now got fist fulls of straw!
Bravo.
--“I serve as a blank screen on which people of vastly different political stripes project their own views.”
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| parent ).
--Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you're a mile away and you have their shoes. -JH
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| parent )Oh, never mind.
--To think is not enough; you must think of something -- Jules Renard
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| parent )was probably right. If this is what you are going to post you should have followed your first instinct.
--This place is my vacation.
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| parent )...do not claim a cause and effect relationship between tax cuts and an increase in tax revenues then why do they mention that one happens after the other?
My answer: They are claiming that the tax cuts were responsible for the increase in tax revenues. Otherwise it wouldn't matter which came first.
--But she's a queen, and such are queens
that your laughter is sucked in their brains. -D. Bowie
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| parent )