One of the greatest fairy-tales of right-wing economics is the belief that tax cuts (especially for the rich) pay for themselves by stimulating economic growth. To make it sound less mythical and more plausible, Republicans call this no longer refer to this fairy-tale by its original name, the discredited “supply-side economics.” Instead it is now called “dynamic scoring.”
Even if cutting taxes for the rich does have a stimulative effect, its impact is far smaller than measures that directly assist working families, including food stamps and unemployment benefits. And the one time we engaged in so-called “base broadening” that lowered rates and removed deductions (in 1986), it “had little effect” on stimulating economic growth.
Yet Republicans are back to insisting that if we lower tax rates, it will ultimately increase taxes collected by stimulating growth.
The day after the election, House Speaker John Boehner said that he would be willing to increase revenues “as the byproduct of a growing economy, energized by a simpler, cleaner, fairer tax code.”
To Paul N. Van de Water, a Senior Fellow at the Center on Budget and Policy Priorities, this sounds as if Speaker Boehner is suggesting that the increases he favors would arise from “dynamic scoring” and not actual higher rates on the rich. This way, Republicans would not violate their sacred pledge to never, ever raise taxes (especially on the rich), ever.
The “dynamic scoring” budget-foolery allows Republicans to pretend that continuing tax cuts for the rich isn’t completely irresponsible at a time when the nation considers cutting essential safety net programs.
Van de Water opposes the use of dynamic scoring in any budget plans. As he told The National Memo, there is no clear connection between marginal tax rates and economic growth. The deep uncertainty of the dynamic scoring projections damages the credibility of the budget process.
In fact, it’s reasonable to believe that tax increases on the rich are more likely than tax cuts to spur economic growth.
Since 1944, the United States has only raised taxes on the rich twice—in 1992 and 1994. What followed those tax increases was one of the greatest economic booms in American history. Though Clinton’s decision to raise the top rate didn’t build the World Wide Web or spark global trade, it certainly didn’t hurt the economy either — despite Republican predictions that hiking taxes on the wealthy would drive America into recession or worse. Well before the end of the decade, tax revenues had increased sufficiently to transform the Reagan-Bush deficits into a surplus, and the Treasury was looking forward to paying off the national debt.
Then the Bush tax cuts drove the budget into unprecedented deficits and the national debt to stratospheric levels (along with the wars in Iraq and Afghanistan). Still, Republicans are promoting policies that echo George W. Bush’s belief that tax cuts can solve the nation’s fiscal problems — and they are ridiculing President Clinton’s strategy of asking the rich to pay more.
Former Reagan advisor Bruce Bartlett points out that people just don’t buy that argument. “Even without looking up government statistics, they know that the 1990s were a time when the economy boomed, while the 2000s were a period of economic stagnation,” he wrote.
So if Speaker Boehner is insisting that tax cuts will increase revenues, President Obama should be just as confident in insisting that carefully targeted tax increases will not only pay for themselves, they’ll make other spending cuts unnecessary.
At least he has the 1990s to back him up.
AP Photo/J. Scott Applewhite
Copyright 2012 The National Memo