Tax cuts DO NOT pay for themselves, Mr. Giuliani

[Puppycow]

Apparantly Rudy Giuliani has a new ad in which he claims:

"I KNOW THAT reducing taxes produces more revenues. Democrats don't know that. They don't believe it."

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.

There's a good reason for that: It's not true. Produces more revenue than what? Than if taxes had not been cut? No -- and no matter how many times Republican politicians caught up in the thrill of supply-side thinking pronounce that tax cuts pay for themselves, they cannot will it to be correct.

 

[egslim]

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.

It does have a certain elegance to it. Reducing taxes without decreasing government expenditure increases the government deficit, that in turn causes inflation because more money (government plus private) competes for the same amount of goods. So instead of paying an additional $5 out of every $100 in taxes, you keep the $ 100 but watch it lose 5% of its value. And read my lips, no more taxes.

Meanwhile, this policy makes the Chinese, who I believe own some 1.3 trillion dollars, lose the equivalent of $ 65 billion dollars. That just might tee them off a little. Then watch the dollar lose further against other currencies.

 

[Nathyn]

Apparantly Rudy Giuliani has a new ad in which he claims:



There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics" that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE. So either Giuliani is LYING or HE BELIEVES IN VOODOO. I tend to lean toward the former theory.

Tax cuts can increase revenues, but not always.

It seems to me that left and right wing pundits both know little of economics.

What's most important is whether you're in a recession or not. A tax cut during high economic growth is likely to encourage inflation. A tax cut during a recession is likely to help unemployment.

The logic behind the laffer curve makes sense (heavier taxation crowds out investment, replacing private production with government waste), but it totally ignores the fact that how taxes are collected and used have a huge impact on what the tax will do. Hence, Martin Gardner's Neo-Laffer curve.

So, overall either raising and cutting taxes won't have any general, predictable effect. It depends on the economy, it depends on the type of tax, and it depends on how the government is using the revenue.

 

[Cleon]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.

 

[BPSCG]

There is an ideology or set of claims (it's not a true branch of science any more than Creation Science or Intelligent Design) called "Supply-side Economics" aka "Voodoo Economics"

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

that claims that reducing tax rates increases tax revenues due to increased economic activity. It's NOT TRUE.

Let's see your evidence.

In the meantime, here's some evidence to the contrary.

Federal Receipts by Tax Year (in millions)

1961 ... 94,388
1962 ... 99,676
1963 ... 106,560

Kennedy Tax Cuts (sign by Johnson in 1964)
1964 ... 112,613
1965 ... 116,817
1966 ... 130,835
1967 ... 148,822
1968 ... 152,973
1969 ... 186,882
1970 ... 192,807
1971 ... 187,139
1972 ... 207,309
1973 ... 230,799
1974 ... 263,224
1975 ... 279,090
1976 ... 298,060
TQ ...... 81,232
1977 ... 355,559
1978 ... 399,561
1979 ... 463,302
1980 ... 517,112

Reagan Tax Cut (1981)
1981 ... 599,272
1982 ... 617,766
1983 ... 600,562
1984 ... 666,486
1985 ... 734,088
1986 ... 769,215
1987 ... 854,353
1988 ... 909,303
1989 ... 991,190
1990 ... 1,032,094
1991 ... 1,055,093
1992 ... 1,091,328
1993 ... 1,154,471
1994 ... 1,258,721
1995 ... 1,351,932
1996 ... 1,453,177
1997 ... 1,579,423
1998 ... 1,721,955
1999 ... 1,827,645
2000 ... 2,025,457
2001 ... 1,991,426
2002 ... 1,853,395
2003 ... 1,782,532

Bush Tax Cut (2003)
2004 ... 1,880,279
2005 ... 2,153,859
2006 ... 2,407,254

Now, you can argue that revenue would have increased even more had those cuts not been enacted, and maybe that's true, but you'd have to show evidence that that is the case. Got any?

Or you could show evidence that revenues increased after tax hikes. Got any?

Or you could argue that cutting taxes to zero percent would in fact cause a decrease in revenue, but I'll bet Giuliani isn't advocating that.

By the same token, increasing the tax rate to 100% would also decrease revenue (who's gonna work if the government takes 100% of his paycheck?).

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.

 

[BPSCG]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.

Please stay on-topic. This thread is about federal revenue vis a vis tax policy, not expenditures. We certainly don't lack for threads about the Iraq war; no need to turn this thread into another one.

 

[Cleon]

Please stay on-topic. This thread is about federal revenue vis a vis tax policy, not expenditures. We certainly don't lack for threads about the Iraq war; no need to turn this thread into another one.

Yep, that's really about the only answer we ever get to that little question...

 

[Rob Lister]

Yep, that's really about the only answer we ever get to that little question...

Since you're a moderator, and since posting off-topic is a no-no, should I use the report feature to report you or just report you to yourself right here?

This is an interesting topic, why not stay on it so I can learn a thing or two.

 

[Dabljuh]

It does have a certain elegance to it. Reducing taxes without decreasing government expenditure increases the government deficit, that in turn causes inflation because more money (government plus private) competes for the same amount of goods.

Wrong, it does not necessarily cause inflation. In order to pay for government expenditure, the government must have money in the first place. So it's either paid for by taxes, or by taking a credit from the privates. In this example we have the latter case, the money that the GVT spends is also taken from the regular supply. The only thing the GVT can do is gross mismanagement, by which I mean increasing the turnover rate where a private citicen would never invest. Say, paying 10% interest rates to privates, and investing in stuff that won't give more than 2%. This sort of mismanagement increases the turnover rate of money, as people who did not invest before (hoarded the money) are now going to invest in the government bonds. It's not the money supply that increases, but it may lead to a very minor amount of inflation at the cost of increasing the deficit. Or rather, it'll slightly reduce deflationary tendencies in the economy at the cost of a deficit.

 

[Puppycow]

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.

So you would presumably agree that Giuliani's blanket statement "I KNOW THAT reducing taxes produces more revenues" is equally foolish? I'll grant that when taxes are very high to begin with, reducing them would probably increase revenues. But it sounds to me like Giuliani's making a blanket statement and claiming that reducing taxes from current levels would increase revenue over what would be collected by leaving them the same.

Since history doesn't have a rewind button so that you can go back, change the tax rate and hit replay, we have to rely on economists' projections. If you read the editorial, it says:

You don't have to turn to Democrats to refute this point; just read the studies and comments by Republican economists, including many from the Bush administration. President Bush's Treasury Department, analyzing the "dynamic" effects of making the Bush tax cuts permanent, found that even under favorable assumptions, the positive economic impact would make up for no more than 10 percent of the tax cuts' cost.

"I certainly would not claim that tax cuts pay for themselves," Edward P. Lazear, chairman of the president's Council of Economic Advisers, testified last year. He's not alone. In the 2003 Economic Report of the President, the council concluded that "although the economy grows in response to tax reductions (because of the higher consumption in the short run and improved incentives in the long run) it is unlikely to grow so much that lost revenue is completely recovered by the higher level of economic activity."

How unlikely? N. Gregory Mankiw, another former Council of Economic Advisers head in the Bush White House, concluded in 2005 that cuts on capital gains taxes could generate enough extra growth to recoup half the lost revenue in the long run; cutting taxes on wages could recover just 17 percent of the costs. An analysis conducted by the Congressional Budget Office under the direction of Douglas Holtz-Eakin, who had been an economic adviser in the Bush White House, found that, under the rosiest of scenarios, a 10 percent reduction in the personal income tax rate would generate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five.

 

[geni]

Or you could show evidence that revenues increased after tax hikes. Got any?

UK goverment revinues since 1997 (yes both they and taxes have gone up but have fun figureing out how).

 

[Kerberos]

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

Let's see your evidence.

In the meantime, here's some evidence to the contrary.

That's not evidence that tax cuts do anything at all, that's simply evidence that tax revenu has increased steadilly for the last several decades. You have provided absolutly zero evidence for a causal relationship. The only thing that saves this from being a correlation equal causation falacy is that you haven't actually proved a correlation either. Recent events in Denmark has innoculated me against the nation that alledged tax cuts actually are the same as decreasing taxes.

 

[Dabljuh]

Consider the following: If the tax income increases (real, per capita, regardless of growth) is it really a tax cut?

 

[JoeEllison]

It is one of those lies that right-wingers are really fond of. It goes along with ignoring the fact that Reagan presided over the largest tax INCREASE in American history, and that Kennedy's tax cut was from 90% to 70%, and included closing a bunch of loopholes.

Look at this chart:

Tax revenue increased under Clinton, decreased under Bush. No surprise there.

The surprise is why anyone would include the Clinton years under Reagan's tax "cut"? Seems incredibly dishonest to me.

 

[Nathyn]

Ad hominem means "to the man" and refers to an attack on a person, rather than the argument he is making. This doesn't qualify as an ad hom attack, but it's similar. instead of calling names, why don't you actually present some evidence that they don't work?

Stick to the burden of proof.

He doesn't need to prove that tax cuts decrease revenues or that any given historical tax-cut led to less or no change in revenue, in order to rightly identify Giuliani's argument as nonsense, from a mainstream economic standpoint.

Let's see your evidence.

In the meantime, here's some evidence to the contrary.

Federal Receipts by Tax Year (in millions)

1961 ... 94,388
1962 ... 99,676
1963 ... 106,560

Kennedy Tax Cuts (sign by Johnson in 1964)
1964 ... 112,613
1965 ... 116,817
1966 ... 130,835
1967 ... 148,822
1968 ... 152,973
1969 ... 186,882
1970 ... 192,807
1971 ... 187,139
1972 ... 207,309
1973 ... 230,799
1974 ... 263,224
1975 ... 279,090
1976 ... 298,060
TQ ...... 81,232
1977 ... 355,559
1978 ... 399,561
1979 ... 463,302
1980 ... 517,112

Reagan Tax Cut (1981)
1981 ... 599,272
1982 ... 617,766
1983 ... 600,562
1984 ... 666,486
1985 ... 734,088
1986 ... 769,215
1987 ... 854,353
1988 ... 909,303
1989 ... 991,190
1990 ... 1,032,094
1991 ... 1,055,093
1992 ... 1,091,328
1993 ... 1,154,471
1994 ... 1,258,721
1995 ... 1,351,932
1996 ... 1,453,177
1997 ... 1,579,423
1998 ... 1,721,955
1999 ... 1,827,645
2000 ... 2,025,457
2001 ... 1,991,426
2002 ... 1,853,395
2003 ... 1,782,532

Bush Tax Cut (2003)
2004 ... 1,880,279
2005 ... 2,153,859
2006 ... 2,407,254

Now, you can argue that revenue would have increased even more had those cuts not been enacted, and maybe that's true, but you'd have to show evidence that that is the case. Got any?

Or you could show evidence that revenues increased after tax hikes. Got any?

Or you could argue that cutting taxes to zero percent would in fact cause a decrease in revenue, but I'll bet Giuliani isn't advocating that.

By the same token, increasing the tax rate to 100% would also decrease revenue (who's gonna work if the government takes 100% of his paycheck?).

The fact of the matter is, economics is so complex that only a fool would make a blanket statement that "tax cuts don't increase revenue."
If that's your claim, show your evidence.

BPSCG, are you sure the economic growth of the 20th century wasn't caused by a decline in the number of pirates?

Prove that what I just said is NOT true or Marxist economics are valid!!

Several others here seem to be committing the same fallacy:

UK goverment revinues since 1997 (yes both they and taxes have gone up but have fun figureing out how).

and:

It is one of those lies that right-wingers are really fond of. It goes along with ignoring the fact that Reagan presided over the largest tax INCREASE in American history, and that Kennedy's tax cut was from 90% to 70%, and included closing a bunch of loopholes.

Look at this chart:http://www.brendoman.com/media/us tax revenues.JPG

Tax revenue increased under Clinton, decreased under Bush. No surprise there.

The surprise is why anyone would include the Clinton years under Reagan's tax "cut"? Seems incredibly dishonest to me.

It's got nothing to do with Reagan or Clinton.

It was the pirates! Arr!

 

[JoeEllison]

I still have yet to hear an explanation from the borrow-and-spend Republicans of how, exactly, they plan to pay for their little adventure in Iraq.

Maybe they plan on cutting the tax rate to 0.1%. By their math, it would create the biggest tax windfall in world history. You know, the math they learned at Enron.

 

[JoeEllison]

It's got nothing to do with Reagan or Clinton.

It was the pirates! Arr!

Could have been ninjas... who can say?

 

[BPSCG]

So you would presumably agree that Giuliani's blanket statement "I KNOW THAT reducing taxes produces more revenues" is equally foolish?

Standing naked in the wind like that, yeah. Might be helpful to see the context.

I'll grant that when taxes are very high to begin with, reducing them would probably increase revenues. But it sounds to me like Giuliani's making a blanket statement and claiming that reducing taxes from current levels would increase revenue over what would be collected by leaving them the same.

Fair enough. I don't know if he has any way of knowing that. Cutting taxes from current levels may well increase revenue. It might not.

But you would agree then, that it is equally foolish to say "tax cuts increase revenues, period," and "tax cuts do not increase revenues, period"?

Since history doesn't have a rewind button so that you can go back, change the tax rate and hit replay, we have to rely on economists' projections.

Correct. And since those projections have so many unpredictable and uncontrollable variables in addition to tax rates, there's an excellent reason economics is often called "the dismal science."

Just for example, what do you thank would be the economic cost of, say, jumbo jets crashing into two huge skyscrapers in New York City? What did that do to all the economic projections that had been made in the years just before September 11, 2001?

Immediately after the attacks, leading forecast services sharply revised downward their projections of economic activity. The consensus forecast for U.S. real GDP growth was instantly downgraded by 0.5 percentage points for 2001 and 1.2 percentage points for 2002. The implied projected cumulative loss in national income through the end of 2003 amounted to 5 percentage points of annual GDP, or half a trillion dollars.

Others have pointed out here that my earlier post is an example of the "correlation = causation fallacy," and they would be quite right, if I had claimed that the statistics I posted proved that tax cuts cause revenue growth. I did not. I simply claimed that that was some evidence that they caused revenue growth, and noted some of the limitations of that chart.

But it was evidence, certainly nowhere near conclusive enough to be called proof, but evidence nonetheless, as contrasted with your initial, evidence-free post.

JoeEllison, two things: 1) Thanks for graphing a tiny part of my far more complete table; why didn't you graph what happened in 2005 and 2006? I had it right there for you.

2) Please reconsider the significance of your complaint about revenue decreasing under Bush in light of the note about September 11, 2001 above.

Personally, my belief regarding the efficacy of tax cuts is similar to what Tommy Lasorda had to say about managing a baseball team. "Managing is like holding a dove in your hand. Squeeze too hard and you kill it; not hard enough and it flies away."

Cut tax rates too much, and you'll get less tax revenue. Raise tax rates too much, and you'll get less tax revenue.

Now let's get some more evidence, so we can figure out how hard to squeeze the dove taxpayers so as to maximize revenue.

 

[egslim]

So it's either paid for by taxes, or by taking a credit from the privates. In this example we have the latter case, the money that the GVT spends is also taken from the regular supply.

That is true if the money comes from national savings. But it is more likely to come from treasuries sold to foreigners, since the savingsrate is negative in the US. I am assuming lower taxes increase consumption instead of savings.

 

[JoeEllison]

JoeEllison, two things: 1) Thanks for graphing a tiny part of my far more complete table; why didn't you graph what happened in 2005 and 2006? I had it right there for you.

You mean your mislabled table? The one that counts Reagan's tax cut as lasting for 23 years, ignoring all of the tax increases over the intervening years?