Stephen Moore will join The Wall Street Journal as its senior economics writer. While Kevin Drum calls this a move to lower their collective intelligence, Max Sawicky suggests this move may actually increase the already low standards of the editorial page of what otherwise is a very good newspaper. Since the problem with the editorial page has been not stupidity but rather mendacity, let me suggest that Moore can radically change this perception by pointing out the flaws in the latest from Lawrence Kudlow. Kudlow wants you to believe that the Bush tax cuts have increased revenues by causing a supply-side boom to the economy even though he knows that the 2.5% average annual growth in real GDP over the past four years is below that 3.5% normal growth he keeps referring to. For Moore’s convenience, I have graphed real Federal tax revenues excluding payroll contributions (see NIPA table 3.2, line 2) (which includes personal current taxes, corporate income taxes, taxes on production and imports, and taxes from rest of the world) – using the GDP deflator to convert nominal to real. Tax collections were $1313.6 billion in 2000 but had fallen to $1023.1 billion in real terms by 2004.
Of course, it might be difficult for Art Laffer’s co-author of the October 27, 2000 WSJ op-ed endorsement of George W. Bush to adopt my suggestion since Moore and Laffer tried to tell the WSJ readers that the Reagan tax cuts led to faster long-term growth and a doubling of tax revenues. As noted by Jonathan Chait, Moore also suggested that the Clinton era was one of slow growth and weaker tax revenue growth than the Reagan era. Moore will be happy to note the real tax revenue series we present here does not include payroll taxes given how Chait noted that much of the 1980’s increase in tax revenues was due to the Social Security reforms in 1983. Moore and Laffer also pulled a bait-and-switch on the eve of the Bush-Gore election by citing real tax revenue growth for the 1920’s but subtly moving over to nominal tax revenue growth when discussing the Reagan-Bush41 era. Again, our series consistently looks at real tax revenues not including payroll contributions.
Of course, Moore would have to admit that real tax revenues were only 16.1% higher in 1992 versus 1980 – in part because real GDP growth averaged only 3.0% per year over this 12-year period. Over the next eight years, real GDP growth averaged 3.7% per year and real tax revenues were 71.9% higher in 2000 than they were in 1992.
Now I’m not asking Mr. Moore to give up on his small government philosophy. Low tax rates don’t cause slower long-term growth but low national savings does tend to crowd-out investment. As Bruce Bartlett often notes, the failure to reduce government spending to pay for the Reagan tax cuts was a serious problem for their “save and invest” agenda. I suspect most readers of the Wall Street Journal are already smart enough to reject the free-lunch version of supply-side economics. I also imagine that they would appreciate a renewed integrity if the editorial pages simply admitted as much.
Final note: Henry Farrell has a must see post on the politics of taxation with a wonderful caption of Homer Simpson as Karl Rove’s favorite voter.