Expert marksman and Nobel laureate Dick Cheney delighted the Conservative Political Action Conference with the suggestion that free lunch supply-side spin is solid economics:
Cheney touted President Bush’s recently announced proposal to create a tax analysis division as a move toward providing more evidence for the administration’s side of the argument. “The president’s tax policies have strengthened the economy, as we knew they would,” Cheney told the conference, according to a text posted on the White House’s Web site. “And despite forecasts to the contrary, the tax cuts have translated into higher federal revenues.” Cheney said some forecasters have underestimated the degree to which tax cuts would stimulate economic growth and tax revenue. “It’s time to reexamine our assumptions and to consider using more dynamic analysis to measure the true impact of tax cuts on the American economy,” Cheney said, explaining why Bush has proposed the new Treasury Department division. “The evidence is in, it’s time for everyone to admit that sensible tax cuts increase economic growth and add to the federal treasury.” Bush’s proposal, unveiled in his budget plan last week, comes as he is pushing Congress to make permanent the recent tax cuts that are scheduled to expire in coming years. The nonpartisan Congressional Budget Office predicted last month that the budget deficit would swell to $337 billion this year and that the red ink would end in 2012 only if the tax cuts were allowed to expire. Treasury officials said yesterday that the president’s proposed Division on Dynamic Analysis — with a handful of employees and a $513,000 budget — would go beyond the government’s old “static” methods of analyzing proposed changes in tax policy only in terms of their direct effects on certain affected taxpayers. Instead, “dynamic” analysis looks at how tax changes cause consumers and businesses to behave differently in ways that affect the overall economy’s growth. For example, a tax break to encourage business investment might lower some individual companies’ tax bills — looking like a hit to Treasury revenue under a static analysis. But if that tax cut caused businesses to buy more equipment, hire more workers and increase profits, that might contribute to stronger overall economic growth — causing the employees and companies to pay more in income, sales and other taxes over time.
As usual, the GOP spinmeisters have committed the following logical errors: (a) confused a Keynesian movement that inches back to full employment with an increase in potential GDP; (b) falsely suggested that the only event that increases aggregate demand is a tax cut; and (c) pretended that a reduction in national savings translates into more investment.
Most of us pro-growth types – liberal or conservative – would concede that incentives matter so if there were some plan to reduce marginal tax rates in a fiscally neutral way that might encourage a slightly higher labor force participation rate or a shift away from consumption to savings. Of course, this Administration does not do fiscal neutrality as Dead-Eye Dick is convinced deficits do not matter. This Administration does free lunch as in “give people their money back so they can consume more”.
So what are their plans to move to fiscal restraint? I guess the correct answer is they have no such plans, but let’s be generous. They could propose reductions in government consumption, but I don’t see that in their budget. I do see a few ideas of how to reduce transfer payments to the elderly and the poor – after all, the consumption of rich people is a GOP priority. Finally, Michael Mandel notes plans to reduce public spending on what Michael views as highly productive investment. Of course, Michael is correct in suggesting this means for reducing deficits will likely lower economic growth.
Hat tip to Menzie Chinn who is a little more generous to this idea to spend half a million dollars a year to cook up more GOP spin. But rather than use the funds to lie to the public the way this White House often does, couldn’t we spend these funds on pharmaceutical research?