Tax Cut Nuts
Nick Schulz has a flair for titles. The latest defense of free lunch supply-side insanity starts by noting the William Niskanen regression – which suggests that the starve the beast rational for tax cuts has not been operative as far as the U.S. economy over the past 25 years:
The question at hand regards whether tax cuts prompt more government spending or less. Some conservatives have argued for tax cuts with the belief that the resulting loss of revenue – and hence increased deficits – would yield spending cuts. This is called the “starve the beast” school of tax cutting. But research from economist William Niskanen of the Cato Institute suggests that tax cuts prompt more spending, undercutting the starve-the-beasters. For the sake of argument, let’s say that Niskanen’s analysis is correct. Chait says that, as a result, “the factual basis for [conservatives’] entire domestic strategy” has now been “exposed as a fraud.” As Chait sees it, since conservatives continue to insist on tax cuts, even though they lead to more government spending, conservatives must be “crazy.” But there are several problems with Chait’s argument. For starters, by suggesting that “starve the beast” is the only conservative argument for tax cuts, it is willfully ignorant of political history. Moral arguments about economic growth and undue burdens posed by excessive taxation animate conservative arguments in favor of tax cuts. The most articulate and successful advocates of tax cuts in the last thirty years – George Gilder, Jack Kemp, Ronald Reagan, Wall Street Journal editorial page editors, and Steve Forbes among them – all argued for cuts to prompt higher economic growth.
A moral argument? The issue is an economic issue – do the modest incentive benefits from lower tax rates outweigh the crowding-out effects from reduced national savings? Most economist would argue they do no so the free lunch fiscal policies that folks like Jack Kemp advocate lower long-term growth.
Schulz next asks us to read the explanation provided by Jeffrey Miron. I would suggest that the folks at the National Review read the whole explanation, which begins with:
Most economists agree that large and persistent budget deficits are bad for the economy. Deficits mean government borrowing, which implies higher interest rates, lower investment, reduced capital accumulation, and slower growth.
Miron believes that incentives matter. I agree. But he also begins his discussion with noting that cutting taxes without cutting government spending leads to crowding-out. If Mr. Schulz wants to cite Jeffrey Miron as an authority on this economic issue – might I simply ask that Mr. Schulz bother to read what Miron has written.