Riedl’s Myth #3

Yesterday, both PGL
PGL and I looked at the first of Brian Riedl’s 10 myths. We also put up a post by alkali19 covering Myths 2 and 4 (I may revisit those myself, looking at them from another perspective). Other bloggers, such as Matthew Yglesias have also covered Riedl’s nonse.

But there’s a lot more there to milk. So…

“Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.”

Riedl’s point is that by cutting taxes, one can make the economy grow much faster, making people wealthier. As a side effect of making people wealthier, taxes paid per person might increase, but the important thing is that the whole process makes people wealthier.

A few problems with this when it comes to the Bush tax cuts…

1. Real Income per capita dropped every year from 2000 to 2004. It rose in 2005, but was still below 2000 and 2001 levels. By contrast, real income per capita rose every year from 1992 to 2000. Perhaps Riedl believes there were tax cuts in 1993 and tax hikes in 2001 and again in 2003. All snark aside, considering that real income per capita has a tendency to go up over time no matter what is happening in the economy, for it to go down for so long is an unusual situation indicating something is seriously wrong. I vote that the something is President Bush.
2. Just the other week, I took a look at what the data says about growth and tax collection. I’m not going to repeat what I wrote here.
3. For grins, I note that even the maybe thing Riedl points to doesn’t work. He can divide tax collection by population and find that real taxes collected per capita are lower in 2005 than in 2000. He might even note that they rose every single year from 1992 to 2000.

So to recap Riedl’s position… after Clinton’s tax hikes, real incomes and real tax collections rose. After GW’s tax cuts, real incomes and real tax collections fell. Conclusion… GW’s got the right policies.