Q: does the Treasury tell him that more money is coming in than was lost to the tax cuts?
MR. SNOW: Well, I’m not sure – the whole point is that the tax cuts generate extra economic activity. All you have to do is – I would, if you want to
Q: That’s a separate issue.
MR. SNOW: Well, no, it’s not. It’s not a separate issue at all. What it says is when you have greater economic
Q: If the economy is growing more, that’s one thing; but whether tax revenues are growing is a separate issue.
Actually, it is not a separate issue. The impact of a reduction in tax rates on tax revenues does depend on whether it increases economic activity and by how much. The supply-side crowd wants you to believe that a 1 percent reduction in tax rates will lead to an increase in economic activity that is greater than 1 percent, which is a proposition that has been ridiculed by Andrew Samwick and many other economists. But let’s go further and stipulate that Bush’s fiscal game seems to be long-term stimulus, which means less national savings. And that means less long-term growth, not more. So Tony Snow has it backwards – the whole point is that fiscal irresponsibility generates less economic activity in the long-run.
Hat tip to Mark Thoma who adds:
Does the president continue to repeat this because (a) people are afraid to tell him the truth about tax cuts, (b) he’s been told the truth, but chooses to repeat the tax cuts pay for themselves mantra anyway, (c) it’s been explained to him, but he doesn’t get it, (d) he’s decided, as with other issues, that everyone else is wrong and only he sees the truth about tax cuts – they do pay for themselves despite evidence to the contrary, (e) someone he trusts, perhaps someone who has influence on who can access the president, is telling him that tax cuts pay for themselves and he believes it, (f) there’s an obscure model somewhere built with the intent of proving this that might, and only might, under the right assumptions, show this effect. That’s all that’s needed – some evidence somewhere no matter how flimsy – to sell the policy, a lesson learned in the run-up to the Iraq war, or (g) none of the above.
That’s it. Nobel Prize winning economist Tony Snow who doubles as Bush’s press secretary has constructed some obscure model where reducing the national savings rate leads to more growth! Someone call the American Economic Review so they might publish the Snow model.