The Senator from South Carolina has decided to lie to his constituents:
In 2001 and 2003, President Bush brought forward a tax relief package designed to reduce the burden on taxpayers … It was the right medicine for an ailing economy and the results were clear. By lowering taxes, the federal government spurred economic development and actually collected more in tax revenue … I believe some of the uneasiness taxpayers feel today about the economy is driven by concerns they are going to be hit with huge tax increases when the tax cuts expire.
So many lies – so little time. The 2001 and 2003 tax shifts did not lower the long-term tax burden – it only shifted it to the future. And the notion that these tax “cuts” (really shifts) lead to a surge in economic growth such that we collected more in taxes than we would have without these tax “cuts” is something no economist believes. OK – Lawrence Kudlow believes in the fairy tale of the Laugher curve but Kudlow is not an economist.
But let’s tackle the last one of these whoppers. Graham is suggesting that the only reason why aggregate demand is slipping as consumers are rational forwarding looking types who realize that the reversal of these tax “cuts” will lower their lifetime income, which is impacting their consumption today. I have two problems with this nonsensical statement. First of all – rational consumers in this lifecycle model of consumption that Graham is implicitly appealing to know that the 2001 and 2003 tax bills were only shifts in the tax burden and not reductions in it. So by his logic – consumption demand was never impacted by these tax bills. Secondly, anyone remotely familiar with the GDP data know that it has been residential investment that has collapsed.
But let’s say that reversing the fiscal irresponsibility implicit in those tax “cuts” that Senator Graham so cherishes does reduce consumption and thereby increases national savings over the long-run. I guess the Senator thinks this is bad news for long-term growth as he thinks less savings and investment is the key to making our economy “competitive in the global economy”. Seriously – why do we send to the Senate people that are so utterly incompetent at economics?