AEI Economists and the Ugly Memory Hole

by Mike Kimel

From an article in the NY Times:

Politicians sometimes say that lower tax rates lead to higher economic growth, which in turn leads to higher overall tax revenue. This may have been true in the early 1960s, when the top tax rate was 91 percent, but the top tax rate today is 35 percent. For decades, lower tax rates have led to lower government revenues, says Alan Viard, an economist at the American Enterprise Institute, a conservative policy group. “The Reagan tax cuts, on the whole, reduced revenue,” he explains. “The Bush tax cuts clearly reduced revenue. There is no dispute among economists about that.”

I guess we can credit Viard with actually looking at data on taxes and revenues, and having at least enough honesty not to obfuscate results.

Sadly, there is a dispute among the folks who call themselves economists about that, and it seems particularly easy to find that category of economists among the type of folks who are willing to associate themselves with the American Enterprise Institute.

Here’s Kevin “Dow 36,000” Hassett of the AEI, not incidentally co-author of Viard with a paper currently highlighted on the AEI’s website:

Republicans have asserted for years that just about all tax cuts pay for themselves. They’ve almost always been wrong about that. But with regard to corporate taxes, it’s true.

As Hassett notes in his piece, the top US corporate rate in 2010 was 35 percent. Note the Viard quote shown earlier.

Then there’s AEI visiting scholar R. Glenn Hubbard, previously the first Chair of the Council of Economic Advisers under GW Bush, and as we all remember, a huge advocate of tax cuts all around. I found this old Brad DeLong post from Hubbard’s White House days. DeLong quoted, in its entirety, this letter by Hubbard that was printed in the Washington Post.

Washington Post
Low Taxes and Growth for All
January 4, 2003; Page A15

A Dec. 16 news story in your paper stating that a Republican economist does not care about the deficit and wants to raise the tax burden on the poor was too good for Michael Kinsley to check [“Republicans Go Positive on the Deficit,” op-ed, Dec. 23]. Had he checked the complete text of my Dec. 10 speech, it would have been clear that I believe the fiscal position does matter and that a pro-growth policy with lower taxes for everybody makes sense.

The president is committed to fiscal discipline, and he rightly believes it is important to balance the budget. The deficit we now face is caused by national emergency, war and recession. We must keep in mind that growth leads to surpluses, not vice versa. Promoting economic growth and job creation is the aim of the administration–and this will lead back to a balanced budget. At the same time, the peer-reviewed economics literature shows that long-term interest rates do not go up in lockstop with the budget deficit. This is apparent from recent history.

The Dec. 16 article and Kinsley suggest that by acknowledging the challenges inherent in fundamental tax reform, the administration favors increasing taxes for some individuals. But the record makes clear this is not the case: The president and this administration know that lowering taxes for everybody leads to growth. This continues to be the sound policy of the administration.

— R. Glenn Hubband, Chairman, Council of Economic Advisers

Notice… he talks about “fiscal discipline” but he is very clear, “growth leads to surpluses.” Fiscal discipline is important, but it isn’t what leads to surpluses. The only way that is true is if the faster growth generated by tax cuts leads to increased tax collections.

Note that this was 2003… and Hubbard and his boss had already given us tax cuts in 2001 and 2002.

Anyway, I can go on, but it seems to me Viard’s comment is merely part of a concerted effort to scrub a large history of very, very bad economic forecasts down the memory hole. Sorry, but unless and until Viard calls out some his big name colleagues by name, it is going to be just as hard to take him seriously as it is to pretend that folks like Hubbard and Hassett don’t have a long history of promoting very damaging policies, and doubling down when those policies blew up.