Left Behinds

The anti-andrewsullivan.com. Or, the Robin Hood (Maid Marian?) of bright pink Blogger blogs.

Tuesday, August 01, 2006

The Laffer Curve is a laugh, part III.

Parts One and Two.

Part III, courtesy of Jason Furman at Slate, actually refers to the same Treasury Department report as Part II, the one showing "a mere 0.7 percent increase in the size of the economy after many years" as a result of the Bush tax cuts.

But it provides a deliciously ironic account of how that report came to be written.

In a February speech, Vice President Cheney said, "It's time to re-examine our assumptions and to consider using more dynamic analysis to measure the true impact of tax cuts on the American economy." Calling for "dynamic analysis" or "dynamic scoring" can be supply-side code language for the view that tax cuts pay for much or all of themselves through stronger economic growth. Cheney proposed creating a new unit within Treasury to conduct this dynamic analysis and confidently predicted that it would find that tax cuts increase government revenues.

Six months later, Treasury's first dynamic analysis of the president's policies is out. It belies the claim that the Bush proposal to make his tax cuts permanent will either pay for itself or galvanize the economy.
[T]he added revenues produced by the increased economic growth would be enough to offset less than one-tenth of the official "static" estimate of the tax cuts' cost.

Hoist! I say, hoist! on your own petard, sir!

Furthermore, all these barely perceptible benefits [of 0.7 percent additional growth] rest on the assumption that starting in 2017, the tax cuts would be fully paid for with cuts of unprecedented depth in federal programs—totaling about a 50 percent reduction in all domestic spending other than entitlements like Social Security and Medicare. If such cuts were not made—and not even President Bush has proposed making them—then the resulting deficits, debt, and eventual tax increases would eliminate even these modest economic benefits.

If we believe that spending cuts of this magnitude are unrealistic, then the Treasury economists have another important finding: The sooner we get rid of the tax cuts, the better it will be for the economy. Specifically, they found that national output would be 0.9 percent higher in the long run if we let them expire in 2010 rather than allowing them to continue along, forcing us to face even bigger tax increases in the future to make up for all of the added deficits and debt.

What's a supply-sider to do when the analysis comes back and shows he's wrong, wrong, wrong? Maybe, as with Iraq, it will all turn out to be the fault of us liberals who undermined tax policy, making investors lose faith in it so it couldn't do its job. We (and journalists and the damn liberal bureaucrats at Treasury--better do something about them) stabbed tax cuts in the back! Damn us!

Treasury report here (PDF).


  • At 5:11 PM, Blogger Solomon Grundy said…

    a 50 percent reduction in all domestic spending

    this is especially preposterous in light of the profligacy of every tax-cutting administration.


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