Taxing Policy

Jonathan Chait summarizes the insanity that is Republican thinking on tax policy.

In the Republican view, tax cuts do not increase deficits, because they either 1) produce enough growth to increase revenue, or 2) reduce revenue and thus "starve the beast" of spending, or, somehow, both. A corollary holds that tax hikes do not reduce deficits, because they either 3) decrease economic growth and thus decrease revenue, or because 4) the added revenue will cause the government to spend more money. 

 

This is how discussions of tax revenue that involves any Republican or almost any member of the conservative movement has gone over the last two decades. The discussion is completely detached from reality. All four elements of the Republican tax catechism have been utterly destroyed by empirical reality. It may be theoretically possible for tax rates to be high enough that tax cuts could produce higher revenue, but we're nowhere close to that point. Nor is there any evidence that a lack of revenue will cause the government to stop spending money. (Look around.) Indeed, evidence points in the opposite direction, with rising revenues correlating with falling expenditures, and falling revenues with rising expenditures.

Nonetheless, this has been the state of Republican thinking on taxes since 1990. Supply-side economics gained a foothold within the GOP in the late 1970s, and reached its glory in 1981. But moderate Reaganites realized that supply-side economics had created massive deficits and enormous tax inequities, and clawed back the effects of their policies by enacting tax hikes in 1982 and 1983 and a progressive tax reform in 1986. In 1990, George H.W. Bush clawed back the supply-side revolution a bit more by agreeing to a small tax hike as part of a major deficit reduction package. Conservatives, led by Newt Gingrich, revolted, and vowed never to permit such heresy again. The moderates were banished, and anti-tax absolutism became the sole permissable point of view. Republican candidates for office henceforth had to sign anti-tax pledges (not, however, anti-spending pledges.) In the last presidential election, every major Republican presidential contender asserted that George . Bush's tax cuts had caused revenue to rise. Every major conservative opinion outlet backed this line. (In 2007, libertarian Megan McArdle had a right-wing book review spiked because it asserted that the Laffer Curve did not apply to current U.S. tax rates.)

This is a long way of saying that Kevin Williamson's recent National Review article criticizing supply-side economics is a very big deal. It's not quite a full frontal attack on supply-side economics, more of a lament that the dogma has been stretched in ways that even its founders would find extreme. It resembles Kruschev's "secret speech" (subsequently made public) denouncing Stalin's cult of personality more than actual Perestroika. Still, the article makes plain the clear fact that, at the very least, supply-side economics has been a total failure from the conservative point of view.