Brendan Nyhan

Unlike last week’s article by Michael Cooper, today’s New York Times report by David Leonhardt (an economics reporter) questions John McCain’s pattern of claiming that tax cuts increase revenue:

On several occasions over the last year, Mr. McCain has said that tax cuts can reduce the deficit by spurring additional activity that, in turn, leads to more taxes being paid. But numerous studies have found that not to be the case.

In the interview, Mr. McCain said, referring to tax cuts, “Whether they actually pay for themselves dollar for dollar, obviously there are differences in opinion.”

“[D]ifferences in opinion” between … Arthur Laffer and virtually every economist. Close enough!

(PS The article is pretty credulous about McCain’s claims that he will be able to cut spending significantly. Doing so with a Democratic Congress is likely to be difficult to impossible.)

Supply-side guru Arthur Laffer has an op-ed in the Wall Street Journal making the case for the fantasy that tax cuts increase revenue:

In the 1920s, the highest federal marginal income tax rate fell to 24% from 78%. Those people who earned over $100,000 had their share of total taxes paid rise — from 29.9% in 1920 to 48.8% in 1925, and then to 62.2% in 1929. There was no inflation over this period.

With the Kennedy tax cuts of the 1960s, when the highest tax rate fell from to 70% from 91%, the story was the same. When you cut the highest tax rates on the highest-income earners, government gets more money from them, and when you cut tax rates on the middle and lower income earners, the government gets less money from them.

Even these data grossly understate the total supply-side response. A cut in the highest tax rates will increase lots of other tax receipts. It will lower government spending as a consequence of a stronger economy with less unemployment and less welfare. It will have a material, positive impact on state and local governments. And these effects will only grow with time.

The suggestion of a political conspiracy against his ideas in the concluding paragraph (which follows directly) is the best part, however:

Trained economists know all of this is true, but they try to rebut the facts nonetheless because they believe it will curry favor with their political benefactors.

So why have current and former Bush administration economists publicly contradicted President Bush and other administration officials who claim tax cuts increase revenue? They have no political incentive to do so. And what about the overwhelming majority of economists with no political ties who agree with them?

In the course of endorsing John McCain, the New York Times rips apart Rudy Giuliani:

Mr. Giuliani’s arrogance and bad judgment are breathtaking. When he claims fiscal prudence, we remember how he ran through surpluses without a thought to the inevitable downturn and bequeathed huge deficits to his successor. He fired Police Commissioner William Bratton, the architect of the drop in crime, because he couldn’t share the limelight. He later gave the job to Bernard Kerik, who has now been indicted on fraud and corruption charges.

The Rudolph Giuliani of 2008 first shamelessly turned the horror of 9/11 into a lucrative business, with a secret client list, then exploited his city’s and the country’s nightmare to promote his presidential campaign.

Tell us what you really think!

Jon Chait catches the latest supply-side flim-flam from John McCain:

Mr. McCain proclaimed himself a believer in the notion that cutting taxes increases revenue for the government by spurring economic growth. “Don’t listen to this siren song about cutting taxes,” Mr. McCain told supporters gathered here under a tent in a driving rain. “Every time in history we have raised taxes it has cut revenues. And is there anybody here that needs to have their taxes increased?”

The campaign did not put a dollar figure on the cost of the tax cut. Asked later how he would pay for it, Mr. McCain said that he would start by eliminating pork-barrel spending.

As Chait notes, the statement is obviously false yet it was not fact-checked by the New York Times, which reported it without comment. They have little excuse — McCain and the other Republican presidential candidates has made similar statements numerous times before. Here’s a timeline I compiled from my previous posts to illustrate the point (it is posted permanently here and will be updated as the campaign continues):

Rudy Giuliani
“When I became mayor of New York City, things were out of control. I lowered taxes, I reduced the growth of government, made government more accountable, and New York City boomed. I would do these things for America because I know they work. I know that reducing taxes produces more revenues. Democrats don’t know that. They don’t believe that.” (11/29/07).

“Remember, you collect more money with lower taxes than you do with higher taxes. I reduced the income tax in New York by twenty-four percent, and I was collecting forty percent more revenues from the lower tax than the higher tax” (9/28/07).

“I regard myself as a supply-sider for sure. I mean, watched Ronald Reagan do it and learned it, saw it work. Taxes get reduced, more revenue come in” (3/27/07).

John McCain
“Don’t listen to this siren song about cutting taxes. Every time in history we have raised taxes it has cut revenues” (1/17/08).

“I would suggest that most economists agree that there was an increase in revenues… associated with the tax cuts” (12/5/07).

“Tax cuts—tax cuts increase revenues. The tax cuts, the revenues increased because of it. The spending outpaced the tax cuts” (11/27/07).

“Tax cuts, starting with Kennedy, as we all know, increase revenues. So what’s the argument for increasing taxes? If you get the opposite effect out of tax cuts?” (3/5/07).

Mitt Romney
“If you lower taxes enough, you create more growth. And if you create growth, you get more jobs. You get more jobs, more people are paying taxes. You get more taxes paid, the government has more money by charging lower tax rates” (3/29/07).

Fred Thompson
“The results of the experiment that began when Congress passed a series of tax-rate cuts in 2001 and 2003 are in. Supporters of those cuts said they would stimulate the economy. Opponents predicted ever-increasing budget deficits and national bankruptcy unless tax rates were increased, especially on the wealthy.

“In fact, Treasury statistics show that tax revenues have soared and the budget deficit has been shrinking faster than even the optimists projected. Since the first tax cuts were passed, when I was in the Senate, the budget deficit has been cut in half” (4/14/07).

Even President Bush’s economists disagree. So when are reporters going to start speaking up?

(PS McCain’s quote doesn’t really make sense — presumably he is saying not to listen to the “siren song” of raising taxes, not cutting them. And just to point out the obvious, he doesn’t need to explain how to pay for his tax cut if it will increase revenues. Even answering the question exposes the absurdity of his claim.)

Rudy Giuliani
“When I became mayor of New York City, things were out of control. I lowered taxes, I reduced the growth of government, made government more accountable, and New York City boomed. I would do these things for America because I know they work. I know that reducing taxes produces more revenues. Democrats don’t know that. They don’t believe that.” (11/29/07).

“Remember, you collect more money with lower taxes than you do with higher taxes. I reduced the income tax in New York by twenty-four percent, and I was collecting forty percent more revenues from the lower tax than the higher tax” (9/28/07).

“I regard myself as a supply-sider for sure. I mean, watched Ronald Reagan do it and learned it, saw it work. Taxes get reduced, more revenue come in” (3/27/07).

John McCain
“[H]istorically when you raise people’s taxes, revenue goes down. Every time we cut capital gains taxes, there has been an increase in revenues” (7/8/08).

“[H]istory shows every time you have cut capital gains taxes, revenues have increased, going back to Jack Kennedy” (4/20/08).

“Don’t listen to this siren song about cutting taxes. Every time in history we have raised taxes it has cut revenues” (1/17/08).

“I would suggest that most economists agree that there was an increase in revenues… associated with the tax cuts” (12/5/07).

“Tax cuts—tax cuts increase revenues. The tax cuts, the revenues increased because of it. The spending outpaced the tax cuts” (11/27/07).

“Tax cuts, starting with Kennedy, as we all know, increase revenues. So what’s the argument for increasing taxes? If you get the opposite effect out of tax cuts?” (3/5/07).

Mitt Romney
“If you lower taxes enough, you create more growth. And if you create growth, you get more jobs. You get more jobs, more people are paying taxes. You get more taxes paid, the government has more money by charging lower tax rates” (3/29/07).

Fred Thompson
“The results of the experiment that began when Congress passed a series of tax-rate cuts in 2001 and 2003 are in. Supporters of those cuts said they would stimulate the economy. Opponents predicted ever-increasing budget deficits and national bankruptcy unless tax rates were increased, especially on the wealthy.

“In fact, Treasury statistics show that tax revenues have soared and the budget deficit has been shrinking faster than even the optimists projected. Since the first tax cuts were passed, when I was in the Senate, the budget deficit has been cut in half” (4/14/07).

Do you remember the controversy over the Bush campaign’s negative ad in 2000 that flashed the word “RATS”? It seemed like a silly issue, but I just came across a paper in which Joel Weinberger and Drew Westen (the newfound Democratic strategy guru) find that a subliminal stimulus in the word “RATS” is flashed “increased negative ratings of an unknown politician.” (They also find that subliminal exposure to Bill Clinton’s picture decreased negative ratings of both an unknown politician and former California governor Gray Davis.)

Paul Krugman notes the return of “tax families” in a White House fact sheet on the president’s views on economic stimulus:

While passing a new growth package is our most pressing economic priority, Congress needs to turn next to the most important economic priority for our country – making sure the tax relief that is now in place is not taken away. The President’s tax cuts are set to expire in less than three years. If Congress allows that to happen, we will see an end to many of the measures that have helped our economy grow – including the 10 percent individual income tax bracket, repeal of the Federal death tax, reductions in the marriage penalty, the expansion of the child tax credit, and reduced rates on regular income, capital gains, and dividends. This would mean that:
-A single mom with two children and $30,000 in earnings would see her taxes go up by 67 percent.
-An elderly couple with $40,000 in income would see their taxes go up by about 155 percent.
-Twenty-six million small business owners would see their taxes increase by nearly 17 percent – or about $4,000 on average.

However, these examples are selectively chosen and the “average” small business owner tax cut is highly unrepresentative — see All the President’s Spin and Spinsanity for much more on the administration’s misleading use of statistics in promoting its tax cut proposals.

Eight days after launch, the Draft Bloomberg petition is up to 1971 signatures!

And I thought Unity ’08 (35,000 members in eight months and 124,000 members at the time of its hiatus) was a debacle…

PS Only 14 percent of the public has a favorable view of Bloomberg according to a NBC News/Wall Street Journal Poll last month (14% favorable, 30% neutral, 23% unfavorable, 33% don’t know/not sure), and he drew approximately 10 percent of the vote in trial heats late last year. Clearly the American people are clamoring for his candidacy…

Matthew Yglesias is usually pretty careful, but this McCain riff is Dowd-level mind reading — time to break out the swami:

After all, throughout all his flipping and flopping and back again of the past ten years, the “cares about people in economic pain” persona is one he’s never tried on. And I think he’s never tried it on because it runs contrary to his entire schtick, which is all about finding causes greater than ourselves, salvation through nationalism, etc., etc. On some emotional level, he probably thinks a woman who needs to declare bankruptcy because [she] racked up massive credit card bills while her uninsured husband was dying of cancer should just grin and bear it the way he did as a POW. (emphasis mine)

Update 1/23 8:11 PM: Yglesias concedes error in a much more reasonable followup analysis of why McCain might be vulnerable on the economy.

Based on his performance in last night’s slugfest (which I skipped but caught up on this morning), Josh Marshall worries about Barack Obama’s ability to defend himself in the general election:

One observation stands out to me from this debate. Hillary can be relentless and like a sledgehammer delivering tendentious but probably effective attacks. But whatever you think of those attacks, Obama isn’t very good at defending himself. And that’s hard for me to ignore when thinking of him as a general election candidate.

Marshall shouldn’t worry too much. There’s a general tendency among pundits and reporters to overthink the role of debates, but as the eminent UNC political scientist Jim Stimson shows in Chapter 4 of his book Tides of Consent: How Public Opinion Shapes American Politics, the evidence that they make much difference is limited. By the time the debates happen in the fall, the eventual winner has generally taken the lead that he will hold until the end, as this graphic (which combines the trajectories of 1976, 1980, 1988, 1992, and 2000) illustrates:

Here are the trajectories of the specific races:

While you can tell stories about debates mattering on the margin in a few close elections, Stimson’s conclusion is that their influence is vastly exaggerated:

What can we conclude, then, about the debates? What we have seen is perhaps some influence. The evidence is inconclusive to say either that debates matter or they do not. But if they do matter at all, their influence is vastly smaller than, say, the conventions. The reelection landslides show that once voters have decided, debates will not change the outcome.

There is no case in which we can trace a substantial shift to the debates. But in elections that were close at debate times, there are cases (1960, 1980, 2000) where the debates might have been the final nudge. As to why they are so often featured as the central story line of a presidential election campaign, I lean to the idea that they are conveniently available TV footage.

Stimson’s argument suggests that Democrats who are concerned about electability should put less weight on debating performance and focus more on other considerations — in particular, Obama’s vastly superior favorability ratings. (Of course, Hillary backers and Ezra Klein will dispute that point, but Jon Chait does a nice job of summing up why they are probably wrong.)