Stephen Moore insults our intelligence

Supply-sider Stephen Moore, a member of the Wall Street Journal editorial board, again suggests that tax cuts increase revenue:

The quality of this discourse rarely rises above the level of trash talk. Nevertheless, some arguments are repeated with such regularity that they need to be addressed. One is that supply-siders dishonestly claim that tax rate cuts increase tax revenues. Now, we can argue forever whether tax revenues would have been higher or lower without the Bush 2003 tax cuts. But one stubborn fact remains: Tax receipts are up, not down, by $745 billion in four years since the 2003 tax cuts.

It's one thing for the supply-side critics to have predicted four years ago that the Bush tax cuts would increase the budget deficit. But Mr. Surowiecki tells us, today, that "myriad studies" find that the Bush tax cuts "led to bigger budget deficits."

Bigger deficits? After the second Bush tax cut of 2003, the budget deficit tumbled to $163 billion in FY 2007 from $401 billion in FY 2003.

The point is obviously disingenuous. The consensus among economists, including those who work for the Bush administration, is that tax cuts decrease revenue all else equal. The fact that revenue has increased and deficits have declined over time proves nothing. Revenue would have increased more and the deficit would have declined more had the tax cuts not been in effect.

(For more on Stephen Moore, see my posts on him and our writing about him at Spinsanity.)

Update 11/14 10:09 AM: Donald Luskin makes a similar claim in today's Wall Street Journal (subscription required):

When [rich people stop working in response to tax increases], Mr. Rangel will get a lesson in supply-side economics he'll never forget. Some say that the Laffer Curve is wrong, and that tax cuts don't result in higher tax revenues. But when America's most productive workers stop working -- even a little bit -- in reaction to the incentive effects of the "mother of all tax reform plans," they'll see that the Laffer Curve was right after all, and that it can cut both ways. Involuntary tax hikes result in voluntarily lower tax revenues.

Comments

[Howard]

These arguments (that reducing taxes increases economic growth) have just a shadow of validity. A tax cut is a stimulus - it gives people more money to spend.

But drawing some short term correlation between budget cuts and changes in the deficit is really without merit. Economic cycles have their own lives - independent of tax tax policies - and have a much much larger impact on the level of deficits (or surpluses).

This argument says that "deficits don't matter" and that they are, in essence, caused simply by taxing people.

I also laugh at the argument that higher taxes will lead to high income earners choosing to be less productive.

And what exactly is an "involuntary tax hike" ? Perhaps he meant to say "shifting the tax burden..." The Rangel plan is revenue neutral. It doesn't increase over all-tax revenue. That is a point that is ignored over and over again in this recent barrage of editorials.

[macquechoux]

"The Rangel plan is revenue neutral. It doesn't increase over all-tax revenue. That is a point that is ignored over and over again in this recent barrage of editorials."

Only on a piece of paper and in a static behavioral world is Rangel's plan revenue neutral. If economics teaches us anything it teaches us that people will change their economic behavior when you start screwing with the tax structure, especially the wealthy.

[Howard]

Macquechoux -

The proposal is not a tax increase. To call it a tax increase is a misrepresentation.

If you want to argue that changing (redistributing) the tax burden will have some negative general economic impact (lessening total revenue) go ahead and try to show that that is the case.

It seems to me that it is just as important to get the lower wage earners to work harder as it is to get the already rich to work harder. Why do conservatives think that only the upper managers are affected by higher wages. Lets give the rich more money so they will work harder but keep the minimum wage low so the actual workers will work less? I don't get it.