NYT omits GOP's supply-side claims

Here's the lede to a Louis Uchitelle story in Wednesday's New York Times about the "political comeback" of supply-side economics:

When Ronald Reagan ran for president in 1980, he promised to cut taxes in what seemed, at the time, a magical way. Tax revenue would go up, not down, he said, as the economy boomed in response to lower rates.

Since then, supply-side economics, as it was called — first with derision but then as a label embraced by its supporters — has become a central tenet of Republican political and economic thinking. That’s despite the fact that the big supply-side tax cuts of the 1980s and the 2000s did not work out as advertised, as even most supporters acknowledge.

But advocates see broader economic benefits from lowering tax rates, which is one of the reasons the concept has reappeared as a point of contention in this year’s election campaign, in an amended form.

While Uchitelle does a good job of explaining why the supply-side claim that tax cuts increase revenue is almost certainly wrong, he is curiously non-specific about which politicians are making these supply-side claims -- only Reagan is mentioned. (There is an allusion to Arthur Laffer advising John McCain but no direct quotes of the GOP candidate.) The article focuses instead on the views of various economic advisers and economists. But how can a New York Times report on this issue fail to mention the fact that President Bush and other administration officials have repeatedly implied that tax cuts increase revenue? Or that McCain, Rudy Giuliani, Mitt Romney, and Fred Thompson all made similar claims during the GOP primary campaign? Aren't those relevant facts?

Comments

[David]

Uchitelle is intentionally vague when he writes, "the big supply-side tax cuts of the 1980s and the 2000s did not work out as advertised, as even most supporters acknowledge." He carefully doesn't say in what respect the tax cuts didn't work our as advertixed. In fact, both of those tax cuts were followed by big increases in income tax collected.

[Howard]

David -

How do you define "big increases in income tax collected" ?

Tax receipts have grown over time because we have had economic growth over time.

Our tax revenues need to increase because total governmental spending increases. Very little of that spending is "discretionary".

The increases in our Federal debt level in the 1980's and in the current decade have been huge. Many of these years of increasing Federal debt were years of economic growth when our debt should have been decreasing.

You can cut capital gains taxes and get more capital gains tax revenue for a few years (because people elect to cash in on old long term capital gains) but that's a short-term event. Magic tax cuts aren't going to "grow" the economy out of deficit spending.

[David]

Howard, I agree with you that the increased tax collection following the 2 tax rate decreases may be temporary effects. (There was also a big increase in taxes collected after JFK's tax cut.) Also, they may be luck. Nevertheless, Uchitelle didn't make those arguments. Instead, he wrote so as to hide the tax collection increases.

Of course you're right that the rate increases are due to incrased economic activity. The supply-siders would claim that the increased economic activity is due to the reduced tax rate.

[Howard]

No, I don't think he hid anything.

He said that the promise of tax cuts was that they would stimulate the economy such that tax revenue would grow at an increased rate, even after the cuts in tax rates.

Here is one set of statistics Uchitelle evidenced, to quote -

"Even with a growing economy, however, the promised boon in tax revenue never materialized. Arthur B. Laffer, the renowned proponent of supply-side economics, still holds that tax revenues “rise dramatically” when tax rates are cut.

In the 1980s, though, during the initial era of supply-side tax cuts, per capita revenue from personal income taxes, adjusted for inflation, rose an average of just 0.7 percent annually throughout the Reagan presidency, according to the White House Office of Management and Budget.

That was far below what turned out to be an average annual increase of 6.5 percent in the eight years of the Clinton administration, when tax rates at the high end of the income ladder were raised."

*****

Supply side advocates say that "tax cuts pay for themselves."

Any simplistic unqualified statement of that type shouldn't be accepted at face value and we shouldn't be discussing taxes as though that were reality.

Taxes are multi-faceted. There are different components. There are also different impacts to changes in the tax system. We periodically need to revise and adjust rates (sometimes higher and sometimes lower), but that should be done based on realistic projections and estimates of both the impact on revenue (and on the economy).

Wanting to get more tax revenue by imposing lower tax rates is a nice idea but it's not a reliably strategy.