A commenter demands proof that the Bush administration has ever had any rationales besides the Laffer Curve for its tax cuts. Well, you could start with the White House statement on the tax plan.
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Yes, but was the Bush Administration aware of this statement?
Bush doesn't say how he will pay for those tax cuts. That is what the discussion is about.
If Bush wants to make those tax cut arguments and then say we have to pay for those cuts with deficit spending or reduced gov't spending then you would have a point that he relies on other non-supply side arguments. He doesn't do that in your example. He just tell us why tax cuts are good. I don't think your have answered the question.
"Bush doesn't say how he will pay for those tax cuts. That is what the discussion is about."
No it's not. It's about the rational for the tax cuts.
From your link:
"President Bush will work with the Congress to accelerate a portion of his tax plan to the beginning of 2001"
This tells me that you had to go back to before 2001 to find an example where Bush didn't use Laffer Curve rationale.
If you have to go back that far, how does this square with your contention (in your most recent post) that the Bush Administration rationale is not "dominated" by supply-side based arguments?
I like Bush's assertion that economics isn't "organized envy". Uh-huh.
You have five or six threads open on the same subject. Is there anyway you can combine them?
This is just George Costanza's Human Fund rationale for tax cuts -- "money for people." It only explains Bush's passion for tax cuts in what's not said -- that most of the foregone revenue from the tax-cut is attributable to taxes paid by upper income people. And note again the dodge "we cut taxes for all those who pay taxes" -- nothing on the disincentive effects of the overall fiscal system for people too poor to pay income taxes.
I wish some of the posters here would pick up an elemntary economics textbook--Mankiw's, say, or Bernanke's. If they did they would find that "there is a trade-off between equity and efficiency." Too many people here are attacking supply-side economics as voodoo, while really espousing a kind of voodoo economics themselves.
The redistributionist policies the leftists here favor would tend to reduce inequality. But that would come at a cost in terms of lost growth and a lower average standard of living.
If you want high and progressive taxes for the sake of "equity" or "social justice" or whatever then say so; but don't pretend that these policies will enhance efficiency because all of economic theory and evidence shows otherwise.
I will let Paul Krugman speak for me; he wrote this in 2003:
http://www.pkarchive.org/economy/TaxCutCon.html
"You might think that you could turn to the administration's own pronouncements to learn why it has been so determined to cut taxes. But even if you try to take the administration at its word, there's a problem: the public rationale for tax cuts has shifted repeatedly over the past three years.
During the 2000 campaign and the initial selling of the 2001 tax cut, the Bush team insisted that the federal government was running an excessive budget surplus, which should be returned to taxpayers. By the summer of 2001, as it became clear that the projected budget surpluses would not materialize, the administration shifted to touting the tax cuts as a form of demand-side economic stimulus: by putting more money in consumers' pockets, the tax cuts would stimulate spending and help pull the economy out of recession. By 2003, the rationale had changed again: the administration argued that reducing taxes on dividend income, the core of its plan, would improve incentives and hence long-run growth -- that is, it had turned to a supply-side argument.
These shifting rationales had one thing in common: none of them were credible. It was obvious to independent observers even in 2001 that the budget projections used to justify that year's tax cut exaggerated future revenues and understated future costs. It was similarly obvious that the 2001 tax cut was poorly designed as a demand stimulus. And we have already seen that the supply-side rationale for the 2003 tax cut was tested and found wanting by the Congressional Budget Office.
So what were the Bush tax cuts really about? The best answer seems to be that they were about securing a key part of the Republican base. Wealthy campaign contributors have a lot to gain from lower taxes, and since they aren't very likely to depend on Medicare, Social Security or Medicaid, they won't suffer if the beast gets starved. Equally important was the support of the party's intelligentsia, nurtured by policy centers like Heritage and professionally committed to the tax-cut crusade. The original Bush tax-cut proposal was devised in late 1999 not to win votes in the national election but to fend off a primary challenge from the supply-sider Steve Forbes, the presumptive favorite of that part of the base."
It wasn't about Laffer Curves or supply-side or anything else beyond a crass desire to pander to wealthy contributors (and the wealthy in general). All those economic arguments were just window dressing, yadda yadda yadda to cover the real agenda: Help the rich get richer. In that, this President has been a rousing success. The rich have gotten richer than ever before.
So, liberalrob, you are basically saying that Chait is completely wrong, and that supply side rationales were never part of the Administration's public or private rationale for tax cuts? And Megan has been right all along?
P. O'Neill, you remind me of the kind of dopey young litigator who thinks his job is just to quarrel with the last statement made, without regard to the basic point of the argument or what anyone is ultimately trying to prove. Megan demonstrates that supply side arguments were not central in the Administration's defense of its tax cuts, and you respond that Bush's real motive was to help rich people. Which might be true, but just isn't the point at issue.
I am responding to the post. Having not read Chait's book, I have no idea if I'm saying he is completely wrong. If so, so be it. Chait is not the Pope of me. It's called "questioning authority." Try it.
My point is that not every policy position is based on rigorous economic analysis. Krugman points out how the rationales for the Bush tax cuts changed over time; if there had been an underlying economic justification behind them, it seems to me that the rationale would have remained constant. Alternatively, the administration didn't know what the heck it was doing (another plausible argument) and was just throwing theories out there to see if one would stick. So, if there was no underlying strongly-held economic justification, the next possibility has to be that there was a political one. I think there is abundant evidence that that was the case.
I dunno, I think the case was made over and over and over and over again that "it's your money, you should keep more of it and give less of it to the government".
I think that was the rationale for the tax cuts. Anything postive or any crazy supply/demand based externalities were just gravy.
I didn't want a tax cut so tax revenues would go up. I didn't want a tax cut so Apple would sell more Ipods. I wanted a tax cut because it's my money and the government takes too much of it.
You may disagree, but only one of us is suggesting that more of my property should be confiscated from me at the point of a gun. The burden of proof then is definitely on you to convince me otherwise that taking my money is better for everyone overall.
A commenter demands proof that the Bush administration has ever had any rationales besides the Laffer Curve for its tax cuts.
I guess it was expecting too much to think that you would understand that the request was for honest rationales, not ones that rely on bogus numbers. Krugman blew numbers like the ones in this release to bits six years ago.
"You may disagree, but only one of us is suggesting that more of my property should be confiscated from me at the point of a gun."
Yes, the IRS is well armed.
"The burden of proof then is definitely on you to convince me otherwise that taking my money is better for everyone overall."
Fine. They can only take MY money, and YOU can stop driving on my roads, breathing my air, being protected by my police, my laws, my military -- and stop enjoying the benefits of MY well educated and healthy populace.
You can contract for all of these things yourself, Mr. Freedom... let me know how that works out.
This comment deleted for profanity and trolling
This comment delete for being off topic, and also, exceptionally silly.
You funny, Isocrates.
If you want high and progressive taxes for the sake of "equity" or "social justice" or whatever then say so; but don't pretend that these policies will enhance efficiency because all of economic theory and evidence shows otherwise.
Please find the economic theory that shows:
1. If 90% of Americans value ensuring that all citizens are fed, clothed, sheltered, and have health care higher than the corresponding drag on the economy (higher prices on Cokes or lower real wages or whatever),
2. Then imposing taxes or otherwise exacting the costs to allow such an outcome,
3. Will decrease the overall utility of American society.
Or at least make an argument, or a plausible explanation, or a plausible picture of an explation of an argument, of how that could possibly be. And don't go off telling us that no one could possibly want to help the poor more than they want a cheaper XBox - that gets you 327 votes in the 2008 election.
Please find the economic theory that shows: if 90% of Americans value ensuring that all citizens are fed, clothed, sheltered, and have health care higher than the corresponding drag on the economy... imposing taxes or otherwise exacting the costs to allow such an outcome... will decrease the overall utility of American society.-tydan.
First, this is not the argument I was making. I myself believe that a society as wealthy as ours ought to provide a basic level of food, shelter and health care to those who cannot afford to provide it for themselves. So why would I argue for something that I myself strongly oppose?
Second, the argument I was making was about intellectual honesty. If some leftists here believe that we ought to have highly progressive taxiation--not merely to provide a basic safety net but to actively redistribute wealth--because they find a high degree of inequality morally offensive, then they should say so. But they ought also to admit that the policies they favor also have a cost in terms of lost growth and a lower average standard of living. Perhaps that is a price worth paying. I'm not addressing that at the moment.
To quote from an old edition of Mankiw's elementary textbook:
These are not the ravings of some fringe supply-sider, they are an expression of the economic consensus by a thoroughly mainstream and respected economist. And they follow from fundamental insights from welfare economics about deadweight lossses. So please, in future, don't pretend the redistributionist programs will promote growth. They won't. And those who make such an argument are descending to the same intellectual level as the worst snake-oil salesman or Lafferite.
When I wrote my first comment, I had to decide which argument would surface- would it be that the Bush Administration is so incompetent it didn't know what press releases it was putting out, or it was putting out rationales for tax cuts that it didn't believe in. I chose badly.
they are an expression of the economic consensus by a thoroughly mainstream and respected economist. And they follow from fundamental insights from welfare economics about deadweight lossses.
And they are completely fact-free, unsupported assumptions that people who pay more taxes have less incentive to work. It's baloney, and I don't believe it no matter how many Chicago-school Ph.D. economists you line up out there. If anything, higher taxes provide an incentive to work HARDER in order to make more money to afford luxuries and improve standard of living. That just seems common-sensical. I don't know where this idea that higher taxes reduce work incentives comes from (the same place that is always complaining about "welfare queens" and "lazy poor people" I guess). These are ECONOMISTS, not psychologists, and I don't trust them to have any better understanding of individual human motivations than I do.
Mankiw is one of the worst.
liberalrob,
Then you must believe a 100% tax rate would produce the hardest working human possible? Or that leisure time has absolutely no value whatsoever?
"And they are completely fact-free, unsupported assumptions that people who pay more taxes have less incentive to work. It's baloney, and I don't believe it no matter how many Chicago-school Ph.D. economists you line up out there."-liberalrob
Well, if you want empirical evidence, I would point you to "Iceland's Natural Experiment," again from the Third Edition of Mankiw's Principles of Economics, which summarizes an article from the December 2001 AER. If you realy are interested in finding out the truth, you will read about this "natural experiment", and see how an income tax cut really did promote work effort.
You might also consder how entreprenuers operate. When they decide whether to take the risky step of opening up a new business, they try to weigh the potential reward against the risk of loss. It is only natural then that reducing the potential reward by raising taxes will deter some of these entreprenuers from taking that risk. So it should be clear to anyone who understands business that higher taxes will discourage the formation of new businesses.
Finally, Mankiw did not attend Chicago. He was at Princeton and then at MIT. He studied under Paul Krugman , among others. He now teaches at Harvard. As a matter of fact, far from being a Chicago economist (even in spirit), he is one of the most prominent members of the "New Keynesian" school that emerged in reaction to Chicago. Read his paper from the JEP (Summer 1989) in which he attacks Ed Prescott's work on Real Business Cycles. "In my view," he wrote, "real business cycle theory does not provide an empirically plausible explanation of economic fluctuations." Or read his work on wage and price rigidities--which is really a rejection of the Walrasian New Classical models.
Then you must believe a 100% tax rate would produce the hardest working human possible?
Don't be absurd.
If you realy are interested in finding out the truth, you will read about this "natural experiment", and see how an income tax cut really did promote work effort.
Off my initial skimming of the underlying study by Bianchi, I have to wonder how much of the effect they observed was due to the "tax-free year" the transition to the new tax system brought about. I imagine if I found out there would be a one-year no-tax window, I'd do everything I could to maximize my output that year. I noticed that the "effect" they observed was more pronounced among people who had some control over how many hours they worked (self-employed, hourly) as opposed to those who were traditional salaried employees. So really, how much of this increased productivity was due to a sustainable increase in labor output, and how much was just taking advantage of a short-term incentive? You can only cut taxes to zero one time...
It is only natural then that reducing the potential reward by raising taxes will deter some of these entreprenuers from taking that risk. So it should be clear to anyone who understands business that higher taxes will discourage the formation of new businesses.
Maybe or maybe not. (If all are affected equally, the increased risk is the same for everyone; and raising taxes does not mean 100% confiscation of all profits, so the incentive to start a business should remain. You could also maintain this notion of incentive by raising taxes on interest income so that investing in a business still provides greater return than leaving your money in the bank.) In any case, does that NECESSARILY mean that LOWERING taxes will thereby ENCOURAGE formation of new businesses? Or is that rather just a hope?
Finally, Mankiw did not attend Chicago.
I said "Chicago-school", not that he went to U of C like Megan did. It was a bad assumption on my part, but I'm not an economist and am not up on all the cliques in that area of study. My point was I don't accept that Mankiw must be right because he's a Ph.D. and I'm not. In this case, I think he's wrong, and other economists (including Krugman who Mankiw studied under) are on my side.
liberalrob,
What is absurd about it? You yourself wrote the following:
So if higher taxes provide incentive to work harder, then the highest tax rate should provide the highest incentive to work hard. Or are you now retracting your statement?
So if higher taxes provide incentive to work harder, then the highest tax rate should provide the highest incentive to work hard. Or are you now retracting your statement?
No, I am not retracting my statement. There will never be a 100% tax rate (outside of true Communism), so that's a ridiculous extrapolation. Furthermore, a 100% tax rate is not necessary to accomplish the goals we have set for our government.
I don't consider taxes either an incentive or a disincentive to work hard. I work to make money, not to pay taxes. I see taxes as a necessary part of living in a society, and to the extent that increased taxes result in a better society, I approve of them.
liberalrob,
Wait a second- the second of your comments (at 5:29) is at odds with the one I cited. That sounds like a retraction to me.
And, in any case, if you don't work to pay taxes, then how are you paying them?
I said "if anything." IF. That means, I don't think there's a correlation between taxes and work ethic.
And, in any case, if you don't work to pay taxes, then how are you paying them?
You're being absurd again. I work so I can buy stuff. Paying taxes is incidental to that.