"That’s been the majority Republican view for some time," Minority Leader Mitch McConnell told TPMDC this afternoon after the weekly GOP press conference. "That there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject."
The CBO and other budget experts strongly disagree. And Democrats want to preserve the Bush tax cuts for people making less than $200,000-$250,000 a year — but only for them. Allowing them to expire for wealthier people would raise hundreds of billions of dollars over 10 years, which could allow them to offset the spending Republicans currently decry.
However, the GOP’s top budget guy, Sen. Judd Gregg (R-NH), disagrees. He said Kyl’s prescription — offset spending with tax increases or program cuts, but treat tax cuts differently — is exactly right. "It makes a lot of sense, because, you know, when you’re raising taxes you’re taking money out of peoples’ pockets," said Gregg when asked by TPMDC. "When you’re spending money, you’re spending money that is — it’s not the same thing because it’s growing the government. So I tend to think that tax cuts should not have to be offset."
The expert view is that giving unemployed people money to spend stimulates the economy much more than does preserving tax cuts for the rich. But this view is not shared by the chairman of the Republican Senate re-election committee.
By now, this has been pounced upon by ever progressive blogger and critic within reach of a keyboard, mostly repeating one another’s points. But this is one of those times when there is virtue in piling on. McConnell and his fellow conservatives may believe that the Bush tax cuts cost us nothing. But there are some beliefs that do not deserve the kind of walking-on-eggshells deference we tend to afford matters of personal faith.
Don’t get me wrong. I’m not the kid of person who goes out of his way to demolish, say, a kid’s belief in Santa Claus or the Tooth Fairy. However, a grown man who holds beliefs that belong in the same category Santa, the Tooth Fairy, and leprechauns — especially one who seeks to base policy on such beliefs — deserves neither deference nor kid-glove treatment.
The kid putting a tooth under his pillow doesn’t need to prove the Tooth Fairy really left money under his pillow. But beliefs like McConnell’s must be held up to the light, and either be borne out by evidence or dust-binned as disproven by reality.
Where to begin with McConnell? I’ll start with basic math.
Conservatives who squawk about the deficit — and Democrats who should know better, but squawk anyway — tend to do so selectively. That is, they tend to focus only on spending. But spending is only half of any deficit equation. After all, a deficit is "the amount by which expenditures or liabilities exceed income or assets." When it comes to the government "income" really means "revenue," and that means if we’re going to have an honest discussion about the deficit we have to talk about about taxes.
That half of the deficit equation — income or revenue — rarely enters the discussion, but the reality is the surest way to create a deficit is to increase spending while deliberately decreasing income or revenue. Who would do something like that? Something so obviously unsustainable?
Part of the answer goes back to the Bush administration’s tax cuts, and the politicians who squawk about deficits and spending now — as the Obama administration and Democrats are finally looking for ways to invest the nation’s assets in bailing out the other 99% of us — but stayed curiously silent then. Citizens for Tax Justice noted this last year, when it reported that the Bush tax cuts were more expensive than the Democrats health care reform proposal. (Not to mention they’re also more expensive than the president’s $950 billion health care reform proposal.)
Newly revised estimates from Citizens for Tax Justice show that the Bush tax cuts cost almost $2.5 trillion over the decade after they were first enacted (2001-2010).1 Preliminary estimates from the non-partisan Congressional Budget Office show that the House Democrats’ health care reform legislation is projected to cost $1 trillion over the decade after it would be enacted (2010-2019).2
And yet, many of the lawmakers who argue that the health care reform legislation is “too costly” are the same lawmakers who supported the Bush tax cuts. 3 Their own voting record demonstrates that health care reform is not a matter of costs, but a matter of priorities.
It’s difficult to see how the Bush tax cuts could provide us with two and a half times the benefits of health care reform. In 2010, when all the Bush tax cuts are finally phased in, a staggering 52.5 percent of the benefits will go to the richest 5 percent of taxpayers. President Bush and his supporters argued that these high-income tax cuts would benefit everybody because they would unleash investment that would spark widespread economic prosperity. There seems to be no evidence of this, particularly given the collapse of the economy at the end of the Bush years.
But wait, tax cuts don’t cost anything? Do they?
Sure they do. McConnell’s declaration of faith regarding tax cuts has spawned a plethora of chart-and-graph laden posts from the likes of Paul Krugman, and Ezra KLein. Compiling them, it occurred to me that any idea stupid enough to be debunked by a PowerPoint presentation (virtual, in this case) should be.
None of this, of course, is news. Factcheck.Org answered this question even as Bush was packing up to move out of the White House.
Q: Have tax cuts always resulted in higher tax revenues and more economic growth as many tax cut proponents claim?
A: No. In fact, economists say tax cuts do not spark enough growth to pay for themselves.
This economic theory is what George H.W. Bush called “voodoo economics.” We called it “supply-side spin” when we wrote about Republican presidential contender John McCain’s claim that President George W. Bush’s tax cuts had increased federal revenues. We found that a slew of government economists – from the Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation and the White House’s Council of Economic Advisers – all disagreed with that theory, saying that tax cuts may spur economic growth but they lead to revenues that are lower than they would have been if the cuts hadn’t been enacted.
Two years before that, the Center on Budget and Policy Priorities found claims such as McConnell’s were "too good to be true" — tax cuts haven’t paid for themselves in the past — and noted that the Bush administration itself didn’t project that the tax cuts would pay for themselves.
And, as Dave Johnson pointed out:
Every one of us knows that the budget deficits come from the tax cuts and military spending increases of recent decades. But every one of us also knows that the beneficiaries of those tax cuts and military spending use their wealth and power to corrupt the political system, preventing us from restoring sanity to our governance.
Like I said before, if you purposely reduce your revenues (tax cuts) and increase your expenditures (an "off the books" war, never "paid for" in any budget) you get a deficit. And no matter how hard McConnell claps, the tax cut fairy isn’t going to change that reality and leave prosperity or 15 million jobs under our collective pillow.
The same goes for California GOP Senate candidate, Carly Fiorina.
Now Carly Fiorina is joining the cause. In an interview with KCBS’s Doug Sovern and CBS 5’s Simon Perez today, she said that "you don’t need to pay for tax cuts."
Fiorina: Let me propose something that may seem crazy to you: you don’t need to pay for tax cuts. They pay for themselves, if they are targeted, because they create jobs….We’re getting ready to increase the taxes on capital formation. That’s a really bad idea in the middle of a recession. Why are we making it harder for people to invest capital? We should be making it easier!
This is the Laffer curve coming back to the fore: what Bush I rightly called "voodoo economics." Fiorina claimed Reagan proved this works, but that conveniently ignores the actual impact of the Bush tax cuts. George W. Bush saw nearly 3 million jobs lost during his time in office.
Further, his tax cuts went to the wealthy, who used it to invest in job creation…overseas. To people like one Carly Fiorina, then CEO of HP, who fired tens of thousands of workers at HP and called offshoring "right-sourcing." The notion that tax cuts pay for themselves and create American jobs is absurd. But note that in her spiel, Fiorina didn’t say "American jobs" – she clearly expects business to use further capital gains cuts to invest in jobs overseas, while continuing to screw workers here at home.
But don’t just take my word for it. Take Kevin Williamson’s word. He’s the deputy managing editor of The National Review. Back in March, in an article titled "Goodbye Supply Side," He wrote:"The exaggeration of supply-side effects — the belief that tax-rate cuts pay for themselves or more than pay for themselves over some measurable period — is more an article of faith than an economic fact." (The rest of his article is an interesting read that criticizes California’s Proposition 13, while still attempting to construct a new conservative frame around taxes and spending that will yield pretty much the same results we’re facing now. But it’s at least a more nuanced view on taxes and spending than we’re likely to hear from most conservatives these days.)
Paul Krugman asks, in his post:
In short, the notion that tax cuts pay for themselves has no empirical support. And yet the GOP leadership — which claims to be oh so worried about the deficit — is willing to stake America’s solvency on its belief that tax cuts are free.
Update: Also, for those readers who complain that I’m too partisan, that I should admit that there are two sides to the issues, this is a prime example of my problem. How am I supposed to pretend that these are serious people? The facts really do have a well-known liberal bias.
That question is answered by Matt Yglesias.
In sum, there are zero historical examples of conservatives mobilizing to make the deficit smaller. What is true is that most conservatives oppose increases in non-military spending when those increases are proposed by Democratic presidents. A minority of conservatives are more consistent opponents of increases in non-military spending. But the key element of conservative fiscal policy is that tax revenue as a percent of GDP should be made as low as possible. This isn’t a goal they pursue that stands in some kind of balance with concern about the deficit, it’s the only goal they pursue. You can like that or not, but every single journalist who writes articles about the deficit debate that doesn’t highlight the conservative movement’s deep, decades-long hostility to deficit reduction is being grossly irresponsible.
They are serious about one thing: not growing the economy, creating jobs, or spreading prosperity, but cutting taxes. Just cutting taxes. And not as a means to an end (at least not any end most Americans would care to share in) but as an end in itself.