The title is the cliffnotes version of this NYT magazine article by Paul Krugman.
While I fear that any discussion of this article will degrade into personal attacks directed towards the author, it would be nice to see some of the stronger conservative thinkers here actually address the key points of Krugman's case. Here's a few good ones for starters:
Riley, a Republican, was a staunch supporter of tax cuts. Faced with a fiscal crisis in his state, however, he seems to have had an epiphany. He decided that it was impossible to balance Alabama's budget without a significant tax increase. And that, apparently, led him to reconsider everything. ''The largest tax increase in state history just to maintain the status quo?'' he asked. ''I don't think so.'' Instead, Riley proposed a wholesale restructuring of the state's tax system: reducing taxes on the poor and middle class while raising them on corporations and the rich and increasing overall tax receipts enough to pay for a big increase in education spending.
Did Bob Riley really propose such an un-Republican tax restructuring?
If taxes stay as low as they are now, government as we know it cannot be maintained. In particular, Social Security will have to become far less generous; Medicare will no longer be able to guarantee comprehensive medical care to older Americans; Medicaid will no longer provide basic medical care to the poor.
This sounds a little speculative and alarmist - anyone care to link economic projections that argue otherwise?
though most Americans feel that they pay too much in taxes, they get off quite lightly compared with the citizens of other advanced countries. Furthermore, for most Americans tax rates probably haven't risen for a generation. And a few Americans -- namely those with high incomes -- face much lower taxes than they did a generation ago.
...
By 2002, the tax take was down to 26.3 percent of G.D.P., and all indications are that it will be lower still this year and next.
This is a low number compared with almost every other advanced country. In 1999, Canada collected 38.2 percent of G.D.P. in taxes, France collected 45.8 percent and Sweden, 52.2 percent.
Still, aren't taxes much higher than they used to be? Not if we're looking back over the past 30 years. As a share of G.D.P., federal taxes are currently at their lowest point since the Eisenhower administration. State and local taxes rose substantially between 1960 and the early 1970's, but have been roughly stable since then. Aside from the capital gains taxes paid during the bubble years, the share of income Americans pay in taxes has been flat since Richard Nixon was president.
Anyone care to defend the "regular Americans pay too much taxes" argument with numbers to counter these?
By the time the Bush tax cuts have taken full effect, people with really high incomes will face their lowest average tax rate since the Hoover administration.
Bringing up associations the Hoover administration is like using a bad word... ouch.
Supply-side economics was a political doctrine from Day 1; it emerged in the pages of political magazines, not professional economics journals.
Fact or fiction?
It is not that the professionals refuse to consider supply-side ideas; rather, they have looked at them and found them wanting. A conspicuous example came earlier this year when the Congressional Budget Office tried to evaluate the growth effects of the Bush administration's proposed tax cuts. The budget office's new head, Douglas Holtz-Eakin, is a conservative economist who was handpicked for his job by the administration. But his conclusion was that unless the revenue losses from the proposed tax cuts were offset by spending cuts, the resulting deficits would be a drag on growth, quite likely to outweigh any supply-side effects.
Straight from Bush's CBO's mouth...
Irving Kristol, in his role as co-editor of The Public Interest, was arguably the single most important proponent of supply-side economics. But years later, he suggested that he himself wasn't all that persuaded by the doctrine: ''I was not certain of its economic merits but quickly saw its political possibilities.'' Writing in 1995, he explained that his real aim was to shrink the government and that tax cuts were a means to that end: ''The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority -- so political effectiveness was the priority, not the accounting deficiencies of government.''
In effect, what Kristol said in 1995 was that he and his associates set out to deceive the American public. They sold tax cuts on the pretense that they would be painless, when they themselves believed that it would be necessary to slash public spending in order to make room for those cuts.
Misquoted? Taken out of context? If not, this is a pretty damning statement.
The test of tax cuts as a spur to economic growth is whether they produced more than an ordinary business cycle recovery. Once the economy was back to full employment, was it bigger than you would otherwise have expected? And there Reagan fails the test: between 1979, when the big slump began, and 1989, when the economy finally achieved more or less full employment again, the growth rate was 3 percent, the same as the growth rate between the two previous business cycle peaks in 1973 and 1979. Or to put it another way, by the late 1980's the U.S. economy was about where you would have expected it to be, given the trend in the 1970's. Nothing in the data suggests a supply-side revolution.
Where is the data that does suggest supply side revolutions?
For Clinton did exactly the opposite of what supply-side economics said you should do: he raised the marginal rate on high-income taxpayers. In 1989, the top 1 percent of families paid, on average, only 28.9 percent of their income in federal taxes; by 1995, that share was up to 36.1 percent.
Conservatives confidently awaited a disaster -- but it failed to materialize. In fact, the economy grew at a reasonable pace through Clinton's first term, while the deficit and the unemployment rate went steadily down. And then the news got even better: unemployment fell to its lowest level in decades without causing inflation, while productivity growth accelerated to rates not seen since the 1960's. And the budget deficit turned into an impressive surplus.
...
Let's be clear: very few economists think that Clinton's policies were primarily responsible for that miracle. For the most part, the Clinton-era surge probably reflected the maturing of information technology: businesses finally figured out how to make effective use of computers, and the resulting surge in productivity drove the economy forward. But the fact that America's best growth in a generation took place after the government did exactly the opposite of what tax-cutters advocate was a body blow to their doctrine.
They tried to make the best of the situation. The good economy of the late 1990's, ardent tax-cutters insisted, was caused by the 1981 tax cut. Early in 2000, Lawrence Kudlow and Stephen Moore, prominent supply-siders, published an article titled ''It's the Reagan Economy, Stupid.''
But anyone who thought about the lags involved found this implausible -- indeed, hilarious. If the tax-cut movement attributed the booming economy of 1999 to a tax cut Reagan pushed through 18 years earlier, why didn't they attribute the economic boom of 1983 and 1984 -- Reagan's ''morning in America'' -- to whatever Lyndon Johnson was doing in 1965 and 1966?
Let's see a plausible link explaining how it takes 18 years for the benefits of presidential economic policies to surface.
But the most striking example of what skillful marketing can accomplish is the campaign for repeal of the estate tax.
As demonstrated, the estate tax is a tax on the very, very well off. Yet advocates of repeal began portraying it as a terrible burden on the little guy. They renamed it the ''death tax'' and put out reports decrying its impact on struggling farmers and businessmen -- reports that never provided real-world examples because actual cases of family farms or small businesses broken up to pay estate taxes are almost impossible to find. This campaign succeeded in creating a public perception that the estate tax falls broadly on the population. Earlier this year, a poll found that 49 percent of Americans believed that most families had to pay the estate tax, while only 33 percent gave the right answer that only a few families had to pay.
I knew the right answer, but I've had friends who didn't know there is a $1 million lifetime exemption from the "death tax" (and related gift taxes)...
The most important tool of accounting trickery, though not the only one, is the use of ''sunset clauses'' to understate the long-term budget impact of tax cuts. To keep the official 10-year cost of the 2001 tax cut down, the administration's Congressional allies wrote the law so that tax rates revert to their 2000 levels in 2011. But, of course, nobody expects the sunset to occur: when 2011 rolls around, Congress will be under immense pressure to extend the tax cuts.
The same strategy was used to hide the cost of the 2003 tax cut. Thanks to sunset clauses, its headline cost over the next decade was only $350 billion, but if the sunsets are canceled -- as the president proposed in a speech early this month -- the cost will be at least $800 billion.
Seems sneaky to me.
Even in the short run, the right question to ask isn't whether the tax cuts were better than nothing; they probably were. The right question is whether some other economic-stimulus plan could have achieved better results at a lower budget cost. And it is hard to deny that, on a jobs-per-dollar basis, the Bush tax cuts have been extremely ineffective. According to the Congressional Budget Office, half of this year's $400 billion budget deficit is due to Bush tax cuts. Now $200 billion is a lot of money; it is equivalent to the salaries of four million average workers. Even the administration doesn't claim its policies have created four million jobs. Surely some other policy -- aid to state and local governments, tax breaks for the poor and middle class rather than the rich, maybe even W.P.A.-style public works -- would have been more successful at getting the country back to work.
Let's hear the arguments against other stimulus options. Remind us why tax cuts are the only good way to stimulate the economy...
If Grover Norquist is right -- and he has been right about a lot -- the coming crisis will allow conservatives to move the nation a long way back toward the kind of limited government we had before Franklin Roosevelt. Lack of revenue, he says, will make it possible for conservative politicians -- in the name of fiscal necessity -- to dismantle immensely popular government programs that would otherwise have been untouchable.
In Norquist's vision, America a couple of decades from now will be a place in which elderly people make up a disproportionate share of the poor, as they did before Social Security. It will also be a country in which even middle-class elderly Americans are, in many cases, unable to afford expensive medical procedures or prescription drugs and in which poor Americans generally go without even basic health care. And it may well be a place in which only those who can afford expensive private schools can give their children a decent education.
But as Governor Riley of Alabama reminds us, that's a choice, not a necessity. The tax-cut crusade has created a situation in which something must give. But what gives -- whether we decide that the New Deal and the Great Society must go or that taxes aren't such a bad thing after all -- is up to us. The American people must decide what kind of a country we want to be.
I'm sure people will have problems with these conclusions. The question is, how will we deal with the pinch of government debt without cutting core services or raising taxes to highly unpopular levels?
Fire away.
While I fear that any discussion of this article will degrade into personal attacks directed towards the author, it would be nice to see some of the stronger conservative thinkers here actually address the key points of Krugman's case. Here's a few good ones for starters:
Riley, a Republican, was a staunch supporter of tax cuts. Faced with a fiscal crisis in his state, however, he seems to have had an epiphany. He decided that it was impossible to balance Alabama's budget without a significant tax increase. And that, apparently, led him to reconsider everything. ''The largest tax increase in state history just to maintain the status quo?'' he asked. ''I don't think so.'' Instead, Riley proposed a wholesale restructuring of the state's tax system: reducing taxes on the poor and middle class while raising them on corporations and the rich and increasing overall tax receipts enough to pay for a big increase in education spending.
Did Bob Riley really propose such an un-Republican tax restructuring?
If taxes stay as low as they are now, government as we know it cannot be maintained. In particular, Social Security will have to become far less generous; Medicare will no longer be able to guarantee comprehensive medical care to older Americans; Medicaid will no longer provide basic medical care to the poor.
This sounds a little speculative and alarmist - anyone care to link economic projections that argue otherwise?
though most Americans feel that they pay too much in taxes, they get off quite lightly compared with the citizens of other advanced countries. Furthermore, for most Americans tax rates probably haven't risen for a generation. And a few Americans -- namely those with high incomes -- face much lower taxes than they did a generation ago.
...
By 2002, the tax take was down to 26.3 percent of G.D.P., and all indications are that it will be lower still this year and next.
This is a low number compared with almost every other advanced country. In 1999, Canada collected 38.2 percent of G.D.P. in taxes, France collected 45.8 percent and Sweden, 52.2 percent.
Still, aren't taxes much higher than they used to be? Not if we're looking back over the past 30 years. As a share of G.D.P., federal taxes are currently at their lowest point since the Eisenhower administration. State and local taxes rose substantially between 1960 and the early 1970's, but have been roughly stable since then. Aside from the capital gains taxes paid during the bubble years, the share of income Americans pay in taxes has been flat since Richard Nixon was president.
Anyone care to defend the "regular Americans pay too much taxes" argument with numbers to counter these?
By the time the Bush tax cuts have taken full effect, people with really high incomes will face their lowest average tax rate since the Hoover administration.
Bringing up associations the Hoover administration is like using a bad word... ouch.
Supply-side economics was a political doctrine from Day 1; it emerged in the pages of political magazines, not professional economics journals.
Fact or fiction?
It is not that the professionals refuse to consider supply-side ideas; rather, they have looked at them and found them wanting. A conspicuous example came earlier this year when the Congressional Budget Office tried to evaluate the growth effects of the Bush administration's proposed tax cuts. The budget office's new head, Douglas Holtz-Eakin, is a conservative economist who was handpicked for his job by the administration. But his conclusion was that unless the revenue losses from the proposed tax cuts were offset by spending cuts, the resulting deficits would be a drag on growth, quite likely to outweigh any supply-side effects.
Straight from Bush's CBO's mouth...
Irving Kristol, in his role as co-editor of The Public Interest, was arguably the single most important proponent of supply-side economics. But years later, he suggested that he himself wasn't all that persuaded by the doctrine: ''I was not certain of its economic merits but quickly saw its political possibilities.'' Writing in 1995, he explained that his real aim was to shrink the government and that tax cuts were a means to that end: ''The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority -- so political effectiveness was the priority, not the accounting deficiencies of government.''
In effect, what Kristol said in 1995 was that he and his associates set out to deceive the American public. They sold tax cuts on the pretense that they would be painless, when they themselves believed that it would be necessary to slash public spending in order to make room for those cuts.
Misquoted? Taken out of context? If not, this is a pretty damning statement.
The test of tax cuts as a spur to economic growth is whether they produced more than an ordinary business cycle recovery. Once the economy was back to full employment, was it bigger than you would otherwise have expected? And there Reagan fails the test: between 1979, when the big slump began, and 1989, when the economy finally achieved more or less full employment again, the growth rate was 3 percent, the same as the growth rate between the two previous business cycle peaks in 1973 and 1979. Or to put it another way, by the late 1980's the U.S. economy was about where you would have expected it to be, given the trend in the 1970's. Nothing in the data suggests a supply-side revolution.
Where is the data that does suggest supply side revolutions?
For Clinton did exactly the opposite of what supply-side economics said you should do: he raised the marginal rate on high-income taxpayers. In 1989, the top 1 percent of families paid, on average, only 28.9 percent of their income in federal taxes; by 1995, that share was up to 36.1 percent.
Conservatives confidently awaited a disaster -- but it failed to materialize. In fact, the economy grew at a reasonable pace through Clinton's first term, while the deficit and the unemployment rate went steadily down. And then the news got even better: unemployment fell to its lowest level in decades without causing inflation, while productivity growth accelerated to rates not seen since the 1960's. And the budget deficit turned into an impressive surplus.
...
Let's be clear: very few economists think that Clinton's policies were primarily responsible for that miracle. For the most part, the Clinton-era surge probably reflected the maturing of information technology: businesses finally figured out how to make effective use of computers, and the resulting surge in productivity drove the economy forward. But the fact that America's best growth in a generation took place after the government did exactly the opposite of what tax-cutters advocate was a body blow to their doctrine.
They tried to make the best of the situation. The good economy of the late 1990's, ardent tax-cutters insisted, was caused by the 1981 tax cut. Early in 2000, Lawrence Kudlow and Stephen Moore, prominent supply-siders, published an article titled ''It's the Reagan Economy, Stupid.''
But anyone who thought about the lags involved found this implausible -- indeed, hilarious. If the tax-cut movement attributed the booming economy of 1999 to a tax cut Reagan pushed through 18 years earlier, why didn't they attribute the economic boom of 1983 and 1984 -- Reagan's ''morning in America'' -- to whatever Lyndon Johnson was doing in 1965 and 1966?
Let's see a plausible link explaining how it takes 18 years for the benefits of presidential economic policies to surface.
But the most striking example of what skillful marketing can accomplish is the campaign for repeal of the estate tax.
As demonstrated, the estate tax is a tax on the very, very well off. Yet advocates of repeal began portraying it as a terrible burden on the little guy. They renamed it the ''death tax'' and put out reports decrying its impact on struggling farmers and businessmen -- reports that never provided real-world examples because actual cases of family farms or small businesses broken up to pay estate taxes are almost impossible to find. This campaign succeeded in creating a public perception that the estate tax falls broadly on the population. Earlier this year, a poll found that 49 percent of Americans believed that most families had to pay the estate tax, while only 33 percent gave the right answer that only a few families had to pay.
I knew the right answer, but I've had friends who didn't know there is a $1 million lifetime exemption from the "death tax" (and related gift taxes)...
The most important tool of accounting trickery, though not the only one, is the use of ''sunset clauses'' to understate the long-term budget impact of tax cuts. To keep the official 10-year cost of the 2001 tax cut down, the administration's Congressional allies wrote the law so that tax rates revert to their 2000 levels in 2011. But, of course, nobody expects the sunset to occur: when 2011 rolls around, Congress will be under immense pressure to extend the tax cuts.
The same strategy was used to hide the cost of the 2003 tax cut. Thanks to sunset clauses, its headline cost over the next decade was only $350 billion, but if the sunsets are canceled -- as the president proposed in a speech early this month -- the cost will be at least $800 billion.
Seems sneaky to me.
Even in the short run, the right question to ask isn't whether the tax cuts were better than nothing; they probably were. The right question is whether some other economic-stimulus plan could have achieved better results at a lower budget cost. And it is hard to deny that, on a jobs-per-dollar basis, the Bush tax cuts have been extremely ineffective. According to the Congressional Budget Office, half of this year's $400 billion budget deficit is due to Bush tax cuts. Now $200 billion is a lot of money; it is equivalent to the salaries of four million average workers. Even the administration doesn't claim its policies have created four million jobs. Surely some other policy -- aid to state and local governments, tax breaks for the poor and middle class rather than the rich, maybe even W.P.A.-style public works -- would have been more successful at getting the country back to work.
Let's hear the arguments against other stimulus options. Remind us why tax cuts are the only good way to stimulate the economy...
If Grover Norquist is right -- and he has been right about a lot -- the coming crisis will allow conservatives to move the nation a long way back toward the kind of limited government we had before Franklin Roosevelt. Lack of revenue, he says, will make it possible for conservative politicians -- in the name of fiscal necessity -- to dismantle immensely popular government programs that would otherwise have been untouchable.
In Norquist's vision, America a couple of decades from now will be a place in which elderly people make up a disproportionate share of the poor, as they did before Social Security. It will also be a country in which even middle-class elderly Americans are, in many cases, unable to afford expensive medical procedures or prescription drugs and in which poor Americans generally go without even basic health care. And it may well be a place in which only those who can afford expensive private schools can give their children a decent education.
But as Governor Riley of Alabama reminds us, that's a choice, not a necessity. The tax-cut crusade has created a situation in which something must give. But what gives -- whether we decide that the New Deal and the Great Society must go or that taxes aren't such a bad thing after all -- is up to us. The American people must decide what kind of a country we want to be.
I'm sure people will have problems with these conclusions. The question is, how will we deal with the pinch of government debt without cutting core services or raising taxes to highly unpopular levels?
Fire away.
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