From Bruce Bartlett: Tax Cuts Don’t Work

One Of The Designers Of The Gospel Of Tax Cuts Says: It Is Hogwash

(25 minutes total for both videos)

At the national level, we are about to head into a major debate on the budget. Trump and the radical right Republican congress will be pushing for a tax “reform” that will reward the rich, punish the poor and screw the middle class in ways they won’t even understand. The bottom line is that their rich donors and owners (the Kochs and others) want those huge tax cuts badly enough to threaten to buy new politicians if this group won’t come through for them.

At the state level, Iowa is going through a budget crisis like it has never experienced before. This is a crisis purely made by budget mismanagement by Iowa’s version of radical right wing Republicans who have slashed taxes for corporations and handed them bundles of our tax dollars in some dream that this will fix the economy. Instead Iowa’s economy continues to spiral out of control downward. Instead of facing reality, the radical republicans continue to follow the Kansas example into oblivion.

Wednesday Bruce Bartlett, one of the creators of the myth of trickle-down and tax cut myths, was a witness at a House Democrats tax forum. The following are excerpts from a USA Today article on his prepared testimony:

“I know something about this subject. Forty years ago, while working for New York Rep. Jack Kemp, I helped originate the Republican obsession with slashing taxes that came to be called “supply-side economics.” While I believe this theory played a useful role in economic theory and policy in the late 1970s and early 1980s, it has long outlived its usefulness and is now nothing but dogma completely divorced from reality.

{snip}

Thus Republicans have long argued out of both sides of their mouths. On the one hand, they assert, without any evidence, that tax cuts pay for themselves by greatly expanding the economy, and that tax cuts will starve the beast and reduce spending. Thus in Kansas, the state hired Arthur Laffer, one of the original supply-siders, to say that tax cuts would pay for themselves. When taxes were slashed and revenues collapsed, the Republican governor and legislature sharply cut spending. It is Republican dogma that all deficits result from excessive spending, never from tax cuts.

{snip}

Republicans believe that statutory rates of taxation are all-powerful, even though almost no one pays them; deductions, credits and exclusions reduce the effective tax rate (taxes divided by income) in many cases to zero. But the historical experience tells us this theory is nonsense. The Tax Reform Act of 1986 reduced the top personal income tax rate to just 28% from 50%, and the corporate tax rate to 34% from 46%. Yet there was no increase in the rate of economic growth in subsequent years and by 1990 the economy was in a deep recession.

Strenuous efforts by economists to find a growth effect from the 1986 act have failed to find any.There were accounting effects as income was shuffled around to take advantage of tax changes, but no rise in investment or any significant effect on labor supply. “The aggregate values of labor supply and saving apparently responded very little,” economists Alan Auerbach and Joel Slemrod concluded in an authoritative study.

Virtually everything Republicans say about taxes today is a lie. Tax cuts and tax rate reductions will not pay for themselves; they never have. Republicans don’t even believe they will, they are just excuses to slash spending for the poor when revenues collapse and deficits rise. There is no evidence that tax reform raises growth, although it may improve fairness and tax administration. And the Republican idea that tax increases always crash the economy is belied by the experiences after Bill Clinton raised taxes in 1993 and Barack Obama did the same in 2013. The economy grew nicely and the stock market boomed in both cases.”

Here we have a Republican who is facing reality. In the next few months we will once again hear what are now long disproven myths and long since proven lies trotted out as “facts” (alternatives facts, anyone?). Sadly we will see little push back from the corporate media. 

The easiest refutation of the radical right’s economic views the presidency of Bill Clinton. Taxes were raised, debts were paid down and economic order was restored to some degree. The Bush II presidency stood in direct contrast to the Clinton presidency and we saw what that led to.

Now we are at the beginning of another round of mythic economics. We know how this will turn out before it starts. We have been there before. Hopefully Democrats can stop it in its tracks.

But what if Bernie Sanders in particular had been elected? Here is one view from the Thom Hartmann Show. (Note: we would have had some of these results had Clinton been elected) 10 minutes

If you are unfamiliar with the “Two Santa Claus Theory” commondreams.org has a good write up here.   

By 1974, Jude Wanniski had had enough. The Democrats got to play Santa Claus when they passed out Social Security and Unemployment checks – both programs of the New Deal – as well as when their “big government” projects like roads, bridges, and highways were built giving a healthy union paycheck to construction workers. They kept raising taxes on businesses and rich people to pay for things, which didn’t seem to have much effect at all on working people (wages were steadily going up, in fact), and that made them seem like a party of Robin Hoods, taking from the rich to fund programs for the poor and the working class. Americans loved it. And every time Republicans railed against these programs, they lost elections.

Everybody understood at the time that economies are driven by demand. People with good jobs have money in their pockets, and want to use it to buy things. The job of the business community is to either determine or drive that demand to their particular goods, and when they’re successful at meeting the demand then factories get built, more people become employed to make more products, and those newly-employed people have a paycheck that further increases demand.

Wanniski decided to turn the classical world of economics – which had operated on this simple demand-driven equation for seven thousand years – on its head. In 1974 he invented a new phrase – “supply side economics” – and suggested that the reason economies grew wasn’t because people had money and wanted to buy things with it but, instead, because things were available for sale, thus tantalizing people to part with their money. The more things there were, the faster the economy would grow.

About Dave Bradley

retired in West Liberty
This entry was posted in #trumpresistance, Blog for Iowa, Budget, Economy, tax cuts for the wealthy and tagged , . Bookmark the permalink.

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