Jonah: I think Stein makes some good points. It’s not true, as some conservatives and administration officials say, that tax cuts raise revenue. (Some conservatives say that nobody makes that false claim, and that’s not true either.) And while you are right to suggest that some of the extra revenue brought in through tax increases would be spent, probably some of it would go to deficit reduction. The question is whether the marginal deficit reduction is worth the marginal cost to economic growth.
The answer to that question depends in part on how taxes are raised, and it seems to me that Stein starts off on the wrong foot here. He begins his article by citing Warren Buffett’s calculation that he pays a lower average tax rate on his income than his secretaries. But that calculation begs a lot of questions involving the incidence of capital taxation and the proper definition of income. Stein’s assumption is that investment income should be taxed at the same rate as other forms of income; other people argue that doing that creates a bias against saving. His assumption pushes in the direction of raising taxes on dividends and capital gains. That seems like a highly inefficient (that is, growth-reducing) way of raising revenues.
Finally, he tries to use a reductio ad absurdum to prove that deficits “matter.” If deficits don’t matter, he writes, why have taxes at all? I have great respect for Ben Stein–I was very glad that he wrote an endorsement for my book–but it seems to me that this argument sidesteps the question, which is, again, is an X% reduction of the deficit worth a Y% reduction in growth?