Exchequer

A Credibility Deficit

Among sentences I do not like to write: Andrew Leonard is mostly right about this one. Tax cuts do not generally increase revenue, and Republicans should stop saying otherwise.

But he’s not quite right to treat all these statements as equivalent:

Here’s Rep. Joe Walsh, (R-Ill.) the self-styled “conservative Tea Party activist” who upset Democrat Melissa Bean in the 2010 midterms, on ABC’s “This Week.”

“In the ’80s, federal revenues went up,” said Walsh. “We didn’t cut spending. Revenues went up in the ’80s. Every time we’ve cut taxes, revenues have gone up. The economy has grown.”

Walsh may be a freshman in Congress, but he’s got the party line down pat. Here’s Senate Minority Leader Mitch McConnell saying in July that the Bush tax cuts “increased revenue, because of the vibrancy of these tax cuts in the economy.” Here’s Speaker of the House John Boehner saying last June that “over the last 30 years . . . lower marginal tax rates have led to a growing economy, more employment and more people paying taxes,” he said.

Walsh’s statement is false if you read it as having an implicit “because.” It is true that revenue went up in the 1980s, that we did not cut spending, and, as Mr. Leonard himself points out, that revenue has gone up following tax cuts, etc. One could make a useful (and true) argument that we can in many situations expect revenue to increase following tax cuts — but, in most cases, not by as much as it would have without the tax cuts. For instance, if the U.S. government were not laboring under a crippling deficit and debt (Imagine!), one might plausibly argue that we could both cut taxes in a given situation and maintain current levels of spending without increasing the deficit. (Might! Might! You’d obviously want some high-grade forecasting on that.) But our current straits suggest that the longstanding Washington compromise — Democratic rates of spending and Republican rates of taxation — produces very large deficits.

McConnell’s statement is false.

Boehner’s statement, like Walsh’s, depends on how much implicit causality you read into it. That is not a trivial distinction: Low tax rates really can and do contribute to a growing economy, which can and does contribute to growing tax revenue. What is not true is that income-tax rate cuts pay $1.30 on the dollar, and that revenue has risen mostly because of (rather than despite) tax cuts — and Republicans should stop claiming otherwise.

The scale of the growth effects of tax cuts is important inasmuch as the naïve supply-siders’ argument credits tax cuts with basically 100 percent of economic growth. But we probably were going to have some economic growth in the 1980s or 2000s without the tax cuts. We’ll probably have some growth from 2011–20 with or without tax cuts (or tax increases).

I am all for having the budget police take revenue effects into account when scoring tax policies, but those effects are not as dramatic as Republican rhetoric would have it. And we should also take into account the possibility that large and persistent deficits may diminish economic growth (this seems to have occurred to a few Republicans already) and consequently that tax cuts that contribute to such destructive deficits have doubly negative effects on revenue. (I do not know that to be the case; I believe that it is a possibility that should be kept in mind.)

There are no free lunches in taxation, or anywhere else.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

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