September 21, 2017

THE STUBBORN REFUSAL OF REALITY TO CONFORM TO IDEOLOGY:

An Anti-Growth Tax Cut : Republicans regress into irresponsibility. (Kevin D. Williamson, September 21, 2017, National Review)

Congressional Republicans argue that they can in good conscience pass these tax cuts without any corresponding spending cuts or other countervailing measures on the theory that the tax cuts will produce economic growth, and that this economic growth will be so substantial that it will entirely offset the revenue theoretically lost to the tax cuts. There is very little evidence to support this theory, but Republicans remain fond of it.

Taxes are not especially high just at the moment. Federal revenue amounted to 17.6 percent of GDP in 2016; by way of comparison, consider that in the balanced-budget year of 2000, federal revenue was 19.7 percent of GDP -- and 2.1 percentage points is a heck of a lot in an economy the size of ours.

Taxes were 18.7 percent of GDP in 1981, when the Reagan tax cuts were passed. The free-lunch theory of taxation holds that strategic, pro-growth tax cuts allow the government to increase its revenue by taking a smaller share of a larger GDP. But that isn't what happened after the Reagan tax cuts: In constant dollars, federal revenue shrank, and by 1983 revenue was in real terms $153 billion lower than it had been. There was a recession, and revenue in constant dollars declined along with revenue as a share of GDP. It would not make sense to blame the tax cuts for that recession -- nor would it make sense to credit them for all the growth that came after. By the end of the Reagan years, tax revenue as a share of GDP was right back around where it was at the end of the Carter years -- and right about where it is now. 



Posted by at September 21, 2017 9:39 PM

  

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