Election 2016

Republican Tax Fantasies

Tax cut promises are divorced from actual spending discipline.

|

The Republican presidential candidates have not rallied behind Ben Carson in his clash with the news media, but they should be grateful to him. His misrepresentation of reality on matters concerning his past has distracted attention from his rivals' misrepresentations of reality on a matter concerning the nation's future: tax policy. 

The GOP was once the party willing to challenge entrenched dogma on taxes, arguing that they have a major influence on the supply of labor and capital, as well as economic growth. That was the rationale behind the reduction in marginal income tax rates under President Ronald Reagan. 

It was a bracing insight that many economists now accept to one degree or another. But in practice, it fell short of hopes. A study of Reagan's 1981 tax cuts concluded they did not enhance the vigor of the economy or the willingness of taxpayers to work. The study had particular credibility because it was co-authored by Martin Feldstein—who had been Reagan's chief economic adviser. 

But as is often the case in theological disputes, the heresy has morphed into dogma. Modern Republicans no longer assert the benefits of reducing tax rates when they are so high as to cause destructive effects. Modern Republicans think reducing tax rates is the only thing to do in every economic circumstance. 

Reagan prescribed tax cuts for the stagnant growth and high inflation of the 1970s. But in 1999, George W. Bush proposed new tax cuts with the economy humming and inflation down. When the Great Recession hit, John McCain ransacked his medicine chest and brought out the same remedy. Now that the unemployment rate has been halved, however, tax cuts are still the only option. 

This approach would be entirely commendable if Republicans were equally committed to reducing expenditures in tandem. But their fondness for spending discipline is far milder than their zeal for slashing taxes. Their tax cuts would require far greater budget reductions than any of them would consider politically possible. 

The conservative Tax Foundation has priced out the different proposals and found that under conventional assumptions, they would drastically reduce revenue over the next decade—$3.7 trillion in the cases of Jeb Bush and Ted Cruz, $6.1 trillion for Marco Rubio and $12 trillion for Donald Trump. Even under the optimistic "dynamic" estimates, which assume the economy would accelerate, most would still produce revenue losses in the trillions. 

Cruz, who relies on a 16 percent value-added tax, seems to think he deserves credit for not sacrificing more revenue. "It is less than a trillion," he said proudly in Tuesday's debate, referring to the optimistic projection of the additional debt he would create. 

These policies "would lose trillions of dollars at a time we should be talking about how to close the fiscal gap—not explode it," Maya MacGuineas of the Committee for a Responsible Federal Budget recently wrote in The Wall Street Journal. As it is, she noted, "we are on track to add more than $9 trillion to the debt between now and the end of the next president's term (assuming an eight-year term)" —more than the increase under the current president. 

Ambitious savings on the spending side would be required just to prevent that increase, without any reduction in revenue. None of the contenders is about to take comparable amounts from federal benefit programs. 

Some of the candidates fall back on the faith that these tax cuts will pay for themselves by generating so much growth that the Treasury will drown in revenue. Rubio is brazen enough to promise that his plan would "absolutely" yield a budget surplus. 

Cruz predicts his would "unleash enormous growth." Bush is more restrained, noting with derision that "everybody freaks out about the deficit" while insisting his plan would rev the economy more than party poopers expect. 

Not likely. The economy expanded more slowly under Reagan, who cut tax rates, than under Bill Clinton, who raised them. Real GDP growth under Obama, who also boosted rates, has been virtually identical to that under his predecessor, who cut them. 

These facts don't mean raising tax rates stimulates the economy. But they do indicate that tax cuts do not have "enormous" effects. Claiming they do is a ruse to give a false impression of fiscal responsibility. 

Democrats no longer care about deficits, which makes them a stark contrast to the GOP. Republicans care a lot about deficits—when Democrats hold the White House. 

© Copyright 2015 by Creators Syndicate Inc.

NEXT: Why Obama's Immigration Plan Backfired

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. To a Libertarian, don’t lower taxes mean less government force is used to steal people’s property which is, presumably, a good thing? Publishing this guy without some kind of disclaimer is irresponsible for a Libertarian magazine because it implies at least some degree of endorsement of his views which are, well, just awful.

    1. Agree. Cut taxes and the size of the state.

  2. Ah, I see. We’ve been doing it wrong. It’s all about maximizing government revenue. Liberty, coercion, free association, et alia be damned. We individuals exist not to seek our own interests, but to optimize governmental profit.

    What a preposterous premise, Assless Chapsman, even if we assume arguendo that your economic analysis on the effects of these policies are correct (which no one with a pulse would concede).

    What a clown.

    1. is* correct.

      We need an edit button.

  3. Mr. Chapman might want to revise his timeline. George W. Bush was not President in 1999. He wasnt even a nominee yet. Hell, he wasn’t even a candidate until near the end of that year.

    1. You might want to check your timeline first.
      Bush announced his candidacy in June 1999. Additionally, he announced his “tax cuts at any cost” mantra in 1999 and cemented it at the Jan 6, 2000 debate:
      http://www.ontheissues.org/Geo…..Reform.htm

  4. Personal opinion: the level of taxes is only relevant as a lever to reveal or conceal the cost of government. Lower taxes, you hide the impact of how big your government is by kicking the can (the credit card effect). Raise taxes, you put the screws right to people’s wallets.

    If spending isn’t brought under control, tax cuts will only make things worse.

    This is not an endorsement of Bernie Sanders tax-and-spend. Just an anti-endorsement to spend-and-spend.

    (Bias disclaimer: I am young and painfully aware that I’ll be paying interest (so to speak) on today’s deficits for the next 40 years. I have yet to determine if my preference of low deficits to low taxes is a deeply held belief or pure selfishness…we’ll see whether I still think kicking the can is bad when I’m 55 and making twice what I do now.)

    1. The only true deeply held beliefs ARE purely selfish (in the rational sense)

    2. We need to massively cut spending. I also favor a system of eliminating progressives and redistributing THEIR wealth to all the conservatives and libertarians they have damaged through their marxism.

    3. Glide:

      Exactly. One thing that never seems to be discussed about the Clinton years is that government spending decreased as a percentage of GDP. That freed capital to be used for more productive purposes. Hence, more economic growth.

      Another thing is that the Reagan tax cuts weren’t as steep as we were led to believe. Along with the rate cuts, most of the loopholes and special favors were removed. Of course, the K-Street types went right to work to get the loopholes back, either in tax breaks or spending increases.

    4. “Raise taxes, you put the screws right to people’s wallets.”

      Or, raise taxes, put the spending pedal to the metal, and buy voters with all that ‘free’ money.

  5. Democrats no longer care about deficits, which makes them a stark contrast to the GOP. Republicans care a lot about deficits?when Democrats hold the White House.

    I seem to recall the Dems pissing and moaning quite a bit about BOOOOOSH’S war deficits when he was in the white house too. So Dems will also pretend to give a shit a RETHUGLIKKKAN is in the white house too.

  6. I have yet to see even a topline budget proposal from Reason (other than “cut defense”). Several current Republican candidates have submitted budgets and proposal to cut funding/eliminate major executive branch departments.

    In any event, starving the beast is my default tax policy.

    1. Reason has assumed the role of constant bitcher and moaner towards all things Republican. When they get around to endorsing Clinton they might actually throw out some proposals.

      1. Many of the writers here are closet progs. Or prog wannabes.

  7. I would like to see some enterprising economist consider the idea that tax rates themselves aren’t as important as tax rate consistency. In other words, if all economic activity is taxed at the same rate, capital will naturally flow to the most effective point. I think loopholes lead to worse mis-allocations than the tax rates themselves (at least at current levels).

    Of course, if we got rid of the loopholes, politicians would lose a hammer to force people to follow the pols’ whims, and we can’t possibly have that. People could get used to freedom again.

  8. Well I guess you could the amount of implied force is the same no matter how high your taxes are, your government is going to extort you for them anyway, so at least try to convince the government to tax and spend wisely. (Yeah, right.) That’s the argument I am getting here.

    At least, tax reform should be a priority for the GOP. It would likely save us more money than any of the tax cuts or raises they propose by itself.

  9. A study of Reagan’s 1981 tax cuts concluded they did not enhance the vigor of the economy or the willingness of taxpayers to work.

    Then it was a flawed study. The idea that lower taxes are not important to the people who pay them, and that they don’t react accordingly is classic moronic Chapman. Pure Statist shit. Top Men mentality where only the enlightened leaders can spend money wisely. Only a Leftard thinks that people don’t mind paying taxes and do not respond to rates.

    How does ANYONE come to the conclusion that government taking money from the productive and having bureaucrats spend it is going to be more efficient than the people who actually PRODUCED the fucking wealth in the first place? The answer is “they don’t believe it is more efficient, just that they will receive a piece of the action”.

    1. “How does ANYONE come to the conclusion that government taking money from the productive and having bureaucrats spend it is going to be more efficient than the people who actually PRODUCED the fucking wealth in the first place? The answer is “they don’t believe it is more efficient, just that they will receive a piece of the action”.”

      Yeah, some rich guy who made a bunch of money should personally build roads and bridges, not “bureaucrats”!

      Why the fuck should there be any government at all, then. Look at yourself: you’ve gone full derp. You’re huffing your own farts at this point. Kill yourself with one of the several guns I know you own.

      1. If some road NEEDED to be built, some rich guy WOULD pay for it… then charge a small fee for it’s use… and become MORE rich, giving him the capital to build and pay for ANOTHER NEEDED road…

        “Why the fuck should there be any government at all, then?
        EXACTLY.

    2. “How does ANYONE come to the conclusion that government taking money from the productive and having bureaucrats spend it is going to be more efficient than the people who actually PRODUCED the fucking wealth in the first place?”

      Um, because that’s how capitalism works?

  10. Im making over $9k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do,

    ———- http://www.onlinejobs100.com

  11. Huh, no mention of the fact that Clinton actually cut capitol gains taxes. Or the fact that his economy benefitted greatly from the .com bubble.

  12. One problem is that reducing federal taxes is only part of the formula. Many local and state governments respond to lower federal revenues and potential grants by increasing taxes and fees. When American’s are paying up to 70% of their earning in federal, state, and local taxes, like government it takes them time to recover from debts and begin to invest. Declining taxes and the desired growth is also hampered by increased regulation. Society has deteriorated to the point that an individual desiring to build their own home, like my grandfather did, must fight state and local government, as well as labor unions. The fees and regulations destroy any hope of making a personal investment in your future.

Please to post comments

Comments are closed.