Well, maybe not here: I wrote it back when this blog had a different home. But the editorial on “The Coming Tax Increase” in today’s W$J sure does have a familiar ring. Thus spake the righteous descendants of Wanniski:
The new House and Senate majorities have now passed budget resolutions — five-year budget outlines — that include the repeal of the Bush tax cuts of 2001 and 2003. Republicans are overstating things when they imply this means a tax increase this year. The Bush tax cuts don’t expire until the end of 2010, and Democrats aren’t about to tip their tax hand before the 2008 election. But under the cover of zero media attention, Democrats are constructing a budget process that will make a tax increase all but inevitable.
Anyway, I wrote a blog post just after the November election headlined “The Democrats are going to raise your taxes (in 2011).” Only, I was more sympathetic to the Dems than the Journal editorialists. “You can’t really blame them,” I wrote,
The Bush tax cuts were, as these things go, pretty well designed. The capital gains and dividend tax cuts in particular would, if allowed to survive, probably have a positive effect on long-run economic growth. But by failing to even try to find a way to pay for these cuts (no, they don’t pay for themselves) through spending cuts or hikes in other, less growth-inhibiting taxes (the gas tax!), President Bush may have doomed them.
I think this might turn out to be yet another sad coda to the Bush years. There’s actually much good sense in the Republican tax philosophy that has reigned since the early 1980s: There are economic benefits to keeping marginal income tax rates as low as we possibly can and favoring saving and investment in the tax code. But those benefits aren’t so great as to obviate any need for fiscal restraint or other sources of revenue to replace those lost through tax cuts. Most tax cuts do not pay for themselves, and by continuing in the face of all evidence to
say that act and speak as if they do, the true believers in the Bush administration and on the Journal‘s editorial page have actually made badly designed future tax increases more likely.
The original supply-siders suggested that some tax cuts, under very special circumstances, might actually raise federal revenues. For example, cutting the capital gains tax rate might induce an unlocking effect that would cause more gains to be realized, thus causing more taxes to be paid on such gains even at a lower rate.
But today it is common to hear tax cutters claim, implausibly, that all tax cuts raise revenue. Last year, President Bush said, “You cut taxes and the tax revenues increase.” Senator John McCain told National Review magazine last month that “tax cuts, starting with Kennedy, as we all know, increase revenues.” Last week, Steve Forbes endorsed Rudolph Giuliani for the White House, saying, “He’s seen the results of supply-side economics firsthand — higher revenues from lower taxes.”
This is a simplification of what supply-side economics was all about, and it threatens to undermine the enormous gains that have been made in economic theory and policy over the last 30 years.
I’m not so sure all the “original supply siders” (including Ronald Reagan) were as careful and modest in their claims as Bartlett suggests. But I’m with him on all the rest.