Continuing with the ‘shameless commie propaganda’ on tax cuts and revenues

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The comment screening software here seems to have gone hyperactive in the past few days, and has been shunting lots of perfectly legit comments (especially but not exclusively those with links) into the junk file. The folks at Time.com don’t know why it’s happening, so I can’t guarantee a fix. But I will try to fish regularly in the junkpile, where I find gems like this comment to one of my Arthur Laffer posts from alex:

Shameless Commie Propaganda (I simply refuse to believe that you are that stupid)

1. Mr. Laffer did state the evident and nothing else: (1) if government will collect 100% nobody will show up for work, (2) if government won’t collect nothing it will have no revenues and (3) there is a maximum somewhere in between.

2. So “diminishing returns” is far from being the biggest danger of raising taxes, the biggest dangers is sliding into area of negative impact on Laffer’s curve.

3. Tax cuts did paid for themselves: e.g. in 1984 federal revenue were greater than in 1982 and grew up until 2001 and again after tax cut of 2003, revenues in 2004 were greater than in 2002 and are growing ever since

http://www.irs.ustreas.gov/pub/irs-soi/table_6_2006_dp.xls

Now I simply refuse to believe that alex, or WSJ editorialista Stephen Moore, who makes similar claims to #3 all the time, is that stupid. So what does that make them? Definitely disingenuous, maybe something worse.

If you take the very simple step of adjusting for inflation, you’ll find that real federal revenues were lower in 1984 than in 1982, and lower in 2004 than in 2002. So alex’s claim #3 is, on its face, false. But that’s not really the issue: Eventually, tax revenues did come to surpass their 1982 and 2002 levels in real terms. Which proves absolutely nothing about the efficacy of tax cuts. The U.S. economy has a tendency to grow, whether or not Congress is cutting taxes. And over time, that tendency will produce higher government revenues, whether or not Congress is cutting taxes.

Now I’d like to believe that well-designed tax cuts can make the economy grow faster. But would any non-charlatan want to argue that all of the economic growth post-1982 and post-2002 was tax-cut-induced? Of course not. Arthur Laffer certainly didn’t when I quizzed him on it. So the question becomes a far more complex one of separating the tax-cut-induced growth from the rest. Now I’m pretty sure alex and Stephen Moore are too stupid to figure out answers to that. I know I am. So I rely on the verdict of economists who study tax matters, who are pretty much unanimous in concluding that the Reagan tax cuts were, taken in their entirety, a big money loser for the federal government and that the Bush tax cuts will turn out the same way.

The final refuge of the tax-obfuscation scoundrel is usually to point out that those pointy headed economists at the Congressional Budget Office and elsewhere are often way off in their projections of future tax revenue. It’s true: Since 2003, revenues have risen faster than anyone at the CBO or even the White House projected. But it’s not like they’re biased toward the downside: The fall in tax revenues between 2001 and 2003 was also much sharper than any of the pointy heads projected.

The main reason for this inaccuracy is that any such projection depends heavily on forecasts of future economic growth. Economists really aren’t any good at forecasting recessions and recoveries, so what the CBOers and their ilk usually do is plug in numbers based mostly on estimates of long-run growth, which will inevitably be undershot during downturns and overshot during booms. Lately this undershooting and overshooting has grown more pronounced. My guess is that it’s a result of increased income inequality: An ever bigger share of government revenue is coming from a small group of high-end taxpayers (not because their tax rates are higher than they used to be, but because they’re making much more money than they used to), and those high-end incomes include a lot of stock option gains, performance bonuses, and the like that are extremely sensitive to even slight changes in economic growth.

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