ChrisWeigant.com

The GOP's Big Lie About Tax Cuts

[ Posted Monday, October 23rd, 2017 – 17:08 UTC ]

Call it the refusal of "trickle-down economics" to die. Ever since Ronald Reagan introduced the idea, Republicans have clung to a very mistaken concept -- that tax cuts always pay for themselves. Though proven false again and again, this is the fallback Republican position when trying to hoodwink the American public into massive tax cuts for those at the tippy-top of the income scale. "Don't worry," the GOP tells the public, "these tax cuts will generate so much new growth that they will pay for themselves!" As always, the reality turns out to fall far short of this lofty goal.

Exposing the GOP's "big lie" about tax cuts is easy -- all you have to do is look at the last time they tried it (or, for that matter, the time before that, or the time before that...). A new report by the Center on Budget and Policy Priorities (C.B.P.P.) examines exactly what happened the last time this snake oil was sold to the American public, in detail. Titled "The Legacy of the 2001 and 2003 'Bush' Tax Cuts," it clearly shows what an empty promise "tax cuts always pay for themselves" truly is. The very first paragraph sums it up:

High-income taxpayers benefited most from these tax cuts, with the top 1 percent of households receiving an average tax cut of over $570,000 between 2004-2012 (increasing their after-tax income by more than 5 percent each year). Despite promises from proponents of the tax cuts, evidence suggests that they did not improve economic growth or pay for themselves, but instead ballooned deficits and debt and contributed to a rise in income inequality.

The authors found that the true cost of the Bush tax cuts equalled 2 percent of gross domestic product, and then helpfully put this number into perspective:

At the time, many policymakers -- including President Bush and Federal Reserve Chair Alan Greenspan -- cited projected surpluses and falling debt as a reason to cut taxes. But as the nation's fiscal outlook changed, because the tax cuts were financed by borrowing, they added to a growing national debt.

The 2 percent of G.D.P. cost figure does not include the extra interest costs resulting from the required borrowing. In 2013 C.B.P.P. estimated that, when the associated interest costs are taken into account, the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018. This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.

The tax cuts which were supposed to pay for themselves instead cost us a full one-third of our national debt. This was immediately after Bill Clinton balanced the budget with higher taxes in place, mind you. And, as always, the wealthier you were, the more you benefited from all this borrowing. The bottom 20 percent of households got only a 1.0 percent raise in their incomes due to lower taxes. The middle 20 percent saw a 2.8 percent rise, while the top 1 percent saw a generous 6.7 percent increase -- which translates into over $50,000 per year.

Giving all this largesse to the wealthy did not deliver the economic growth that had been promised. Not even close. What did it do instead? Exactly what you'd expect:

Evidence suggests that the tax cuts -- particularly those for high-income households -- did not improve economic growth or pay for themselves, but instead ballooned deficits and debt and contributed to a rise in income inequality.

This is really Economics 101 -- give rich folks more money, and income inequality will get worse. All GOP claims to the contrary, that's a pretty basic thing to understand. The trickling down never seems to quite happen, and the magic growth numbers never actually appear. Massive tax cuts for businesses and the 1 percent just don't spur growth. Unless you live in Republican Fantasyland, of course.

In the real world, however, we look at the evidence and draw conclusions. And the conclusions are the exact opposite of what Republicans fervently believe. The study concludes with a comparison between the Bush tax cut years and what happened in the 1990s under Bill Clinton, after Congress raised taxes:

In comparison, the economic expansion of the early 1990s -- which followed considerable tax increases -- produced a much faster rate of job growth and somewhat faster G.D.P. growth than the expansion of the early 2000s. An analysis of business activity between 1996 and 2008 found that even the sharp cut in dividend tax rates in 2003, which proponents claimed would spur immediate business growth, had no significant impact on business investment or employee compensation after 2003.

And, when the tax cuts were scheduled to expire at the end of 2012, extending the high-income tax cuts in particular was projected to have almost no effect on economic growth. The Congressional Budget Office (C.B.O.) estimated in 2012 that extending the high-income tax cuts would have boosted G.D.P. by just 0.1 percent in 2013. Indeed, allowing the high-income tax cuts to expire after 2012 does not appear to have had any substantial negative impacts on economic growth, as proponents of the tax cuts had claimed, and the economy has continued to grow steadily since then. This is consistent with the broader empirical literature about taxes on high-income people and economic growth. As one comprehensive review of the empirical literature by three leading tax economists found, "there is no compelling evidence to date of real responses of upper income taxpayers to changes in tax rates."

So if you take the past few major changes in tax policy, the economy grew faster and better after taxes had been raised (this was, incidentally, the first "Bush tax cut" -- the one that got George H. W. Bush in so much trouble with his fellow Republicans for breaking his "read my lips, no new taxes" pledge). Republican claims that the economy would tank if taxes were raised turned out not to be correct. Then when George W. Bush cut taxes, the economy grew slower and income inequality got worse. Republican claims that the tax cuts would pay for themselves with awesome economic growth were proven wrong, once again. And then when Dubya's tax cuts were allowed to expire, Barack Obama made a deal which kept all the tax cuts intact except for those for the wealthiest. The Republicans warned of dire consequences, which did not actually occur.

Now, they're at it again. The Trump tax cuts are going to be bigger and better than ever, and it's going to spur so much economic growth it'll make your head spin. With all that muscular economic growth, tax revenues will absolutely flood into the I.R.S., and the tax cuts will more than pay for themselves. That's according to Republicans -- who have gotten this prediction wrong in every single instance over the last quarter century.

In the upcoming debate over tax cuts, you'll hear quite a few Republicans argue that the numbers they are forced to use (from the Congressional Budget Office) are not "dynamic" enough, and that their own private calculations show a rosy future where massive borrowing isn't required in order to slash taxes on the wealthy and Wall Street. But there's a reason the C.B.O. doesn't use Republican math -- because it never seems to add up in the real world. All that magical growth never actually materializes. Over and over again, trickle-down economics is proven to be nothing short of a Stalinesque Big Lie. But that never seems to stop Republicans from going to this particular well one more time.

-- Chris Weigant

 

Cross-posted at The Huffington Post

Follow Chris on Twitter: @ChrisWeigant

 

25 Comments on “The GOP's Big Lie About Tax Cuts”

  1. [1] 
    John M from Ct. wrote:

    OK.
    I've read this again and again, going back to the 1990s.

    It's back. Another GOP tax cut most beneficial to the upper classes, another unlikely and incorrect political pitch that the cuts will lead to growth to cover the obvious deficit in tax revenues.

    And...

    What are we supposed to do about it? Who is this argument supposed to convince to change their minds, or their votes?

    Not to be too negative, I do appreciate the value of rallying the troops and keeping the truth in sight during a debate. But I am also concerned that erudite and mathematical arguments seem never to translate into effective counter-campaigning. Or is that why Gore won in 2000, after Clinton raised taxes, lowered the deficit, and spurred prosperity? Is that why Clinton won in 2016, after Obama raised some taxes, lowered the deficit, and spurred prosperity?

  2. [2] 
    C. R. Stucki wrote:

    The liberal myth still persists all these years later that because the Reagan years produced budget deficits and larger national debt, that such proves that "trickle down" didn't work, meaning gov't revenue declined.

    BIG LIE!! The facts are that gov't revenue increased EVERY YEAR immediately following the Reagan tax cuts. The budget deficits and increases in the nat'l debt happened because the Dem congress raised defense spending while refusing to cut welfare spending, NOT because gov't revenue declined.

    However, it is true that all tax cut are pretty much "tax cuts for the rich", because under our income tax schedule, poor people do not contribute. The bottom 50% of American taxpayers contribute a whisker over 2% of all the income taxes collected, meaning the "rich" pay almost 98% of income taxes.

    The ideal solution ought to be to tax the productive people less and quit wasting so much of what we collect policing the world.

  3. [3] 
    neilm wrote:

    Yes, but Benghazi!!! Emails!!! Crooked Hillary!!!

    I'm sorry - if a voting population can't vote for their own financial benefit and fixate on mindless drivel thrown to them then, while democracy is the best system, it still sucks.

  4. [4] 
    neilm wrote:

    C.R. [2] The facts are that gov't revenue increased EVERY YEAR immediately following the Reagan tax cuts.

    Yeah, but Reagan’s tax increases in 1982, 1983, 1984 and 1987 boosted revenue by $137 billion.

    Plus the population grew and inflation was a real thing back then.

    A Treasury Department study on the impact of tax bills since 1940, first released in 2006 and later updated, found that the 1981 tax cut reduced revenues by $208 billion in its first four years. (These figures are rendered in constant 2012 dollars.) The tax reform act of 1986, which was designed to be revenue neutral, reduced revenues by almost $1 billion four years after enactment.

  5. [5] 
    TheStig wrote:

    CRS-2

    I think you are conflating income and productivity.

  6. [6] 
    sd4david wrote:

    The Laffer Curve, for which this theory is based, is correct but the politicians lie about it. It is true that for wage earners, a high marginal tax like 80% may dissuade some high wage earners from working more. However our tax rates are low enough this is generally not true. If your income is from capital,whether you pay 90% taxe rate or 10%, you will always try to maximize returns. We should be rewarding labor with lower tax rates on labor, but we reward capital, which often times benefits a person who did not earn that capital.

  7. [7] 
    Don Harris wrote:

    Ever since I first heard the term I have always said that when it comes to trickle down economics the average citizen gets to play the part of a urinal.

  8. [8] 
    Don Harris wrote:

    "Exposing the GOP's big lie about tax cuts is easy- all you have to do is look at the last time they tried it (or, for that matter, the time before that, or the time before that..."

    Substitute "Big Money Democrats big lie about the need to take Big Money" for "GOP's big lie about tax cuts" and you have the beginning of a good article that will do more to fix the Democratic Party which is what is needed more than more of the same old look how bad the Republicans are so you have to vote for Democrats because Democrats are not as bad as Republicans.

    Citizens want and need to be able to vote FOR candidates- not be left with a choice of which candidate will hurt me the least.

  9. [9] 
    TheStig wrote:

    The Laffer Curve exists so thst politicians and other scoundrels can select and fit data points to it. It's a doodle. You don't hear much about Laffer Functions or Laffer Curve fitting.

  10. [10] 
    neilm wrote:

    The Laffer Curve is a simple approximation of revenue to tax levels. The premise is that if you have a 0% tax rate you collect $0 and if you have a 100% tax rate, nobody works so you collect $0.

    Once you increase the tax rate from 0% to some experimentally determined high point, any further increases in rates tend to lower tax revenues because people aren't going to work if they have to pay most of the money to the tax man.

    Any sensible person will realize that there is no way to calculate this, and given different attitudes to paying taxes and work ethic, it will vary from person to person, and country to country.

    Thus a grand experiment needs to be run, and given that the Laffer curve has been the intellectual underpinning of the very rich to justify them paying lower taxes, and the fact that they can buy our politicians, the U.S. and many states have been generating this data.

    The data has spoken, the peak revenue point for tax rates is well above where tax rates are today, and, given that tax revenues fell when Reagan cut rates in 1981 even with a recovering economy, it is pretty safe to say that the rates in the late 1970s were below the peak revenue point.

    Thus, instead of lowering rates, we should be raising them significantly, and spending the money on lowering the debt and reorganizing health care to cut the 20% headwind to our economy we pay for sub standard healthcare providers.

  11. [11] 
    TheStig wrote:

    neilm-10

    That's a good reply.

    I'm on board with paragraphs 1, 2 and 3.

    I have a real problem with the notion of conducting a conclusive Grand Experiment on optimal tax rates. Economies are complex with multiple interactions. Experiments work well on reproducible systems where you can artificially manipulate all the variables in order to partition system variance among specific variables, variable interactions (lots and lots) and just plain dumb luck (residual error). Once you get past 3 or 4 variables (including higher order variables and interactions) it is more like a demonstration, not an experiment. It's not feasible:practical:affordable to manipulate economies in such a systematic fashion: not even in N. Korea.

    I think it's more reasonable to think of tax rates as an empirical control system...sort of like piloting high performance airplanes in the days before high speed computers. As the old aviation engineers used to say, you can fly nearly anything if you have enough engine, powerful enough control surfaces, quick enough reflexes and a fast enough learning curve.

    Tax rates are not so much a problem of control, they are a problem of how many fly business class, how many fly coach, and how many folks stand to lose their luggage in order to make business class more opulent.

  12. [12] 
    C. R. Stucki wrote:

    TheStig

    How can you avoid "conflating" (I would use 'equating') income and productivity? A person's income (from labor) is the dollar value in the marketplace of whatever that person is producing. They are one and the same, by definition.

  13. [13] 
    C. R. Stucki wrote:

    TheStig

    How can you avoid "conflating" (I would use 'equating') income and productivity? A person's income (from labor) is the dollar value in the marketplace of whatever that person is producing. They are one and the same, by definition.

  14. [14] 
    C. R. Stucki wrote:

    Excuse the double posting. I thought it hadn't gone.

  15. [15] 
    Balthasar wrote:

    How can you avoid "conflating" (I would use 'equating') income and productivity?

    Well that's easy, if you're at the bottom rung. Computer technology boosted individual productivity immensely during the '90's, but incomes barely rose for, say, legal secretaries, whose work load and hours increased without any comparative increase in income. Indeed, by many estimates, income levels actually fell for those in the bottom half. And all that productivity boost cost jobs in the long run, as law firms (for instance) needed fewer secretaries to accomplish the same tasks.

  16. [16] 
    Balthasar wrote:

    A person's income (from labor) is the dollar value in the marketplace of whatever that person is producing.

    That used to be true, when incomes were pegged to productivity. But industry compensated (i.e. 'cheated') by pegging lower-lever incomes to hours worked instead.

    As a result, even if a worker manages to produce twice as much as he did a year earlier, if he's working the same hours he's making the same money.

    The only difference a worker today would see in his per-hour paycheck is if the deductions taken out of his pay for SS, medicare, workers comp, etc. were to either rise or fall.

    This is how big business was finally able to separate ordinary laborers from the Left, and turn their ire towards government - from their perspective, they could actually work more and end up making less if their paycheck deductions simultaneously rise.

    The only way to re-balance this equation would be to eliminate paycheck 'contributions' toward social programs entirely, putting the onus back on the shoulders of employers, where it belongs.

  17. [17] 
    Bleyd wrote:

    I am a complete novice when it comes to economics, but it seems to me that the question is where the bottleneck in the economy lies, on supply or demand.

    The republicans have made it a constant case that the problem is on the supply side (thus the label of "supply side economics"), that they need to do everything possible to boost business's ability to supply goods and services so that it can meet public demand. Boost the supply and the public will buy more because the demand is there. Tax cuts for the wealthy and corporations could conceivably help in such an endeavor by freeing up more capital to spend on production.

    However, it seems that most available evidence suggests that the problem lies in the demand part of the equation. Because the vast majority of people in the country have a (for practical purposes) limited amount of money to spend on goods and services, the demand is effectively limited to that level. At a certain point, adding money to the suppliers will not help, and may actually hurt the economy, as having excessive inventory is detrimental to business, and the only way to reduce inventory when demand is limited by available money is to lower the price of the product so that more may be purchased with the same amount, which is problematic for the company as well. The result ends up being that the suppliers sit on the extra capital while continuing to produce the amount that best fits the available demand. We've seen exactly this happening in the past decade or so, as people at the top accrue more and more money while everyone else stagnates. Rather than giving the producers more money to increase their supply, it would seem far more logical to increase the amount of money available to the consumers to increase their demand. Businesses that are already profitable are far more apt to increase production due to an increase in demand than due to a further influx of capital. If taxes are the only means of adjusting such things (which isn't the case, but we'll say it is for the sake of argument), reducing the burden on lower and middle income consumers would seem to make far more sense than lowering rates for corporations and top earners.

    Now, I would greatly appreciate if any people here with actual knowledge of economics could weigh in and correct me where I'm wrong.

  18. [18] 
    C. R. Stucki wrote:

    Balthasar

    Incomes are (and always will be, if competition exists in the marketplace), tied (equated) to productivity. However, when productivity increases due to electronic data processing, technology, automation, etc, the increased income goes to the engineers, the technicians, and the investors, not to the clerk or the laborer.

    Twenty yrs ago, the guy who tightened the lugnuts on each new vehicle coming off the GM production line, earned $50/hr plus massive benefits. Now the lugnuts are tightened by a $250K robot, the lugnut guy is flipping burgers at Ronald's house, and the extra productivity income is going to the engineers, the technicians and the guy who invested the $250K

  19. [19] 
    Don Harris wrote:

    If only there was a way to link our legislators ability to remain on the job to their lack of productivity.

  20. [20] 
    Balthasar wrote:

    when productivity increases due to electronic data processing, technology, automation, etc, the increased income goes to the engineers, the technicians, and the investors, not to the clerk or the laborer.

    You say that as though it were the natural order of things, not a construct. In Hollywood and in Sports, it's the Actors and Athletes (i.e., labor) that command the highest wages, while the writers (engineers), crew (technicians), and coaches and directors (management) make less. Of course the Producers/owners (investors) get their cut, unless the enterprise tanks, so they're paid for risk.

    Of course, that varies by industry, so for instance in the fashion industry, the designers and retailers get the big bucks while the laborers who actually make the clothes get dirt. In tech industries, the investors are the only folks likely to see any big bucks, which is why profit-sharing and stock options are rampant in Silicon Valley.

    The point is, you're conflating 'productivity' with 'market value'.

    In some industries, the two are synonymous, in others, not so much. Soldiers, for instance, make the same base rate of pay regardless of 'production', and depend on (sometimes arbitrary) promotions to advance their rate of pay. Still, an Army Colonel makes a little less than a mid-level corporate exec or entry level Goldman Sachs employee.

    If we actually paid everyone strictly according to productivity, an average mother of three would be pulling down an income several times as much as Sean Hannity's.

  21. [21] 
    Balthasar wrote:

    If only there was a way to link our legislators ability to remain on the job to their lack of productivity.

    There is. Would you want your job to be dependent on the votes of thousands of people you don't know every two years?

  22. [22] 
    C. R. Stucki wrote:

    Balthasar

    Sorry, it definitely IS "the natural order of things"!! No "construct" involved.

    Basically, the marketplace rewards talent and skill, usually pretty much in direct proportion to their relative scarcity.

    Apparently, acting skill, athletic prowess, and couturier skills are far less abundant in the world than is the ability to turn a stick of ash into a bat on a lathe, or the ability to stitch up the fabric that the couturier designed.

    Same thing with 'mothering' (nurturing). it may be the single most important skill in the world, but almost every woman possesses it.

    I'm not claiming that it's 'fair', only that it's the way the marketplace works.

  23. [23] 
    TheStig wrote:

    CRS-11,12

    Economic productivity is the ratio of outputs to inputs. A measure of efficiency.

    Income for households and individuals is accumulation of wealth (typically standardized to currency) over a fixed unit of time. It is a rate with no clear implication to efficiency....a wealthy individual may well choose low efficiency income generation strategies to reduce economic risks (like my grandfather clipping bond coupons).

    CRS-13 Double posts are not uncommon around these parts...causes are often unclear...when in doubt, wait.

  24. [24] 
    Don Harris wrote:

    Balthasar-
    So are you saying that if legislators do things we don't like that we should not vote for them and that will provide incentive for them to do what we want them to do?

    Interesting concept.

    Too bad that will only work on every issue except getting them to finance their campaigns with small contributions. :D

  25. [25] 
    Kick wrote:

    sd4david
    6

    If your income is from capital,whether you pay 90% taxe rate or 10%, you will always try to maximize returns. We should be rewarding labor with lower tax rates on labor, but we reward capital, which often times benefits a person who did not earn that capital.

    Ding, ding, ding... bravo, sir; you are absolutely correct. Therein lies the fault in our current tax system. :)

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