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Think Again: Forget the Question. The Answer Is “Tax Cuts”

SOURCE: AP/Susan Walsh

Conservatives are fighting to extend President George W. Bush's tax cuts even though doing so would add $2.3 trillion to the total 2018 debt according to the Congressional Budget Office.

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Readers of this column may recall a lecture I discussed this summer by the economist fondly known as “Dr. Doom,” New York University’s Nouriel Roubini. I criticized Roubini for his failure to take politics into account when giving his “higher taxes, fewer services” spiel, because while fiscal solvency is undoubtedly important, the exact mix by which they are to be achieved is a question of political preference, and ought to be decided that way.

Even so, during the postlecture question-and-answer-period a well-dressed gentleman stood up and asked, “Wouldn’t it be a great idea if the president did everything Roubini suggested but also extended the Bush tax cuts for the rich? I mean, why not?” Never mind that it contradicted everything Roubini had just said. The lecture was in the Hamptons, after all, where tax cuts for the wealthy go a long way.

Perhaps you’ve noticed that extending the Bush tax cuts is conservatives’ answer to everything. Just this week, Martin Feldstein, who was economic adviser to President Ronald Reagan, said all the Bush tax cuts should be extended for two years because even letting those for the wealthy lapse would be “a blow to a very fragile economy.”

And last year Sen. Jim DeMint (R-SC) introduced a GOP stimulus plan authored by the Heritage Foundation that consisted in its entirety of making the Bush tax cuts permanent and adding to them additional tax breaks for corporations and wealthy Americans. If enacted—never a serious possibility—it would have cost roughly three times what Obama’s plan cost over the next 10 years. Even DeMint found it necessary to admit that it was “not innovative or particularly clever. In fact, it’s only eleven pages.”

Conservatives stuck to this line throughout Obama’s first term, deriding the stimulus’s impact, complaining of out-of-control deficit spending, and yet demanding the retention of the enormously costly Bush tax cuts aimed primarily at the extremely wealthy as unemployment remained a worrisome 9.5 percent. They say this, meanwhile, despite the fact that even without the wealthiest part of the tax cuts the primary beneficiary of what remains would be rich folk.

We understand why this is the case. After all, Dick Cheney defended a second set of Bush tax cuts following the midterm election by explaining, “This is our due.” As Harold Meyerson noted at the time, Cheney’s comment gave new meaning to the term “entitlement program.”

What is funny, however, is what happens when we get past the first (or second) question. After all, we know conservatives like tax cuts for the rich. (After all, they like tax cuts and they like the rich. Why wouldn’t they?) But what happens when you thrown in the record deficits we’ve been running (that began under Bush-Cheney)? Aren’t these things incompatible? Don’t tax cuts increase the deficit? “Not so fast,” comes the answer.

On a Fox News Sunday program in late July 2010 Chris Wallace inquired of GOP House Minority Leader John Boehner as to whether he was aware that “a number of top economists say what we need is more economic stimulus.” The Republican leader replied with breathtaking obtuseness, “Well, I don’t need to see GDP numbers or to listen to economists. All I need to do is listen to the American people, because they’ve been asking the question now for 18 months, ‘where are the jobs?’”

At the same time, these same folks continue to insist on the supply-side mantra that the extension of the Bush tax cuts would magically pay for themselves. (As Senate Minority Leader Mitch McConnell told one reporter in July 2010 “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.”) In fact, according to the Congressional Budget Office, extending all the Bush tax cuts would add $2.3 trillion to the total 2018 debt.

Alas, this argument has now been repudiated not only by the experience of the past 30 years, during which time deficits exploded under the tax-cutting policies of presidents Reagan and Bush, but also by the judgments of virtually every single reputable economist in American, including particularly:

  • Greg Mankiw, George W. Bush’s chair of the Council of Economic Advisers from 2003 to 2005: “Some supply-siders like to claim that the distortionary effect of taxes is so large that increasing tax rates reduces tax revenue. Like most economists, I don’t find that conclusion credible for most tax hikes.”
  • Andrew Samwick, chief economist at the council from 2004 to 2005: “No thoughtful person believes that this possible offset [from the Bush tax cuts] more than compensated for the first effect for these tax cuts. Not a single one.”
  • Ed Lazear, chair of the council in 2007: “I certainly would not claim that tax cuts pay for themselves.”
  • Hank Paulson, President Bush’s secretary of the treasury: “As a general rule, I don’t believe that tax cuts pay for themselves.”

But of course revenue is not what these tax cuts are really about. Politics is. It was Irving Kristol’s Public Interest that gave supply-side economics its own favorable hearing in any kind of remotely respectable academic journal before Ronald Reagan embraced it in the presidential campaign of 1980. He admitted in 1995 he “was not certain of its economic merits but quickly saw its political possibilities.”

And just what were these possibilities? To attack the "fundamental assumptions of contemporary liberalism that were my enemy…. Political effectiveness was the priority, not the accounting deficiencies of government.” Writing in Financial Times in 2010, columnist Martin Wolff goes into greater detail regarding these political benefits as they have revealed themselves during the previous three decades. “The political genius of this idea is evident,” he writes:

Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?” How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification—the argument from incentives—for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state. In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage

Is it any wonder they don’t seem to be able to talk about anything else?

Eric Alterman is a Senior Fellow at the Center for American Progress and a Distinguished Professor of English at Brooklyn College. He is also a Nation columnist and a professor of journalism at the CUNY Graduate School of Journalism. His most recent book is, Why We’re Liberals: A Handbook for Restoring America’s Most Important Ideals . His "Altercation" blog appears sporadically here and he is a regular contributor to The Daily Beast.

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This is part of a regular column: Think Again

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