Wrong. I would say that you are confusing correlation with causation, but it’s worse than that: You aren’t even showing the most basic understanding of correlation, which is that we look at what happens to something when some variable varies — in this case, what tends to happen to revenues in the absence of a tax cut, and following tax increases, as well as following tax cuts. (And by the way, you are also neglecting tax increases and reductions of tax expenditures under Reagan http://www.bloomberg.com/news/2011-07-22/democrats-recall-reagan-s-tax-increases.html, but that isn’t even the main point here.)

Revenues generally grow over a given set of a few/several years — regardless of whether tax rates* go up (e.g., following the Clinton tax increase in 1993), go down, or stay the same — because the economy is more often growing than in recession. So to cherry-pick years following tax cuts and pointing to revenue increases as evidence of a positive effect of the tax cuts on revenues is almost like saying that, whenever I eat chicken for dinner, the following morning the sun rises. I’m not saying it’s that ridiculous in terms of contemplating cause and effect; I’m just illustrating your fundamental error in claiming correlation, let alone causation. The sun rises even if I don’t eat chicken the night before.

Economists — the guys with those PhDs who have more data and analytical tools, as well as theoretical grounding than we laypeople do — have considered and analyzed this question. And at least with regard to the Reagan and Bush tax cuts and to tax cuts generally from rates anywhere near current rates, every prominent economist who I’ve seen opine on this question have said that tax cuts generally have a net negative effect on revenues (lower revenues than we would have if the tax cut hadn’t occurred). The loss is not as great as static analysis would calculate (there is usually some incremental economic growth and reduction in tax avoidance and tax evasion, and thus some “revenue feedback effect”), but the revenue feedback effect is not anywhere near fully compensating from the effect of lower rates (i.e., very far from “paying for themselves”). And of course I’m including the most prominent conservative economists, some the leading economists in the W. Bush administration:

- Three chairmen (sequentially) of W. Bush?s Council of Economic Advisors: Glenn Hubbard, Greg Mankiw, Edward Lazear.
- Andrew Samwick, Chief Economist on Staff of Bush’s Council of Economic Advisers, 2003-2004
- Alan D. Viard, Senior Economist on W. Bush?s Council of Economic Advisors (2003-2004), now with the American Enterprise Institute.
- Henry (Hank) Paulson, Treasury Secretary for W. Bush
- Ben Bernanke
- Alan Greenspan
- The Economist magazine
- The Congressional Budget Office in a 2005 analysis under Director Douglas Holtz-Eakin (fiscal conservative, Republican).
- Martin Feldstein
- Milton Friedman
- Robert Barro
- Tracy Foertsch, Ph.D. andRalph A. Rector, Ph.D of the Heritage Foundation
- Even Dan Mitchell of Cato, while making a case for tax cuts, admits that ?Indeed it is only in very rare cases? that tax cuts pay for themselves (and I think even then he?s mistakenly counting the temporary bump from a cut in cap gains tax due to the ?unlocking effect?).
- I?d also note that, although not an economist (as far as I know), Ramesh Ponnuru of National Review also spoke truth to wishful thinkers on this matter several years ago.

I can provide the quotes and links for any of the above upon request, in which they each state clearly that tax cuts generally have a large net negative effect on revenues

To be clear, I’m not saying anything bad about tax cuts. In fact, if we get spending down enough, tax cuts mean a stronger economy, higher standards of living for most people (and based largely on merit), and greater fairness, since people earning the money get to keep more of it. I just don’t like huge myths to continue to get in the way of rational consideration of policy options, meaning considering likely trade-offs in a realistic way as best we can.

* Also, discussing tax rates alone omits what happens with “tax expenditures” (tax deductions, credits, and exclusions). Reduction of tax expenditures, which accompanied the Kennedy and Reagan tax cuts, increase revenues (vs. what they would have otherwise been).

You are simply not getting it. I said nothing about what happens to the money after the revenue comes in, so that was a strange remark from you. And you are simply wrong if you think tax cuts generally increase revenues, and that the Reagan and Bush tax cuts did so — or at least you are directly at odds with the clear, consensus view among the most prominent conservative economists. And your reasoning (for lack of a better word) is obviously extremely flimsy, as I’ve explained.

I’ll provide just some of the aforementioned quotes. See my prior comment for titles of the individuals. I haven’t taken time to change all the URLs to html as active links, but anyone can copy and paste to verify the quotes and view context (nothing is taken misleadingly out of context in any way).

Viard and CBO in The Washington Post, October 17, 2006:
“Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that,” said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. “It’s logically possible” that a tax cut could spur sufficient economic growth to pay for itself, Viard said. “But there’s no evidence that these tax cuts would come anywhere close to that.”
Economists at the nonpartisan Congressional Budget Office and in theTreasury Department have reached the same conclusion. An analysis of Treasury data prepared last month by the Congressional Research Service estimates that economic growth fueled by the cuts is likely to generate revenue worth about 7 percent of the total cost of the cuts, a broad package of rate reductions and tax credits that has returned an estimated $1.1 trillion to taxpayers since 2001. http://www.washingtonpost.com/wp-dyn/content/article/2006/10/16/AR2006101601121_pf.html

Greg Mankiw analysis, summarized by National Bureau of Economic Research:
some observers have suggested that tax cuts can generate so much economic growth that they may more than pay for themselves. Most economists are doubtful about either such extreme. The consensus view is that tax cuts indeed influence national income, but not to the extent that they are fully self-financing.
Mankiw and Weinzierl?find that, in the long run, about 17 percent of a cut in labor taxes is recouped through higher economic growth. The comparable figure for a cut incapital taxes is about 50 percent. http://www.nber.org/digest/jul05/w11000.html

Mankiw on his blog, 5/31/06:
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. http://gregmankiw.blogspot.com/2006/05/must-read.html

Andrew Samwick on his previous blog, January 03, 2007
A New Year’s Plea
To anyone in the Administration who may read this blog, I have one small wish for the new year. Please stop your boss from writing or saying the following: “It is also a fact that our tax cuts have fueled robust economic growth and record revenues.”

You are smart people. You know that the tax cuts have not fueled record revenues.You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one. http://voxbaby.blogspot.com/2007/01/new-years-plea.html

Henry Paulson, during his confirmation hearings in 2006, per article in Market Watch (from Dow Jones)
“As a general rule, I don’t believe that tax cuts pay for themselves,” Paulson said, echoing the opinion of most economists. http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=google&guid=%7BB18C218C-3ED7-4514-898C-F7B2D24FAB43%7D&keyword=&print=true&dist=printTop

Edward Lazear, Testimony before the Senate Budget Committee ?State of the Economy and the Budget?, September 28, 2006:
To determine the effect of tax cuts on revenue, we need to ask, ?What would revenues have been absent these cuts?? This question can be answered by providing estimates of what revenue would have been had we not cut taxes…Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data [we have] presented above do not support this claim.
http://www.whitehouse.gov/cea/lazear20060928.html

Ben Bernanke testimony before Congress, Janurary, 2007:
The general view is tax cuts don’t pay for themselves. http://online.wsj.com/article/SB116913177480880296.html?mod=home_whats_news_us

Alan Greenspan at House Budget Committee hearing, 9/8/04:
It is very rare, and very few economists believe that you can cut taxes and you will get the same amount of revenues. But it is also the case that if you cut taxes, you will not lose all the revenue that is implicit in the so-called static analysis.
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_house_hearings&docid=f:95792.wais

CBO under Director Douglas Holtz-Eakin, Economic and Budget Issue Brief, ?Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates?, December 1, 2005:
? This brief by the Congressional Budget Office (CBO) analyzes the macroeconomic effects of a simple tax policy: a 10 percent reduction in all federal tax rates on individual income?CBO based its analysis on a number of different sets of assumptions about how people respond to changes in tax policy, how open the economy is to flows of foreign capital, and how the revenue loss from the tax cut might eventually be offset…The budgetary impact of the economic changes was estimated to offset between 1 percent and 22 percent of the revenue loss from the tax cut over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years.
?Douglas Holtz-Eakin, Director http://www.cbo.gov/ftpdocs/69xx/doc6908/12-01-10PercentTaxCut.pdf

Heritage Foundation — Tracy Foertsch, Ph.D. and Ralph A. Rector, Ph.D, February 15, 2007 (EGTRRA and JGTRRA refer to the 2001 and 2003 tax cuts, respectively)
Extending EGTRRA’s and JGTRRA’s expiring provisions has a positive effect on U.S. GDP, incomes, and employment over the 10-year budget period. It also generates substantial revenue feedbacks ($295.5 billion). Ignoring the macroeconomic effects of the extension plan on individual, non-corporate business, and corporate incomes puts federal tax revenues $991.9 billion below the CBO’s projected baseline levels over 10 years. Taking the dynamic effects of the extensions into account reduces the estimated revenue loss to the Treasury to $696.4 billion over 10 years.(Footnote:These estimated changes in federal individual income tax revenues exclude net refundable credits.) http://www.heritage.org/Research/Taxes/wm1361.cfm

Martin Feldstein in Financial Times, July 19 2006:
Martin Feldstein, professor of economics at Harvard and former chairman of Ronald Reagan’s presidential council of economic advisers, is perhaps the most respected advocate of supply-side effects. He says his work suggests that following an across-the-board income tax cut, behavioural changes such as a willingness to work harder in more demanding roles “cause you to recover about one-third of the revenue you would otherwise lose”. Most others believe the effects are considerably smaller. http://www.ft.com/cms/s/0/1da9113a-16c3-11db-8b7b-0000779e2340.html

Robert Barro January 06, 2004:
The reason I like the [Bush] tax cuts is twofold. One is that I think it improves the incentives for the longer run economic performance for growth. And secondly, that I favor a smaller size of the government and … a way to accomplish that is to starve the government of revenue and I look at this as further going in that direction. http://www.hoover.org/multimedia/uk/2993196.html

sorry about the goofy text in the link. Didn’t delete that part from the Help page html example after pasting it.

I wish Redstate would just automatically make URLs live links.

You MUST be kidding me.

ok, clearly nothing I’ve said has registered. Sorry, but I think it’s not unreasonable of me to decline to waste more time with you. If you wish, re-read what I wrote about why you can’t just observe higher revenues over years following a tax cut (or even following several cases of tax cuts) and reach your conclusion. If you don’t get my explanation (which is really just noting the very basic core of proper analysis), I guess you never will.

In short, (1) revenues generally go up over any given set of a few or several years, regardless of tax policy, because the economy is more often growing than in recession, and (2) there seems to be universal agreement among the top conservative economists, based on their analyses and reviews of analyses, that generally tax cuts (from anywhere near current rates or rates before the Bush tax cuts) result in much lower revenues than we would otherwise have (if tax rates had not been cut).

Do you even understand the distinction between “higher than before” vs. “higher than they would have otherwise been”? If not, that’s yet another key aspect of this that you just don’t get. Presumably even you are arguing that revenues are higher than they would have otherwise been — i.e., that the tax cuts caused revenues to be higher than they would have otherwise been, not just that they are higher than before the tax cuts. Well, those guys with the PhDs — in fact, the most respected conservative economists around — have weighed in on that question, and again, they all say you’re way wrong, although in fairness to you, it seems you aren’t even clear on what you’re saying since you don’t seem to get the aforementioned distinction.

I don’t want to sound like a broken record, so I won’t say “you gotta be kiddin’ me” again, but man, you really are amazing in how consistently you demonstrate a proud, oblivious failure to understand this matter.

You present to me an opinion piece by a non-economist (he’s “a Washington lawyer” as you can see), in which he observes (as you do and as I have) that revenues increased, and in which this non-economist asserts causation — that the Bush tax cuts caused (“generated”) revenues to be higher than they otherwise would have been — and you take his assertion over the opposite conclusions of every prominent conservative economist around, including Bush’s top economists! Amazing!

And it’s still not clear to me if you even get the distinction between revenues being higher than before the tax cuts vs. revenues being higher than they would have been without the tax cuts. So your confusion on this matter may be on multiple levels.

Re: I?ll stick to the numbers

No, you’re not “sticking to the numbers”, you are completely misunderstanding what the numbers represent, and assuming causation merely because of the juxtaposition of the tax cuts and the subsequent (eventual) revenue increases. Again, no one denies there was an increase in revenues. The question is, would revenues have been higher or lower if we hadn’t had the Bush tax cuts, and I mean even net of whatever incremental economic growth they may have provided? And the answer from all the prominent conservative economists is: revenues were lower than they would have been if we hadn’t had the Bush tax cuts.

I guess you just aren’t going to grasp even these very basic analytical concepts — what you call “fancy stuff” as you reject it.

It would be nice if someone here whom you trusted and who gets this would let you know that you’re misunderstanding this stuff and reaching the wrong conclusion, but I know people usually don’t do that in the blogosphere. It’s very tribal. If you share their policy preference, they won’t correct you on an invalid reason for favoring that policy. I’m different (I’ll correct people on major misconceptions even if they share a policy preference of mine) so I tried to help you understand, but I give up. Some people can’t be helped, and probably don’t want to be.

Liberals tend to let feelings override practical analysis and consideration of real-world consequences and likely trade-offs of policy options. I hate when I see some conservatives acting the same way. I don’t know if you really just don’t get it or if you simply don’t want to get it so you can cling to a myth that feels good to you, but if it’s the latter, that’s sad. I mean, even the former would be unfortunate, but that may not be by choice.

By the way, since when is the Washington Times “a liberal newspaper”?

I won’t waste more time with you on this.

Listen, I’m sure there are things in which your smart and I’m ignorant, and skills you have that I lack, but man, on this one you are utterly clueless, yet somehow (quite ironically) manage to think you have some superior insight.

At this point I’ll leave you with your feel-good nonsense.

Thanks aesthete.

As you probably know, that view expressed by Barro is called the “starve the beast” approach.

Milton Friedman expressed that view as well:
Friedman in Wall Street Journal 1/19/2003
How can we ever cut government down to size? I believe there is one and only one way: the way parents control spendthrift children, cutting their allowance. For government, that means cutting taxes. Resulting deficits will be an effective–I would go so far as to say, the only effective–restraint on the spending propensities of the executive branch and the legislature. http://www.opinionjournal.com/editorial/feature.html?id=110002933

And Reagan said in his 1980 debate with John Anderson:
if you’ve got a kid that’s extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker. http://www.presidency.ucsb.edu/ws/index.php?pid=29407#axzz1gAmG6YZd

Of course, Reagan wasn’t thinking of a kid with his own credit card with no limit, which is why deliberately causing deficits by reducing revenue is a risky strategy. It assumes the politicians will be fiscally responsible regarding deficits and debt. Not an assumption I’d take to the bank.

A few years ago I researched what economists have concluded regarding the ?starve the beast? theory, and here?s what I found.

First, I should make a distinction. There is what I?d call a ?weak? version of ?starve the beast?, which means that lower revenues induce government to spend less than it otherwise would have, but with this reduction in spending being less than the amount of forgone revenue, resulting in higher deficits. And there is what I?d call a ?strong? version, which means that the reduction in spending equals or exceeds the amount of forgone revenue, and there is no increase in deficits. Of course, even the weak version is not necessarily bad. For one thing, what matters is the ratio of deficits and debt to GDP, and if GDP is growing, even some absolute growth in deficits may not increase deficits/GDP or debt/GDP. Additionally, there benefits of lower taxation to weigh against the costs and risks of increases in deficits/GDP and debt/GDP

It seems economists generally reject the ?strong? version of ?starve the beast? (the version that doesn?t increase deficits), and as for the ?weak? version there is debate among economists and the jury is out. In other words, there is a disagreement and substantial uncertainty among economists on whether or not lower revenues induce any less spending (than would otherwise occur) at all. It seems at first intuitive that lower revenues would induce lower spending, but an intuitive argument is also made the other way as well — that borrowing to spend rather than taxing to spend shields taxpayers from the pain of spending and reduces the incentive to curb spending. In addition to this intuitive aspect, the empirical evidence is debated.

A debate emerged among some economists after this (2004) piece by William A. Niskanen, Chairman of the Cato Institute and former member and acting chairman of President Reagan’s Council of Economic Advisers http://www.cato.org/pubs/policy_report/v26n2/cpr-26n2-2.pdf. Niskanen holds a Ph.D. in economics from the (famously free-market) University of Chicago, which has honored him with a lifetime professional service award. Thus, it would seem that any ideologically bias would lead him to conclusions favorable to tax cuts. Yet Niskanen concluded that tax cuts led to HIGHER, not lower spending, and his behavioral explanation is per the preceding paragraph (shielding taxpayers from the pain of spending).

Conservative economist Gregory Mankiw, who was Chairman of W Bush?s Council of Economic Advisors and is an economics professor at Harvard, noted (in 2006) that another prominent economist reached the opposite conclusion, with some differences in methodology (with perhaps some advantages), albeit with less recent data vs. Niskanen’s analysis. Mankiw also notes that Mark Thoma (a hyperpartisan liberal economist blogger ? that?s my description, not Mankiw?s) was very critical of Niskanen?s methodology http://economistsview.typepad.com/economistsview/2006/05/a_closer_look_a.html. Mankiw concluded that ?Until someone sorts out these apparently conflicting results, it is (as Thoma suggests) premature for anyone?to conclude that Niskanen has the last, or even the most persuasive, word on the topic.? http://gregmankiw.blogspot.com/2006/06/starving-beast.html. (Note that Thoma?s ideology and related agenda would, if anything, bias him in the opposite direction from the view he expressed, since his rejection of Niskanen?s conclusion meant one less argument against tax cuts, which Thoma generally opposes. As Thoma writes as he begins his critique, lamenting that his critique takes away an argument he?d like to use in opposing tax cuts, ?I hate to do this because the result that “starving the beast” does not work is useful in political battles.?)

In 2007, Berkeley economics professors Christina and David Romer analyzed the question and found that (quoting the abstract of their paper) ?The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, they suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases.? http://www.nber.org/papers/w13548 The Romers were economic advisors to Obama during his campaign, and Christina then became Chair of President Obama?s Council of Economic Advisors, although conclusions they have reached in their studies have been cited by conservatives advocating tax cuts (on the basis of GDP growth), and The Economist magazine described them (5/10/07) as having ?impeccable neoclassical [economist] credentials? (meaning strongly favoring free markets as a means of efficient allocation of resources). http://www.economist.com/world/na/displaystory.cfm?story_id=9163589.

Discussion of the Romer study at http://www.econbrowser.com/archives/2007/04/new_estimates_o.html and http://streetlightblog.blogspot.com/2007/04/macroeconomic-effects-of-tax-changes.html