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Wednesday, July 20, 2005
NPR's liberal bias: supply side economics
NPR covers the rebound in tax revenues:
[Question] How can we see an increase in tax revenues, though, after President Bush cut taxes? Supply siders and other Bush backers will say, possibly, here, you know, "See, we told you so. We cut the taxes, the economy rebounded so much that the tax cuts are paying for themselves."
[Answer, David Wessel] Absolutely. They're all saying that. The supply siders, including the folks on the Wall Street Journal editorial page. One reason that the taxes are up is because the economy is doing better. But folks on the other side scoff at the notion that this is some supply side reaction and they say that, "Look, it wasn't the big income tax cuts that's causing this surge in tax revenues. It's these temporary factors and it's the stock market. And it's that people at the top are doing better and none of those things were predicted by the supply siders.
Indeed, if you look at the WSJ's editorial page, you find that very argument:
[T]he 2003 reductions in the tax rates on dividends and capital gains seem to be resulting in much higher tax revenues on . . . dividends and capital gains. This is called the Laffer Curve effect....
The WSJ then provides a handy graph that shows after 12 years of Reagan/Bush supply side tax cuts the result was much lower tax revenues as percentage of GDP:
The graph also demonstrates that the revenues under Bush are down dramatically over the last five years, not up. So if someone wanted to suggest that the tax cuts were paying for themselves, the answer would be, "No, they are absolutely not paying for themselves."
We've noted this last month, piggybacking on some excellent work from Kevin Drum. From 2000 through 2004, individual tax revenues fell 20% -- unadjusted for inflation, unadjusted for population growth. Corporate tax revenues fell 9% -- unadjusted for inflation, unadjusted for population growth.
Massive tax cuts do not pay for themselves. It is historical fact. The economy is doing better, which is good news. The improving economy is helping tax revenues. But the direct benefits of the improving economy seem to be confined to a select and wealthy few rather than the laboring many. (Krugman covered this with greater specificity on Monday.
