Monk

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Mark my words: If the Democrats succeed in implementing their plan to tax the rich and cut taxes on the middle and lower income earners, this country will experience a fiscal crisis of serious proportions that will last for years and years until a new Harding, Kennedy or Reagan comes along.

-- Arthur B. Laffer for The Wall Street Journal

Funny, I thought we were already suffering some serious fiscal catastrophes that promise to last for years and years after eight years of supply-side Bush. The house is already on fire, but thanks for the prediction, Nostradamus.

A lot of economics in the news these days, which can make for some opaque reading, but one can catch the punch lines.

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Is it really possible that all the triumphant declarations that the Reagan tax cuts led to a revenue boom — declarations that you see in highly respectable places — are based on nothing but a failure to make the most elementary corrections for inflation and population growth? Yes, it is.

-- Paul Krugman

Yeah, Krugman is a partisan, but his arguments are serious. I wouldn't go so far as to agree that there was nothing to supply-side theory, as I buy into conventional wisdom that when taxes are at a high enough rate, lower taxes will be economically productive, and I am inclined to believe that those tax rates may have been that high when Reagan took office. I am also inclined to agree that too much was made of this Laffer curve business, and that this has been especially abused in Dubya's tenure.

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In 1974, a group of economists and journalists got together in a bar and launched supply-side economics. It was a superb political and economic package. It addressed a big problem: stagflation. It had a clear policy focus: marginal tax rates. It celebrated a certain sort of personality: the risk-taking entrepreneur. It made it clear that the new, growth-oriented Republican Party would be different from the old, green-eyeshade one.

Supply-side economics had a good run, but continual tax cuts can no longer be the centerpiece of Republican economic policy. The demographics have changed. The U.S. is an aging society. We have made expensive promises to our seniors. We can’t keep those promises at the current tax levels, let alone at reduced ones. As David Frum writes in “Comeback,” his indispensable new book: “In the face of such a huge fiscal gap, the days of broad, across-the-board, middle-class tax cutting are over.”

The political situation has changed, too. Republicans used to appeal to the investor class with economic policies and the working class with values, crime and welfare policies. But that formula has broken down. The workers are walking away from the G.O.P., and the only way to win them back is by listening to their economic concerns.

-- David Brooks for The New York Times

Brooks is not saying that the Democrats have won the policy debates, but it would be nice to hear something other than tax cuts and Jesus from the Republicans.

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Jonathan Chait has a mocking piece in the Times likening the supply-siders of the Bush Administration to Christian fundamentalists who don't believe in evolution, and how Republican leaders are favoring the big money players over the rank and file.

( column )

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For all the high-earners out there, this is sort of the opposite-of-Christmas season: tax time. You can hear all the moaning and groaning in the media and the blogosphere.

I came across an interesting piece titled "You Paid Your Taxes? Sucker." and it seems to be encouraging people to use foreign tax havens to hide their money. What I don't get, though, is the accompanying graphic which I read as saying that there has been substantial increases in the use of this evasion from the year 2003 to 2006.

We know that the Bush years have been almost unprecedented in slashing taxes and keeping them down, and I would think that there would be less pressure for Americans to evade taxes. One could understand it better in a higher-tax era. Doesn't this suggest something questionable? Whatever one might think of social programs, including general social security programs, we have wars to pay for.

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Since the 2006 elections, we've been seeing a lot shifts, some subtle and some not so subtle, to the left. Now we see some movement at the root concept of supply-side economics, which triumphed with the Reagan Administration:

Today, supply-side economics has become associated with an obsession for cutting taxes under any and all circumstances. No longer do its advocates in Congress and elsewhere confine themselves to cutting marginal tax rates — the tax on each additional dollar earned — as the original supply-siders did. Rather, they support even the most gimmicky, economically dubious tax cuts with the same intensity.

Now, there is still a legitimate debate about the size of government and how big or minimal it should be. But it will be carried on more honestly. The right has been having it both ways, saying that we increase government revenue by cutting taxes - you can have your cake and eat, too. The general rule of common sense is reclaiming some of that ground: when you cut taxes, you are usually cutting revenue, too. You cannot get something for nothing.

Maybe less government means a more robust and richer private economy and a wealthier society, but that is a different debate, a more fundamental one. Americans have yet to demonstrate they want a smaller government in fact, as we have other values of fairness that we are also concerned about. With the bills on the war still coming in, and with more calls for better health coverage, one imagines that taxes will be going up.


(Source: Bruce Bartlett for The New York Times)

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