Friday, January 11, 2008

Reflections on the Debate (Myrtle Beach, South Carolina)- No. 4

In the Repub presidential debate sponsored by GOP TV on January 10, 2007, John McCain repeated one of the major themes of his campaign: "sometimes you have to tell people things they don't want to hear, along with things that they do want to hear."

So asked whether "tax cuts pay for themselves," McCain gave the tough-love answer: "I think they stimulate the economy.I think that one of the first things we have to do that I for-got to mention is make these tax cuts permanent." (Making people accept income tax cuts- it's right up there with waterboarding.)

Of course, the real problem with the Senator's response is that it's not true. Hale "Bonddad" Stewart, blogging on TheHuffingtonPost.com, reprinted a chart from the Federal Reserve Bank of St. Louis with an explanation:



Kennedy cut taxes in the early 1960s. What happened? There was a spike in revenue in the late 1960s. Maybe that means the Laffer curve is correct?
Reagan cut taxes in the 1980s. But there was no spike in revenue. Maybe tax cuts don't pay for themselves. But, let's try that experiment again.
Bush cut taxes twice (not once) in the early 2000s. Notice that after the first tax cut revenues dropped. But then tax revenues spiked -- so they must work! Actually, no. Remember this is a year over year chart. That means the spikes in the later 2000s are being compared to the dropping revenue is the early 2000s. In other words -- the tax cuts didn't pay for themselves (again).
The chart is very clear. Kennedy's cuts worked. Reagan's didn't. Bush II's didn't .


On June 11, 2007 factcheck.org reported that Alan D. Viard of the American Enterprise Institute, hardly a bastion of liberalism, told the Washington Post in October, 2006 "among economists, there's no dispute" that "federal revenue is lower today than it would have been without the tax cuts" of 2001 and 2003.

Straight talk, indeed.

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