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Home Publications Blogs Beat the Press In Addition to Geithner, Republican Economists Also Argue That Tax Cuts Do Not Pay for Themselves

In Addition to Geithner, Republican Economists Also Argue That Tax Cuts Do Not Pay for Themselves

Thursday, 05 August 2010 04:37

The NYT discussed the Obama administration's plans to extend President Bush's tax cuts only for households earning less than $250,000 a year. The article also reported on Republican claims that not extending the tax breaks for the wealthy would hurt the economy. It concluded by telling readers that:

"he [Treasury Secretary Timothy Geithner] dismissed as “myths” Republican arguments that tax cuts pay for themselves, by bringing in new revenues from economic growth."

It would have been helpful to note that this is not just Secretary Geithner or the Democrat's view. It is the near unanimous view of every economist who has examined the issue, including Republican economists. For example, Douglas Holtz-Eakin, a prominent Republican economist who was the chief economic advisor to John McCain in his presidential campaign, examined this issue when he headed the Congressional Budget Office. He used a wide variety of models and found that in the most optimistic scenario additional growth could temporarily replace 30 percent of the lost revenue. (Even this increase would largely disappear in the long run.)

The treatment of the issue in the article may lead readers to believe that the question of whether tax cuts pay for themselves is one that is actively debated by economists. In fact, it has long been settled even if some Republican politicians choose to ignore the evidence.

Comments (5)Add Comment
nice post
written by Aditya, August 05, 2010 8:38
This was a nice post, thanks for the post Dean, and the link to the CBO summary doc.
written by Kenneth Fingeret, August 05, 2010 9:18

Does anyone with a functional thinking brain believe the words coming out of a politician (with rare exceptions). Just remember that Republicans believe that they can create reality (at least for their followers) whenever they want. Their economic theories are the same as the commercial of some years ago in which a woman orders a great amount of food and then believes she will not gain or possibly even lose weight as the last thing she ordered with her meal was a diet soda.
written by izzatzo, August 05, 2010 10:59
Mitch McConnell already debunked this some time ago. The Bush tax cuts did pay for themselves. Does a single stupid liberal doubt that spending would be even less if the Bush tax cuts were not in place? The ingrates don't have enough economic sense to realize that the GDP output gap would be even greater and the deep recession even worse if not for Bush, who had the foresight to see the recession coming and took preventative action. Bush understood the benefits of deficit fiscal spending way before the liberals were quoting Keynes.
Turn the point around...
written by myxzptlk, August 05, 2010 12:13
Dean, what I like about reading your posts every day is the common sense you bring to these discussions.

But sometimes it's better to turn a point around than to simply react to wingnut positions.

In this case, the myth that tax cuts pay for themselves is the flip side of another myth, namely, that taxation is always a net-negative expense. Some taxes, such as those earmarked for education, job creation, and some state and local government assistance, can actually increase productivity or reduce overall costs, which ultimately leads to higher per capita after-tax income.

I realize that commonly understood metaphors like "household budget" and "business finance" often don't translate well to macro economics, but for this discussion, I would ask the deficit hawks how long they think a business would last (and what the impact would be on employees, customers, investors, and other stakeholders) under a permanent strategy of cost-cutting and zero investment in growth opportunities.

And izzatzo, I don't know what you're smoking but I know it's not legal. ;)
Politicians - Ignore Them!
written by djt, August 05, 2010 12:51
When is the press (and Americans) going to grow up from this notion that just because we elect someone to congress they have something meaningful and true about the economy? They don't. They depth of misunderstanding and nonsense emanating from congresspersons on the economy is astounding. They aren't omniscient yet their comments are treated as such. I want to see the press, after quoting a congress person on the economy, state if majority economic thinking agrees, disagrees, or doesn't know. Better yet, skip the congress person's comments altogether - they don't enlighten, except about that person's opinion.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.