I’ve often said that it won’t matter who runs for the GOP in ’08 because they’ll simply offer more tax cuts and nobody lost an election offering tax cuts.
You could look it up.
That said, do tax cuts really work? The Laffer Curve (appropriately drawn on a cocktail napkin) suggests that if you raise tax rates “too high” gross tax revenues eventually start going down. If you lower tax rates “low enough” then gross tax revenues actually begin to increase.
Conservatives love to tell the story of Ronald Reagan and tax cuts. Here’s how Stephen Moore of the WSJ remembers it:
In the 1980s, President Ronald Reagan chopped the highest personal income tax rate from the confiscatory 70% rate that he inherited when he entered office to 28% when he left office and the resulting economic burst caused federal tax receipts to almost precisely double: from $517 billion to $1,032 billion.
Classic supply-side theory made real by the Gipper (and Laffer).
Unfortunately, it’s a fairy-tale.
Let Kevin Drum do the math:
- First, we should adjust for inflation, shouldn’t we? In 1980 dollars, $1,032 billion is actually $670 billion.
- And of course, population increased over that time too, which naturally increases tax payments. Adjusting for that, tax revenue was $2,283 per person in 1980 and $2,694 per person in 1990.
- That’s not double. It’s an increase of 18%. And it’s worth noting that a lot of that is due to consistent tax increases throughout the 1980s (details here). Without that, Reagan wouldn’t have gotten even the anemic growth in tax revenue that he did.
But wait. Is “anemic growth” fair? Why yes. After all, we can play this game with any decade. Annual tax receipts are here. Adjusting for inflation and population growth, the supposedly horrible 70s produced an increase in tax revenue per person of 25%. The Clinton 90s produced growth of 40%. In fact, Reagan produced the slowest growth in tax revenue of any decade since World War II. That’s a real supply side triumph.
Here’s the thing: Guys like Grover “Starve the Beast” Norquist really do want to shrink the government. They want to shrink it small enough to be able to drag it into the bathroom and drown it in the tub. And the historical record on tax revenues simply puts Norquist’s goals in sharper focus.
And/but most conservative Republicans still preach that cutting taxes will stimulate the economy and increase tax revenues.
Fact is, they wouldn’t be telling that story if it wasn’t effective in getting them elected.