Tax Cuts Cause Deficits

Little tax-cutting piggies grow up to be big deficit hogs!

Am I the only one amused by the Republican Party’s obsession with the national debt? After all, their boys Ronald Reagan and George W. Bush are the ones who racked up the largest deficits in American history, the latter handing it off to Barack Obama who is now being circled by the very hogs who once suckled at the deficit-leaking teat. The GOP reminds me of a drug addict who converts to a fundamentalist religion—either way you look at it they’re still obnoxious.

Adding to the hypocrisy is a new study that appeared in the Cato Journal, which reveals that one of the very worst things one can do to reduce deficits is cut taxes. William Niskanen looked at the economy from 1981 to 2005 and discovered a startling correlation—cutting taxes did not reign in government spending; in fact, the more taxes were slashed, the more spending increased. In other words, Niskanen’s study refutes a core assumption of supply-side economics as articulated by Jude Wanniski, George Gilder, and Arthur Laffer, key architects of what came to be called Reaganomics. Part of their argument that progressive income taxes needed to be rethought rests on a belief that high taxation supported non-productive economic activity that, in turn, caused rising prices and unemployment. Slash taxes and spending must follow, they argued.

It turns out that this is the sort of “voodoo economics” that George H. Bush said they were back in 1980—tax cuts are almost always accompanied by increased spending and bigger deficits. David Stockman, Reagan’s budget director, later admitted what Niskanen just proved. (Niskanen’s scholarship was independently verified by University of Alabama professor Michael New.)

I can hear the complaints now—just another disgruntled liberal who can’t get over how Ronald Reagan saved the American economy. It won’t wash! William Niskanen, like Stockman, was a Reagan insider; he was a member of Reagan’s Council of Economic Advisors. The Cato Journal isn’t exactly a screaming lefty rag either—it’s put out by a libertarian think tank. So read it and weep. The new economic math is tax cuts = increased spending = bigger deficits. Maybe we ought to try something different—like taxing the hell out of rich people and multinational corporations.