Friday, May 13, 2011

Into the chasm of the Lafferites

Posted By on Fri, May 13, 2011 at 5:10 PM

Twice in recent months, MT’s Jack Lessenberry has made passing and appropriately cutting comments about a particularly risible tenet of faith among the true believers of the fiscal right: the notion that cutting taxes guarantees business productivity and jobs, leading to so much economic activity that, in fact, more revenues are raised at the lower rate. The mathematical underpinning is the Laffer curve, and as Jack put it recently, “They don’t call it the Laffer Curve for nothing.”*

A recent piece in Salon (“How Republicans became the party of deficits” by Steve Kornacki) puts in context how this cuts-always-good approach became orthodoxy for the GOP, going back to the Reagan-Bush I primary clash of 1980. That was when Bush I decried this as “voodoo economics” before eating the voodoo doll like so much crow to run as VP  alongside the victorious Reagan. With Bush at his side, Reagan tripled the national debt and helped conservatives to “rationalize massive deficits.”

Running for president himself in 1988, Bush made his decisive “read my lips” pledge to never raise taxes, only to renege in 1990 when the math (and the Democrats controlling Congress) said that higher taxes were the most reasonable solution to controlling the deficit, then ballooning at a still steeper rate under an economic slowdown.

Kornacki lays out what followed as:

... Bush faced a revolt from his own party, led by a rising House Republican star — Newt Gingrich. One hundred and twenty-six of 173 House Republicans ended up voting against the plan, as did 24 of 43 Republicans in the Senate. The roll call tallies revealed how much the Reagan wing had grown — and how significantly the Bush wing had shrunk — since 1980.

Thus was the ground laid for the orthodoxy that reigns today on a right, now more monolithic than ever, from the aforementioned Gingrich and his fellow GOP primary contenders, to our own Gov. Rick “the Nerd” Snyder, now doing a victory lap after passage of his budget that dresses up the old-style tax cutting as fresh thinking.

Concentrating on another aspect of that taxes-inherently-bad, therefore cuts-good mentality, is some pointed recent commentary on our national obsession with the long-term problem of debt while ignoring the short-term and immediate problem (and suffering) brought by an unemployment rate that lingers (still) troublingly close to double digits (at 9 percent).

 

That commentary includes The New York Times’ Paul Krugman (“The Unwisdom of Elites" and “Fears and Failures”), and Robert Reich in Salon (“Why Washington should pay attention to the economy here and now”). As for what the current unemployment rates mean for African Americans, in particular, check out “The State of Black America Is Getting Worse” at theRoot.com.

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* OK, actually, there is a bit of logic to the curve. At 0 percent taxation, 0 taxes are collected. At 100% taxes, 0 taxes will also collected, because there’s no incentive to work. But that thought experiment tell us nothing about the how rates in between 0 and 100 work in the real world; the presumption of the ideologues who adopt the curve as their flag and crest is always that less will generate more, but where’s the proof? For a take on Bush II’s Lafferable tax cut, lunch on Jason Furman’s Slate piece “The Last Laffer: Bush's Treasury admits that tax cuts aren't free.”

Back in 2006 Furman wrote:

There has long been a conflict between responsible conservative economists who make carefully hedged claims about the relatively modest economic effects of tax cuts and Laffer curve lovers, who think that tax cuts always spur enormous gains. And lately

Laffer disciples have widened their separation from mainstream economists into a chasm.

That's the chasm that we're now plunging into.


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