Laffing at Laffer and other tax cutters

I imagine this will be my only foray into the great Chait tax rate debate™. My only entry, because I think Megan's got her hands full already, and also because all the participants will soon be continuing the debate in a forum at TPM Cafe that I haven't been invited to.

Here's my basic premise. Megan is wrong about the shape of domestic politics today. She's somehow convinced herself that Republicans don't sell tax cuts by promoting Laffer curve economics even though this is precisely how they do it. But even if she conceded that Bush and Cheney and every other major Republican figure today still advance Laffer ideas, she'd be rather forgiving of them. To liberals, it seems as if Republicans do this--appease their rich base with upward wealth redistribution--because it's good for their political party. To libertarians, it seems as if Republicans do this because it's the only way--disingenuous or otherwise--to sell their policies; policies which libertarians like for all the reasons Megan has listed.

Ezra and Matt and I could argue with Megan all day about whether or not tackling "deadweight loss" and promoting brief spending increases is worth the cost of shriveling government revenue--or about whether the associated tax cuts even have the effect of lowering government spending in the first place--and we'll get nowhere. She's a libertarian. We're liberals. We see the world very, very differently. But Megan is going to have to do a lot better if her argument is that the entire Republican party is comprised of ardent libertarian economists--Hayekians who think Bush's tax cuts have been great for mysterious reasons visible only to other libertarians--and that their true justification for wanting to redistribute wealth to their rich friends has everything to do with Milton Friedman and nothing to do with pandering or greed. Which is, it seems to me, exactly what she's arguing.

My quarrel is with the notion that supply-side theories have enormous influence on Republican policy. Supply-siders haven't had the kind of influence that Chait describes since the Reagan administration. And that's because everyone observed the Reagan tax cuts opening up huge deficits. Supply side theories are window-dressing--bad, horrible window-dressing, but still, just window dressing. You don't need it to construct an argument for tax cuts, which is why, contra Chait, getting rid of the supply siders would not much change the desire for low taxes among Republicans. Nor do I think you even need supply-side arguments to sell the tax cuts to the public. The benefits of tax cuts to the public are quite evident: you send less money to the government.

I'd refer Megan to Grover Norquist, who's spent a lot of time selling the idea of tax cuts to anybody within ear shot. I'd suggest she ask him whether or not the Republican party should ditch Laffer language for the associated political benefits. I suspect she'd be, ahem, Laffed out of his office. (Norquist may or may not be a Lafferer. I'm not sure. His animating goal is to drown government which, it seems to me, is better accomplished if tax cuts don't increase revenue. But as Yglesias pointed out, whether this is all a symptom of dishonesty or insanity is sort of beside the point--Republicans make these arguments because they are extremely politically potent.)

Politicians like to tell people that the goodies they hand out will cost less than they actually do, which is why Republicans exaggerate the revenue they can recoup from supply-side effects, and Democrats lowball the cost of new spending. And people like to pretend that they believe them. But even if the costs were higher, many people would still want tax cuts, or health care plans, or whatever. If people actually cared that much about the cost of these things, they would punish politicians for widening the budget deficit. They don't.

And are these lies more uniquely horrible than, say, John Kerry pretending that his health care plan would cost half as much as most reasonable estimates predicted, so that he could claim it could be paid for out of repealing part of the Bush tax cuts? I don't think that John Kerry believed that this was true--at least, I hope he didn't. Nor do I think that any of his supporters would have been shocked and horrified to find that the program actually cost 2-3 times what Kerry promised.

From an economist's perspective, these are the same thing: fiscally, a tax credit is no different from a subsidy, and underestimating the revenue cost of a program is underestimating the revenue cost of a program whether that program is a tax cut or a health care plan. Morally, my liberal friends seem to feel that the two are very different, which is the source of a lot of this outrage.

From an economists perspective... well I guess that probably depends which economist you talk to. Some, I'm sure, would disagree. To some mathematicians, sine and cosine functions are basically the same thing--two oscillations shifted by 90 degrees from one another. To others the difference is crucial. To me, as a policy writer, it seems very clear that if John Edwards advertises a good health care plan and claims it will cost $120 billion when he knows it will cost $200 billion, and the result is that everybody in America gets the health care that he promised but at the cost of taxes he never mentioned in his campaign, then, yes, he's been a little bit dishonest. But has also delivered on the core of his promise.

On the other hand, when George Bush tells the country that his tax cuts will stimulate revenue--revenue that will ostensibly be returned to the tax payers in the form of government expenditures or tax returns or whatever--and the end result is that the exact opposite happens--and the wealthy get wealthier to boot--it's a very, very different kind of lie.