Editore"s Note
Tilting at Windmills

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July 19, 2010

TAX FAIRY WATCH.... Roll Call had a fascinating headline today, following Senate Minority Leader Mitch McConnell's (R-Ky.) appearance on CNN over the weekend. The headline read: "McConnell Blasts Deficit Spending, Urges Extension of Tax Cuts."

It's part of the newest push in Republican politics -- the notion that tax cuts don't add to the deficit, all evidence to the contrary notwithstanding, because they pay for themselves. Thirty years ago this was considered "voodoo economics" by even many Republicans, but more recently, it's been labeled belief in the "tax fairy."

Credible economists dismiss the argument as nonsense, but the Republican Party in its entirety doesn't seem to care. Yesterday, House Republican Conference Chairman Mike Pence (R-Ind.) toed the party line.

"The reality is that as you study -- when President Kennedy cut marginal tax rates, when Ronald Reagan cut marginal tax rates, when President Bush imposed those tax cuts, they actually generated economic growth, they expand the economy, they expand tax revenue," Pence said.

This morning, Florida's GOP Senate hopeful Marco Rubio demanded more tax cuts for the wealthy. When asked how he'd pay for them, he replied:

"Well, the question is they will be paid for because they create economic growth, especially in the long-term."

As a substantive matter, all of this is gibberish. The problem is the ubiquity of the gibberish in GOP circles.

This most recent push started about a week ago with Senate Minority Whip Jon Kyl (R-Ariz.) insisting that spending increases need to be paid for, but lawmakers shouldn't even try to pay for tax cuts. California Senate hopeful Carly Fiorina (R) soon followed, declaring, "You don't need to pay for tax cuts. They pay for themselves." Senate Majority Leader Mitch McConnell (R-Ky.) soon added that Bush's tax cuts, which created huge deficits, actually "increased revenue." Sen. Judd Gregg (R-N.H.) agreed that "tax cuts should not have to be offset." A few days later, Sen. Tom Coburn (R-Okla.) managed to sound even dumber, insisting that $678 billion in tax cuts for the wealthy are "not a cost."

As we talked about last week, these developments have made abundantly clear that conservative Republicans don't care at all about reducing the deficit, but that's really just the beginning of the larger revelation here. By embracing economic nonsense with such enthusiasm, Republicans are also making it painfully obvious that they don't care about reality, either.

Krugman's label -- "invincible ignorance" -- continues to ring true.

Steve Benen 11:20 AM Permalink | Trackbacks | Comments (34)

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anytime mike pence wants to one on one with bush's tax cuts and the ensuing economic growth vs. clinton's tax hikes and the ensuing economic growth, he's welcome to....

Posted by: howard on July 19, 2010 at 11:28 AM | PERMALINK

The problem is the ubiquity of the gibberish in GOP circles.

Um, I don't think that's a bug. That's a feature.

Posted by: bleh on July 19, 2010 at 11:30 AM | PERMALINK

PENCE: “The reality is that as you study -- when President Kennedy cut marginal tax rates, when Ronald Reagan cut marginal tax rates, when President Bush imposed those tax cuts, they actually generated economic growth, they expand the economy, they expand tax revenue

* The national economy experienced a dramatic slow-down in 1966, less than 18 months after federal income tax rate cuts were enacted into law, with GDP going over a cliff from 10.1% down to 1.4% (note that the previous high levels of GDP occurred while the top marginal rate of individual income tax was 91%).

* After the 1981 federal income tax rate cuts under Reagan were enacted, GDP was a net NEGATIVE 9% over the six subsequent quarters, and as David Stockman (Director of the OMB 1981-1985) stated, federal income tax revenues plunged to 1940's levels after the federal income tax rate cuts in 1981, resulting in MASSIVE federal deficits and debt. Both GDP and tax revenue only turned up again after Reagan started raising federal taxes.

* The U.S. Treasury documented the plunge in federal income tax revenues after the federal income tax rate cuts beginning in 2001, down to 1950's levels, which resulted in TWO recessions and MASSIVE federal deficits & debt.

Federal income tax rate cuts have NEVER stimulated the American economy, NEVER increased federal income tax revenues, and NEVER created a net increase in the American workforce. Federal income tax rate cuts have repeatedly led to economic slow-downs or recessions, and/or massive federal deficits and debt, and/or declining Standards of Living.

Posted by: Joe Friday on July 19, 2010 at 11:33 AM | PERMALINK

So by the same reasoning, all the unemployed people don't need to worry about anything. Since they're bringing in less revenue, they're more able to pay off their debts.

Have I got this right?

Posted by: chrenson on July 19, 2010 at 11:33 AM | PERMALINK

Krugman is too polite. It isn't ignorance on the part of the Thugs, it is a lying ploy in their never ending class warfare against the middle class.

Posted by: candideinnc on July 19, 2010 at 11:36 AM | PERMALINK

Yes, it is gibberish, but why won't it work as well electorally as it did for Reagan?

It also complicates arguing for sensible policies to address our liquidity trap. Massive stimulus is necessary to spur the demand that will lift us out of economic stagnation, the resulting growth would offset the cost of the stimulus. It is hard to differentiate between that argument and the supply side argument, but for the fact that there is plenty of money on the supply side but no incentive to invest it productively given the absence of demand.

Posted by: tib on July 19, 2010 at 11:44 AM | PERMALINK

Does this mean that if we reduce the tax rate to zero, that the deficit will be a thing of the past?

Posted by: keith eisenstark on July 19, 2010 at 11:46 AM | PERMALINK

Goosestepping for the rich

They will do everything in their power to keep the Bush tax cuts.
Everything and anything....
Even hire an assassin if that is what it takes.

If you have doubts about this, consider what they had to do to get the tax cuts in the first place...
Ezra Klein tells the tale of how the Pugs got the Bush tax cuts through reconciliation:

As Kent Conrad told me, reconciliation "was designed solely for deficit reduction." The Senate parliamentarian, predictably, objected to the Bush administration's effort. He was fired and replaced with a parliamentarian that blessed the procedure.
Bush's 2001 tax cuts was the first time the budget reconciliation process had ever been used for a bill that increased the deficit. Ever. Democrats were appalled. When they retook the Congress, both the House and the Senate passed a rule barring reconciliation from being used for bills that increased the deficit.

They were willing to break rules and hatchet people to get the cuts...
They will be willing to murder people to keep them...

Posted by: koreyel on July 19, 2010 at 11:47 AM | PERMALINK

Well, you know and I know that it's all gibberish, but don't expect anyone in the GOP to refudiate the idea any time soon.

Posted by: puravida on July 19, 2010 at 11:50 AM | PERMALINK

Ignorance, hell. Most of them know it's nonsense; they also know that (1) the media will do their usual 'parties differ on shape of earth' reporting and balther on that 'the deficit means a bad economy'; (2) that 'tax cuts' is a popular phrase among our millions of 'low-information voters'; and (3) see (1) above.

Posted by: Nick on July 19, 2010 at 11:50 AM | PERMALINK

If tax cuts pay for themselves then shouldn't they be in favor of the Recovery Act? It was half tax cuts.

Maybe the mistake is thinking that anything that comes out of the Republicans mouths even means anything.

Posted by: mcc on July 19, 2010 at 11:50 AM | PERMALINK

What the Republicans care about is getting elected and regaining power. They're using a message that is guaranteed to nail down a substantial portion of the voting population, which has never heard a "free lunch" message that it was not eager to embrace. The fact that it's bullshit is irrelevant to the Repubs.

Simple, really.

Posted by: dr. bloor on July 19, 2010 at 11:54 AM | PERMALINK

All of this is a test of the credulity and stupidity of the American public. It'll be interesting to see if we pass.

Posted by: Kevin Phillips Bong on July 19, 2010 at 12:02 PM | PERMALINK

"Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-D-O-O economics. . . ."

Posted by: bucky on July 19, 2010 at 12:17 PM | PERMALINK

Steve Benen wrote: "Krugman's label -- 'invincible ignorance' -- continues to ring true."

The Republicans are "invincible" in part because influential writers like Krugman and yourself persist in pretending that they are "ignorant" when you know perfectly well that they are NOT "ignorant", they are deliberate liars.

Posted by: SecularAnimist on July 19, 2010 at 12:18 PM | PERMALINK

I just picked up the book "Denialism" by Michael Specter, sub-titled "How Irrational Thinking Hinders Scientific Progress, Harms the Planet, and Threatens Our Lives". (2009, Penguin Press) I was thinking that's a little over the top, but maybe not...

So far describes the problems and some of it's modern roots (Vioxx, Chernobyl), along with denialist champions deliberately confusing issues, etc. Haven't come to the happily ever after ending yet--afraid there won't be one though. I just peeked about half way through and saw a paragraph starting with this sentence: "Belief outranks effectiveness"

Posted by: golack on July 19, 2010 at 12:21 PM | PERMALINK

Repubs are like Pavlov's Dogs. Mention "taxes" and they salivate. Mention Tax cuts"" and they lick your hand.
I recently played golf with three Repubs this past week and after the round all they could talk about were taxes. Estate taxes, capital gains, income and on and on.
Oh yes, and the fear is Obama and the "poor people". Repubs have successfully replaced racism with classism. It never seems to dawn on them that we all need one another to make it work.
The American econmy is like an auto that's running
out of gas and the Repubs are the gas station owner who has locked up and gone home.
I really worry for those Americans that find Repubs attractive enough to vote for them.

Posted by: fillphil on July 19, 2010 at 12:22 PM | PERMALINK

If the government taxes me 20% of my $100,000 income, I pay $20,000. If a tax cut trims that to 18%, I pay $18,000 -- less revenue. For the tax cut to increase revenue (in absolute terms), my income would have to increase to more than $111,000. That's an 11% growth in my income. Now, if we're talking about the whole economy and not just my income, the tax cut would have to grow the economy by 11% to break even. That does not happen.

Posted by: Grumpy on July 19, 2010 at 12:25 PM | PERMALINK

--Krugman's label -- "invincible ignorance" -- continues to ring true--

Regarding himself, quite true.

Posted by: P-Town on July 19, 2010 at 12:28 PM | PERMALINK

"What the Republicans care about is getting elected and regaining power."

Like joining the KKK!

Posted by: Bill C. on July 19, 2010 at 12:29 PM | PERMALINK

Posted by: koreyel on July 19, 2010 at 11:47 AM | PERMALINK


No doubt Obama's meeting with the oligarchs in SFO was a benefit for us all. If I only knew what was discussed...A surprise no, doubt.

Posted by: Press Card on July 19, 2010 at 12:32 PM | PERMALINK

If tax cuts pay for themselves then shouldn't they be in favor of the Recovery Act? It was half tax cuts.

Maybe the mistake is thinking that anything that comes out of the Republicans mouths even means anything
---
It shall be excised away, Brother.

Posted by: Page 19 on July 19, 2010 at 12:34 PM | PERMALINK

"I recently played golf with three Repubs this past week and after the round all they could talk about were taxes. Estate taxes, capital gains, income and on and on.
Oh yes, and the fear is Obama and the "poor people". Repubs have successfully replaced racism with classism. It never seems to dawn on them that we all need one another to make it work."

Golf is truly the liberal game. Barry spends so much time on the links! But you are right abour R's being bigots, so true. Luckily, Obama, Biden, the Clinton's all send or sent their kids to DC's public schools to prove otherwise. And noboys appreciated diversity like Ted Kennedy. If only he could have moved his compound to Anacostia. Tax-wise, libs are way ahead too. The plans of Geithner and Wrangel will no doubt calm fears...

Posted by: Back Bay on July 19, 2010 at 12:41 PM | PERMALINK

You'll never lose votes by promising something for nothing.

The Republics aren't stupid; they know exactly who their audience is AND they know who their benefactors are, and what they want.

All according to plan....

Posted by: Gummo on July 19, 2010 at 12:46 PM | PERMALINK

Back Bay trying to say something was s/he? Or just issue dog whistles? Incoherent ...

Posted by: David in NY on July 19, 2010 at 12:47 PM | PERMALINK

Back Bay:

It's your kind of distorted viewpoint that drives the Repub agenda. As I see it, the only "fears" that are being realized are the Bush Tax Cuts that are about to lapse. You should take up golf.
You would make an excellent partner for my last group. You could take my place.

Posted by: fillphil on July 19, 2010 at 12:56 PM | PERMALINK

anytime mike pence wants to one on one with bush's tax cuts and the ensuing economic growth vs. clinton's tax hikes and the ensuing economic growth, he's welcome to....

As I keep pointing out, what economic growth we did have under Bush the Lesser was due to Greenspan holding the monetary policy pedal to the metal -- nearly 0% interest rates -- a deliberate ploy by Greenspan to mask tax cut costs, and which, of course, led directly to the housing bubble.

Posted by: Gregory on July 19, 2010 at 1:09 PM | PERMALINK

Facts don't matter, data don't matter, logic doesn't matter, what matters is that we all *want* to believe that tax cuts will pay for themselves with enhanced revenue from a magically expanding economy. So-called "reporters" won't challenge the Republican lies and spokespersons who do talking head shows and use facts/data/logic won't have any impact on the positive emotional response to people who tell us we can spend more while collecting less and it'll all work out just fine.

It's well past time for Dems to run ads featuring caricatured moneybags types laughing at the unemployed in soup lines as they shovel cash labeled "Republican tax cuts" into their mansions and boats and limos and so on.

Posted by: Yokel on July 19, 2010 at 1:59 PM | PERMALINK

I was going to post a comment on this story, but couldn't say it any better than @Yokel:

"Facts don't matter, data don't matter, logic doesn't matter, what matters is that we all *want* to believe that tax cuts will pay for themselves with enhanced revenue from a magically expanding economy. So-called "reporters" won't challenge the Republican lies and spokespersons who do talking head shows and use facts/data/logic won't have any impact on the positive emotional response to people who tell us we can spend more while collecting less and it'll all work out just fine."

Posted by: June on July 19, 2010 at 2:09 PM | PERMALINK

Keith Eisenstark nails it.

By their logic, the most revenue will be obtained if you lower taxes to zero.

Heck, given the same logic, imposing a NEGATIVE tax rate would make the economy grow even more.

Easy enough. Instead of taking people's money, the IRS should give money out to them.

Oh, wait.... that would be commie crap like Unemployment benefits and food stamps and stuff and the Republicans tell me that's BAD for the economy.

Can I borrow their textbook sometime? I'm not getting this at all.


Posted by: toowearyforoutrage on July 19, 2010 at 2:28 PM | PERMALINK

"You should take up golf."

Tax it like when you get a fake tan. Or when you don't buy healthcare...

Posted by: Page 19 on July 19, 2010 at 2:45 PM | PERMALINK

GOP to all of America: "DROP DEAD."

Posted by: electrolite on July 19, 2010 at 2:54 PM | PERMALINK

Sure, tax cuts pay for themselves.

We might have to gravel the nation's interstate system to keep those cuts in place, but it's worth it, right?

Posted by: 2Manchu on July 19, 2010 at 3:57 PM | PERMALINK

So, if we take the Republican argument to it's logical conclusion when taxes hit zero, the economy will be buzzing at full capacity and everyone will be blessed with a pony. They just won't have needed infrastructure and maintanence, public education, Medicare, etc., etc, etc, but damn, we'll all have a pony!

Posted by: sparrow on July 19, 2010 at 4:20 PM | PERMALINK




 

 

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