A welcome challenge to GOP’s tax-cutting dogma - Boston Globe Editorial
By The Editorial Board SEPTEMBER 01, 2015
SOME 3½ DECADES ago, the Republican Party abandoned the sober Main Street fiscal approach that had long been its calling card in favor of the sexier doctrine of supply-side economics.
One of the early claims of supply-siders was that the tax cuts they favored would pay for themselves. That is, that they would spur so much economic activity that the government would garner as much or more tax revenue as it would have gotten at the previous level of taxation.
That wishful thinking might not have seemed implausible under the much higher tax rates that prevailed at the time. But given the tax-cutting and deficit-incurring experience since, plus a top tax rate of only 39.6 percent — compared to 70 percent when Ronald Reagan took office — that notion is no longer remotely credible.
And that’s why it’s good to see Keith Hall, the new Republican-appointed director of the Congressional Budget Office, acknowledge as much.
“No, the evidence is that tax cuts do not pay for themselves,” Hall said recently when a reporter asked about the issue. “And our models that we’re doing, our macroeconomic effects, show that.”
Indeed, they show relatively modest revenue replacement. In 2005, under well-regarded conservative economist Douglas Holtz-Eakin, the CBO modeled a 10 percent income tax cut under a variety of different assumptions.
The agency’s analysts concluded that over the first half-decade, the net loss in revenue would range from 78 percent to 99 percent of the tax cut’s static cost. In other words, at very best, only about one-fifth of the lost revenue would be recouped; at worst, almost none at all.
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