Cutting Taxes Creates Growth: Yeah, Right

Cactus at Angry Bear does yeoman’s work yet again to drive a spike into the heart of voodoo/trickle-down/supply-side Reaganomic ideology, demonstrating what economists have known for decades: Keynes was right.

Over the short term–one to three years–raising taxes hurts economic growth. Deficit spending (read: low taxes and high spending) promotes economic growth over the short term. There’s no real argument about that in the economics literature, and that’s one reason that politicians–who are congenitally driven by the short-term exigencies of the election cycle–are so craven about cutting taxes, especially in downturns. (The main reason is that it buys votes.)

Supply-siders especially like to proclaim that it’s marginal tax rates that really matter. The theory-cum-ideology makes sense, but the empirical data doesn’t really bear out the theory.

I’ll just share one graph from cactus’s post (read it all), showing what is also shown unequivocally in decades of economic research: cutting already-reasonable marginal tax rates by marginal amounts doesn’t create long-term growth. (You know: the kind that really matters and that we should really care about.)

Thanks to Reaganomics, we’ve been on a thirty-year Keynesian stimulus spending spree using borrowed money.