The National Revulsion Online is
at it once again. Tax cuts pay for themselves. I think when people are first hired, the NRO has a secret meeting where they administer the following oath: "Do you hereby agree to lie, rewrite history and basically do whatever it takes to advance the Republican cause regardless of the moral, ethical or professional ramifications of such actions?" Anyway, according to the NRO, tax cuts increase revenues. What they fail to mention is this only works if you rewrite history.
Here is some history
First, here is a picture of the laffer curve which has dominated Republican economic thinking and discourse over the last 25 years. It stipulates that as tax rates decrease people will be more inclined to make more money because they keep more of their money. Hence we get the phrase "tax cuts pay for themselves."
There are numerous problems with this model.
First, there is no way to derive this curve from any existing data set. Compare this to other bedrocks of economic thinking - supply and demand, marginal cost equals marginal revenue - which can be derived from data readily available to analysis. If you can't get a curve from existing data, maybe it doesn't exist.
Secondly, Republicans always assume that current tax rates are to the right of the curve's apex. Therefore,, the only direction for tax rates is down. It never occurs to anybody that rates are to the left and therefore a tax cut will decrease government revenues. My first point makes the second point that much more dangerous. There is no way someone who disagrees with the curve to empirically prove that a tax cut will decrease revenue. In addition, because there is no way to empirically discount the tax cut argument, the tax increase argument is easily attacked, discounted and placed at an extreme political disadvantage.
Third, tax cuts pay for themselves is a great sales pitch, easily sold via 30-sesond sound bites.
In short, the laffer curve is a brilliant self-reinforcing delusion. Because it can't be proven with existing evidence, those who disagree with the curve's conclusions are placed at a political disadvantage. And those who push the policies backed-up by this curve have an easy sales pitch.
Current History
The problem with this curve is it doesn't work unless you rewrite history.
The current article from the NRO makes the following statement in its first graph: "Bush's tax cuts took effect in 2003." Well, Jerry the author forgets a key historical fact: The Economic Growth and Tax Relief Reconciliation Act of 2001, passed in 2001 which also cut tax rates. See what I mean about rewriting history? Just forget that bill passed two years before.
Why would Jerry want to forget about that other bill? Because it lowered tax rates and oddly enough, tax revenue declined. According to the Congressional Budget Office, tax revenue from individuals was 994 billion in 2001, 858 billion in 2002 and 793 billion in 2003. The most recent quarter SOI bulletin from the IRS confirms this trend (It's a PDF and a big report - 378 pages). From page 13 of the report:
However, total income tax fell 6.1 percent to 748 billion for 2003. This was the third successive year that total income tax declined.
More telling is a graph on page 18 of the report which shows that in inflation adjusted dollars, tax revenue declined continually from 2000 - 2003.
In other words, facts available from the CBO and the IRS clearly demonstrate the recent tax cuts decreased tax revenue both in current and contract (inflation adjusted) dollars.
SO NRO IS LYING. AGAIN.