Recently, there have been columns in the editorial section dealing with Bush and the subject of tax cuts. They were both heavy on ad hominum attacks, and light on argumentation.
The authors proclaim their wisdom on economic analysis and the lack thereof on the part of Bush. Economics is a very complex discipline, so Bush may in fact be wrong. However, at least he has an MBA and a host of expert economic advisers. I doubt that the authors have either of these advantages, because they don’t even have the facts. Since space is limited, I will only draw attention to two points made in the lead editorial.
Let’s start with Reagan. The author from Louisiana mentions his administration as a paradigm for the economic disaster that will befall this country if Bush has his way with more tax cuts. Reagan’s “ill-fated policy” is described as having “failed tragically.” The author concludes that the strategy of cutting taxes and increasing spending has been tried before and did not work. In fact, it did work. After Reagan’s historically large tax cuts, the economy took off, tripling the DOW by the end of the decade. Government revenues did not decrease because of the tax cuts, but rather the opposite happened.
Per capita federal revenues went from $4,727 to $5,501 by the end of the decade. The one specific piece of information the author offers as evidence of Reagan’s failure is the size of the national debt, which they claim reached $4 trillion at the end of his eight years and is “the same debt plaguing our lackluster economy today.”
In reality, the debt stood at $2.6 trillion at the end of Reagan’s tenure, and did not reach $4 trillion until 1992. As a point of comparison for the size of the accumulation during Reagan, it was almost identical to that during Clinton’s terms in office (1.672 trillion under Reagan and 1.61 under Clinton). It is unclear how the author can claim that Reagan’s policies “failed tragically.” Lest anyone dismiss the results of Reagan’s policies as an aberrant example, we could point to similar results in other countries. Canada has seen revenues increase dramatically in recent years following tax cuts in 1995 and 2000. To cite a better example, Ireland has gone from an economic backwater to the leading growth economy in Europe in record time as a direct result of enormous tax cuts.
The other point that the author raises against tax cuts is that they will increase the debt which will raise interest rates, leading to a negative impact on the economy. It can’t hurt to point out that this did not happen under Reagan’s administration; although, the debt certainly did increase at a healthy clip. More to the point, I quote Peter Wallison of the American Enterprise Institute, “There is no link between deficits and inflation as long as the [Federal Reserve] doesn’t enlarge the money supply because of the deficits.” There is reason to assume that the Fed will continue its practice of tightly controlling the money supply to stave off inflation. He goes on to add, “What actually causes inflation–if its not Fed policy–is still something of a mystery, but a substantial body of economic opinion hold that it is government spending.” If this theory were true, it would be another reason to keep money out of the government’s hands and in the private sector–in other words, another good reason for tax cuts.
Tax cuts help the economy and raise government revenues. There may be arguments against tax cuts, but they are not economic ones. Disliking Bush is not an argument, and is not very interesting; your opinions on his fiscal policies might be, if only they were informed.
