Supply side voodoo economics described by Ben Stein

Ben Stein recently addressed the idea the Republicans have pushed for the last three decades that tax cuts make the economy grow so much that government revenues increase.

the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting.

This would be a lovely thing if true, and the best of all ideas, the “something for nothing” idea. In fact, tax cuts lower federal revenue and generate federal deficits. It is also true that they do stimulate the economy and after a long period of years, federal tax receipts go back to where they were before the tax cuts. [Editors note - but not because of the tax cuts. Inflation and the normal increase caused by the addition of an addition approximately 100,000 workers per month added to the economy simply because of growth of the population is more likely the reason for the increase in nominal tax revenue after tax cuts.]

For example, when President Bush enacted his tax cuts in the early 2000s, income tax receipts fell dramatically. It took almost six years for them to reach the level they had been in the last year of the Clinton administration, while G.D.P. in that period rose by roughly 30 percent.

So essentially Stein is saying that our society has built up huge financial obligations that must be paid. Tax cuts cannot be paid for out of waste and fraud, so they have to come from the revenue that would pay those obligations, forcing the government to borrow to pay them. That leads to huge deficits, with their attendant costs that also must be paid.

So then Ben addresses those deficits and their costs.

...immense federal deficits in modern life are financed largely by foreign buyers of our debt. This means that the American taxpayer must work a good chunk of the year to send money to China, Japan, the petro-states and other buyers of United States debt. In effect, we become their peons.

By flooding the world with debt, we in effect beg foreigners to take our dollars, and this leads to a lower value of the dollar and a higher cost of imports, including oil. If you feel pain filling up the tank, you can partly thank those tax cuts. If you feel the sting of inflation, you can partly thank the supply siders. Deficits matter.

Ben has the mechanism for the costs of the tax cuts down, and they are never repaid from tax cuts themselves. His attempt to show that they do result in increases in tax revenue after many years is a chimera, It's the logical fallacy of post hoc ergo propter hoc. His logic is that because years after a tax cut, government revenues increase, that increase must be because of the tax cut. That has to be true because the revenue increases after taxes were cut. Unfortunately, he cannot demonstrate why the two events are connected and cannot exclude all other reasons for the government revenue to increase in later years.

The real point is that Ben Stein, a committed Reagan conservative, is showing that tax cuts never pay for themselves. The increase government costs a the time they are enacted and the increases in costs are never paid back. In addition, the deficit spending has led to the inflation that is currently most obvious in oil prices and the price of food, but is building up in all parts of the American economy right now.

America is poorer now because of the Reagan Revolution and because of the related government mismanagement of the economy, particularly through Bush's ill-informed tax cuts when he inherited surpluses from his predecessor. We haven't felt it because Alan Greenspan pumped up housing prices through his low interest rates and encouraging real estate refinancing to pay credit card debt and because the federal government has been mortgaging our future revenue by borrowing to pay for its extravagant and misplaced war in Iraq.

Now we are beginning to really feel the costs of all this Republican/bush idiocy. We will feel it for a long time. And what will we have to do to deal with the set of problems that has been created by the Reagan Revolution and by Bush? Continued borrowing merely spreads the costs out to the average person through inflation in costs with no comparable inflation in incomes - except for the very wealthy because our current economy is designed to tax the poor and middle class and distribute the resulting income to the very rich. But that's another problem that needs to ba addressed. Excluding coninued borrowing to pay for taday's expenses, there are only two choices.
Those are either sharp reductions in Social Security and Medical care spending, or a tax increase.

No government that enacts the level of cuts required in those two programs will survive the following election. So the answer is going to have to be the second choice, tax increases. Ben Stein recognizes this also.

[W]hom to tax? The poor are, well, poor. The middle class is struggling to pay for its middle-class life. That leaves the rich. It would be lovely if we did not have to tax them. Many have worked hard for their money. Many have created useful businesses. Many of them are fine people.

But as Willie Sutton said when asked why he robbed banks, “Because that’s where the money is.” By definition, the truly rich have a lot more money than they need. If they don’t, then they are not rich by my standards. The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion.

To put it even more starkly, the government — which is us — needs the money to keep old people alive, to pay for their dialysis, to build fighter jets and to pay our troops and pay interest on the debt. We can get it by indenturing our children, selling ourselves into peonage to foreigners, making ourselves a colony again, generating inflation — or we can have some integrity and levy taxes equal to what we spend.

So that's the program that is going to be enacted in the next four to eight years. Or at least after the worst recession since the Great Depression begins to let up, which I already don't think will be before late 2010 at the earliest.