Tuesday, October 21, 2008

Supply-side economics and tax-cutting

Our friends at Citizens for Tax Justice (CTJ) in the US have issued a new report looking at supply-side economics, and a version of it - popular particularly in the United States -- which argues, incredibly that tax cuts will always produce so much growth that the cuts will actually increase revenues (if that were always true, then why not build ten new space stations - and then pay for them simply by cutting taxes!)

Supply side economics was taken on board by Ronald Reagan, and has become an article of faith for many in the current U.S. administration. CTJ noted this, however:

"The Treasury Department under President Bush issued a report finding that there was no evidence for this, and Bush's current budget director has also said that tax cuts do not pay for themselves or lead to increased revenue."

CTJ writes this about the report they mention:

"Treasury’s study found that extending Bush’s tax cuts would have essentially no beneficial effect on the U.S. economy at all. But, the report casually implies, it could have grave consequences for the ability of our government to deliver the public services that Americans depend upon.

Specifically, the Treasury found that extending Bush’s tax cuts might increase the size of the economy by a bit under one percent in the “long run.” Or just as likely, it might reduce the
size of the economy by about the same amount."

The links CTJ mentions are worth reading, along with the Washington Post's article The Tax Fairy, Debunked. And on this subject, we'd also recommend our earlier post "Laffer in La-La Land" and the wonderful New Statesman article it points to.

As for TJN, we don't generally support tax cuts or tax increases - merely the tax systems voters want. What we oppose is aggressive anti-tax ideologies that are currently abroad, and aggressive tax competition which forces nations to cut taxes on wealth owners and capital, against voters' wishes.


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