Politico does a nice takedown of Giuliani’s assertion that tax cuts increase revenues. (Gee, just imagine how much revenue we’d bring in with no taxes at all.) OK, OK, “Rudy lies” and “Supply-siders are full of it” aren’t exactly NEW news, and Politico’s tactic of quoting only Republican economists to make its point implies that there’s no actual science of economics, but it’s still good to see the case laid out clearly.
MSM, please copy.
Actually, the piece does have one element that was news to me. Michael Boskin, former Chairman of the Council of Economic Advisers now back teaching economics at Stanford, turns out to have even less intellectual integrity than I would have expected from the author of the “Boskin Report,” which a purely one-sided hedonic re-estimation of price changes for the explicit purpose of cheating Social Security recipients out of part of the cost-of-living adjustments they’d been promised. (I say “one-sided” because quality improvements — e.g., in electronics and automobiles — are treated as effective price decreases but there’s no parallel effort to treat quality disimprovements — e.g., voice-mail jail in lieu of customer service — as effective price increases.)
Conservatives have argued that some economic models underestimate the growth effects of tax cuts, and consequently overestimate the lost revenue. But tax reductions actually increase revenue in only very narrow cases, several economists said, such as when the marginal tax rates on capital gains are too high.
Still, Michael Boskin, a Giuliani economic adviser and Stanford professor who chaired the President’s Council of Economic Advisers under George H.W. Bush, said that the mayor’s claims about revenue and taxes need to be considered in a broader context.
“The mayor has been very clear that he has an aggressive plan to work on both sides of the fiscal equation both controlling spending and reducing and reforming taxes. All of the elements of the program are designed to reinforce each other and help the economy grow,” he said.
In December 2005, Congressional Budget Office Director Douglas Holtz-Eakin concluded that a 10 percent reduction in the income tax would spur enough extra economic growth to offset maybe a third of the lost government revenue. Holtz-Eakin, who served as chief economist on President Bush’s Council of Economic Advisers from 2001 to 2003, is now advising McCain.
In 2005, Harvard professor and then-Chairman of the Council of Economic Advisers Gregory Mankiw co-authored a study that examined “the extent to which a tax cut pays for itself through higher economic growth.” The authors concluded that a broad reduction in rates “recoup only about a quarter of the lost revenue through supply-side growth effects,” as Mankiw later put it on his blog.
Mankiw, who is now advising Romney, has said as recently as July that he stands by his previous work. He was unavailable to comment.
Giuliani also overstates the effects of his tax policy in New York as Giuliani frequently reminds voters, the 17th largest economy in the world according to experts.
Edmund McMahon, the director of Empire Center for New York State Policy at the conservative Manhattan Institute, supported many of the Giuliani tax cuts.
“If absolutely no rate cuts had been enacted under Rudy, all else being equal, total revenues might have been $1 billion to $2 billion higher when he left office but the city would not have been better off for it,’’ he said. “The economy would have been weaker.”
Boskin did not dispute McMahon’s claim, saying: “There’s no doubt whatsoever that Rudy Giuliani’s tax cuts were a primary reason the New York City economy rebounded more strongly and quickly, and this helped generate higher revenue.”
Somehow I doubt that if a candidate for President proposed eliminating energy imports by developing a perpetual-motion machine, he could find a physics or engineering professor at any respectable university to say that his claim “need to be considered in a broader context.” It’s not surprising that economics gets so little respect as a science when even its high-level practitioners have so little self-respect. Boskin’s colleagues owe it to themselves and their field to give him a very, very hard time about this.
It would be nice to see a journalist with some basic economic knowledge interview Boskin at length — preferably on camera — and just keep pressing him for a yes-or-no answer to “Do tax cuts increase revenues?”