I love Ben Stein, but I sure hope John McCain doesn't take his
advice on taxes. Though if there is
a Republican presidential candidate so inclined, McCain is probably
the guy.
Stein writes that economic conservatives are wrong to believe
"that tax cuts pay for themselves by generating so much economic
growth that they replace the sums lost by tax cutting." Some
misguided economic conservatives have indeed argued that, but that
is not what supply-side economics actually teaches. In both theory
and practice, supply-side holds that reductions in marginal tax
rates, by increasing the after-tax rate of return on productive
economic activity, enhances incentives for work and investment.
This leads to more income being earned, increasing output and
enlarging the tax base. This will to some extent, over time, offset
the revenue losses created by the lower tax rates. And in very
limited circumstances, when marginal tax rates are high enough to
be in the prohibitive range, these tax cuts may "pay for
themselves." But only under those very limited circumstances. Tax
credits and other neat stimulus package gimmicks don't enhance
incentives in this way and are definite revenue losers.
All that being said, Stein's New York Times column does
illustrate the mess big government conservatism has made for
Republicans. With marginal tax rates well below where they stood in
the Reagan era, you don't get much Laffer Curve effect from further
tax cuts. Middle-class tax cuts will probably be significant
revenue losers. If the GOP is wedded to big government on the
spending side, it cannot win the battle on taxes.
UPDATE: Grover Norquist offers different advice.
topics:
Taxes, John McCain, Economics, Business, Conservatism
