Jonathan Chait has returned to his theme that tax cuts are bad and the people who advocate them are crazy, dishonest, or acting in bad faith. He argues that conservatives will say anything to defend the Bush tax cuts without acknowleding that their repeal/expiration would merely take us back to where were in the 1990s, when the good times rolled.
Chait doesn’t take issue with the Democratic politicians, ranging from Hillary Clinton to Howard Dean, who suggest that the economy grew in the 1990s because of the 1993 Clinton tax increase. Nor does he find fault with the fact that Democratic presidential candidates are promising to use a return to Clinton-era tax rates to fund healthcare reform, Social Security reform, deficit reduction, and a variety of expanded federal programs that did not exist when Bill Clinton was president. In fact, Chait stops just short of saying these kinds of things himself.
That’s where the “France” jibes about Hillary and company come in. The reality is that in order to fund the programs they are proposing on the campaign trail, they will have to do more than repeal the Bush tax cuts. Absent reforms these candidates mostly oppose, the automatic increases in existing federal entitlement programs will start pushing us toward European-level tax rates as the Baby Boomers retire. Factor in the price tag of the Democrats’ campaign promises, and that economic fate will be very difficult to avoid. Does Chait want to defend those tax rates?
The 1990s did prove that, under the right circumstances (like, say, an Internet boom), a 39.6 percent tax rate is compatible with robust economic growth. Conservatives took a hit for predicting otherwise fourteen years ago, and should be careful not to make this mistake again in arguing for the retention of the Bush tax cuts. But that doesn’t mean the Clinton tax increase was in any meaningful sense a catalyst of growth or that there would be no growth trade-offs in repealing the Bush tax cuts, especially the 2003 package pertaining to capital gains and dividends.