Mark Thoma is a Dweeb-Still

Judd Gregg Thinks Tax Cuts Pay for Themselves

Why have we gotten more revenues even though we reduced the tax burden on the American people? The answer is pretty simple. It is called human nature. When you set tax levels at a fair level ... people are willing to go out and invest. ... They are willing to work harder... That creates a stronger economy which puts more people to work, and..., of course, the more jobs you have the more tax revenues you end up getting. ...

Who in the administration thought Gregg would be the best person available "to foster, promote, and develop the foreign and domestic commerce" when he believes ideological nonsense like this?

So I tried to point out simply that first when people throw stones about "ideological nonsense" then you have to honestly look at oneself. I am sure there are things that Dr. Thoma spouts that is ideological nonsense. And secondly that incentives matter or the corollary disincentives matter. As in:

In fact, in the area of capital gains, we have seen a dramatic increase in revenues. ... It is a huge jump in revenues we didn't expect--or at least the Congressional Budget Office didn't expect--but which we received because human nature kicked in and people were willing to sell assets, take that money and reinvest it in things that are productive, create jobs, and as a result we got those revenues. That is why today the Federal Government is actually getting more in revenues than it got under the old tax law where the rates were a lot higher. ...

Thus he is saying that with too high of tax rates people are more likely to avoid paying the taxes or pick investments that are not taxed at such high rates.

Simply acknowledging that instead of his knee jerk reactions as well as deleting my posts, would be a lot less dweebish. I also see another interesting post there:

Sonic Charmer says...

As Alex Tolley points out (but amazingly none of the otherwise alert Straw-Man Police here saw fit to, despite not being shy about demanding quotes for the claim that multiplier fans believe spending pays for itself), Gregg did not actually say "tax cuts pay for themselves" or anything that amounts to that in the quote cited above by Mark Thoma. That may for all I know be what Gregg believes, but if so, the quotes above do not show it. What Gregg actually said above is that when tax rates were cut, revenues increased (citing 'economic expansion' as a cause for this).

Mark Thoma, if you dispute that tax revenues increased during the period Gregg refers to, feel free to advance your data.

More generally, although there are of course people who do say "tax cuts pay for themselves", the real version of the claim about tax cuts is not that they "pay for themselves" per se (whatever that means, exactly - the meaning and timeframe here is ambiguous) but simply that, in effect, taxes collected is a negatively-convex function of tax rates - there is a second-order effect, so when you cut taxes, you don't lose "as much" revenue as a first-order analysis would suggest.

Again, Mark Thoma, if you dispute that, feel free to explain why.

Posted by: Sonic Charmer | Link to comment | February 17, 2009 at 04:42 PM