Follow-up on Chait


I've promised not to say too much more about Jonathan Chait's piece, as I'm doing a TPM book club on the topic next week. But here are the two areas that I think are being misunderstood.

My quarrel is not with the notion that Republicans make supply-side arguments; they do and they oughtn't, and I won't stand in the way of any Democrat who criticises them for doing so. I have dabbled in such criticisms myself. The only reason that I haven't criticised the Republicans on this this time around is that I am not paying any attention to any of the campaigns. If you want to send me ridiculous supply-side quotes from Republicans, please do. I will be happy to make fun of them. But I am not willing to spend time seeking them out.

My quarrel is with the notion that supply-side theories have enormous influence on Republican policy. Supply-siders haven't had the kind of influence that Chait describes since the Reagan administration. And that's because everyone observed the Reagan tax cuts opening up huge deficits. Supply side theories are window-dressing--bad, horrible window-dressing, but still, just window dressing. You don't need it to construct an argument for tax cuts, which is why, contra Chait, getting rid of the supply siders would not much change the desire for low taxes among Republicans. Nor do I think you even need supply-side arguments to sell the tax cuts to the public. The benefits of tax cuts to the public are quite evident: you send less money to the government.

Politicians like to tell people that the goodies they hand out will cost less than they actually do, which is why Republicans exaggerate the revenue they can recoup from supply-side effects, and Democrats lowball the cost of new spending. And people like to pretend that they believe them. But even if the costs were higher, many people would still want tax cuts, or health care plans, or whatever. If people actually cared that much about the cost of these things, they would punish politicians for widening the budget deficit. They don't.

And are these lies more uniquely horrible than, say, John Kerry pretending that his health care plan would cost half as much as most reasonable estimates predicted, so that he could claim it could be paid for out of repealing part of the Bush tax cuts? I don't think that John Kerry believed that this was true--at least, I hope he didn't. Nor do I think that any of his supporters would have been shocked and horrified to find that the program actually cost 2-3 times what Kerry promised.

From an economist's perspective, these are the same thing: fiscally, a tax credit is no different from a subsidy, and underestimating the revenue cost of a program is underestimating the revenue cost of a program whether that program is a tax cut or a health care plan. Morally, my liberal friends seem to feel that the two are very different, which is the source of a lot of this outrage.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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