I guess I need to repeat an argument I made in a New York Times op-ed on April 6. In that article, I explained that tax-cutting has gotten completely out of hand. People are now making outlandish claims for the power of tax cuts that are far, far beyond what people like Jack Kemp were talking about in the 1970s when supply-side economics first developed.
The supply-siders' original concern was less about the level of taxation than its structure. If we had only been interested in cutting taxes we would have not been so particular about the way we wanted taxes cut. It was essential, in our view, that marginal tax rates be cut; we opposed gimmicky tax cuts like tax credits and tax rebates. We thought those were worse than doing nothing.
Obviously, all this has been forgotten by the current crop of Republican candidates. I can't really blame them, however, because it's also been forgotten by George W. Bush, Republicans in Congress, and many of the Republican-oriented pundits as well. In short, supply-side economics has become thoroughly bastardized and bears little, if any, resemblance to its original form. This is a sufficient reason to get rid of it, which I explained in my article.
One of these days, conservatives will have to get back to basics. They need to understand that in the long run spending must be paid for and if spending is going to rise, then so must taxes. Unfortunately, somewhere along the way, conservatives became convinced that cutting taxes was the ONLY thing they had to do to restrain the growth of government. Through a mechanism that I call starving the beast, lower taxes would automatically reduce spending. I just published an article in an academic journal explaining why this is a myth. It's online here. Here's a link to a new paper by UC/Berkeley economists Christina and David Romer that comes to the same conclusion--starving the beast doesn't work.
I have said on many occasions, including in my Impostor book, that taxes must rise and will rise. This conclusion has made me persona non grata in the conservative movement, but killing the messenger won't change reality. I am on record as saying, repeatedly, that America must give serious consideration to a value-added tax to pay for all the spending in the pipeline. If we add to that a crash program to rebuild our aging infrastructure in the wake of the Minnesota bridge collapse, the case becomes even stronger. If we try to raise the kind of revenue we are going to need by raising tax rates, the economy will collapse. That is a lesson of supply-side economics that is still true.
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