Thursday, October 08, 2015

Beast gotta eat

Here's another analysis of Bobby Jindal's insane tax program by Vox's Ezra Klein. Jindal's idea, remember, is to drastically reduce the amount of money the federal government collects each year while also drastically increasing the amount most people pay in taxes.  Kind of a lose-lose proposition for anybody but the most wealthy.

Anyway, Klein contributes the useful observation that this crazy plan, even taken for what it is, is still based on gimmick economics.
Jindal himself estimates that federal revenue will be cut by 22 percent, or $9 trillion, under his plan. And that's after taking into account "dynamic" growth effects: Jindal estimates that annual GDP growth will increase by 1.4 per year, with wages spiking in turn, and 5.9 million jobs will be added. He's not the only person making claims like that: Marco Rubio claims his approximately $4 trillion tax cut will pay for itself due to the growth effect. These estimates are way outside what most reputable economists think tax cuts can do.

In any case, the massive reduction in federal revenue is a feature, not a bug: Jindal wants a much smaller federal government, with much smaller taxes to fund it. This strategy — reducing revenues in hopes that concern over deficits will force spending cuts later on — is known as "starve the beast," and it's been repeatedly debunked. Everyone from libertarians like Cato Institute chairman William Niskanen and political scientist Michael J. New to left-leaning economists like Christina and David Romer have found that decreases in federal revenue do not, in practice, lead to decreases in federal spending. The Romers found that the main effect of tax cuts is to force tax increases later.

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