Thursday, January 22, 2015

Voodoo Economics

The Missoulian reported this week that Reps. Art Wittich and Keith Regier appeared in front of the House Tax Committee Tuesday, seeking approval for a couple of great big tax cut bills and dishing out the usual conservative Republican assurances about how wonderful the results would be.

You’ve probably heard all this before: If we cut tax rates and let people (and especially rich people) hold on to the money they make, they’ll want to make a lot more of it. The economy will flourish, the tax base will expand, and lo and behold, total tax revenues will rise. This notion, that a cut in tax rates will produce an increase in tax revenue, is usually attributed to the economist Art Laffer, who allegedly hit on the idea while drinking with some buddies in a D.C. bar. Laffer was an adviser to Ronald Reagan, who became enamored of the idea and put it into practice, thereby becoming the first president in 35 years to grow the national debt faster than the economy as a whole.* In 1980, George H.W. Bush, anticipating the train wreck that was to come, famously accused Reagan of espousing "voodoo economics."

Wittich also argues that we are sitting on a great big pile of money - $350 million idling in the checking account – and that it’s only right to give it back to the taxpayers. The problem is that we are about to have a battle royal about whether that money is really there to give back.

The first thing we have to do when we start to build a budget – that is, figure out what services we want to provide, what we can pay for them, how much of a cushion we need to leave in the bank, how much we can afford to cut taxes, and so forth – is to estimate revenue. And it turns out that right now the Governor’s budget director thinks we will have a lot more revenue than the Legislature’s own analysts are forecasting. How much more? Well, coincidentally, a little more than $350 million.

Now usually when Republicans are presented with several revenue estimates, they gravitate towards the smallest one they can see. What better way is there to “shrink government.” The irony here for Wittich is that if he’s going to do business as usual, he’ll want to low ball the revenue estimate. But that will eat up all the money he wants to give back. What to do, what to do?

Stay tuned on this one. It’s going to get interesting. And don’t be surprised if the conservatives figure out that the only way to low ball the revenue estimate and give back a lot of tax money is to gut programs. It’s what Paul Ryan would do.

*When Reagan entered office in 1981, total public debt equaled 30.8% of gross domestic product. When he left office 8 years later, it was 49.6% Prior to 1981, the debt had declined in relation to GDP under every president, Republican or Democrat, since the end of the WW II.

No comments:

Post a Comment