Bruce Barlett On GOP Tax Policy

[Cheerful Charlie]

Bruce Bartlett was a self admitted champion of Supply Side economics. Who has admitted his errors publicly and is warning us of modern day GOP tax lies and nonsense. When somebody of his stature admits the obvious, and indeed was present at the beginning of a political ideological program, it is notable when he admits the facts of that matter.

He just testified to this at a hearing in Washington, and an edited version of his testimony was just published by USA Today.

https://www.usatoday.com/story/opin...eory-hogwash-bruce-bartlett-column/704464001/

"I know something about this subject. Forty years ago, while working for New York Rep. Jack Kemp, I helped originate the Republican obsession with slashing taxes that came to be called “supply-side economics.” While I believe this theory played a useful role in economic theory and policy in the late 1970s and early 1980s, it has long outlived its usefulness and is now nothing but dogma completely divorced from reality."

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This is sobering reading.

 

[SimpleDon]

There is no reason to believe that tax cuts for the rich will produce economic growth. The most obvious reason for this is because these tax cuts never have produced economic growth.

The reason that economic theory fails to explain this is because of the failure of mainstream economics to take into account the impact of income distribution and ultimately the impact of savings on the economy. It is simple, in a normal economy, the rich have a greater propensity to save any additional money that comes their way, while everyone else has the propensity to spend any money that they receive. This is accepted as obvious when stated but the failure is in not understanding the impact of savings on the economy.

Savings is money that isn't spent on consumption. Consumption drives the economy, it produces demand. Without consumption there is no reason to produce. Without demand there is no reason to invest. Savings doesn't produce investment, it is consumption and the demand that is generated from the consumption produces investment. In fact, investment to satisfy demand ultimately produces the economic surplus that is saved. Not only doesn't savings produce investment, investment produces savings.

This is the fallacy of thrift, savings is good for the individual, but is bad for the economy as a whole.

It is worth noting that the simple idea that the non-rich have the propensity to spend additional money that comes to them has an important exception. That in a recession everyone tends to save, all but the very poor. This is why stimulus plans that cut taxes or perform the famous Bernanke's helicopter drop of cash tend to fail to have any real impact on the economy in recession.

The only way to reduce the impact of recessions is to avoid recessions by managing the economy intelligently based on how the economy really behaves and not as we do it now, pretending that we don't understand how the economy operates to cover the fact that it is being run to boost the incomes and the wealth of the already rich. Anyone who doubts this should list the economic policy points in the Republican platform that would increase the incomes of the already rich against the points of that platform that would increase the incomes of everyone else, the non-rich. The latter list is going to be very short.

 

[Cheerful Charlie]

"Republicans believe that statutory rates of taxation are all-powerful, even though almost no one pays them; deductions, credits and exclusions reduce the effective tax rate (taxes divided by income) in many cases to zero. But the historical experience tells us this theory is nonsense. The Tax Reform Act of 1986 reduced the top personal income tax rate to just 28% from 50%, and the corporate tax rate to 34% from 46%. Yet there was no increase in the rate of economic growth in subsequent years and by 1990 the economy was in a deep recession. "
- Bruce Bartlett

Many economists have been pointing out these facts for years, but the GOP still peddles nonsense proven to be wrong for decades now.

The biggest peddlers of this crap have been Steve Moore and Arthur Laffer and others of this ilk who are with ALEC. Peddling this economic snake oil to any republican politician who will listen to them and ignoring sober economists.

 

[bilby]

There is no reason to believe that tax cuts for the rich will produce economic growth. The most obvious reason for this is because these tax cuts never have produced economic growth.

While I agree that that is one very obvious reason, I think you are missing an even more obvious reason - there is no shortage of capital for investment.

Money is incredibly cheap right now. If a company has a plan to grow, and cannot afford to pay for the necessary capital equipment, or extra staff, or raw material, or consumables, or whatever from cash on hand, then they can borrow money at historically low rates from any number of lenders who are falling over themselves to find someone to lend money to at even quite modest projected rates of return (by historical standards).

If there is no shortage of money (and there is demonstrably a glut of money looking for something to invest in), then clearly the availability of cash is not constraining growth; And so equally clearly, adding more potential investment capital (in the form of income not taxed, or profits not taxed) will do three-eighths of fuck all to 'boost the economy'.

Even if it had worked in the past (perhaps during a period of very high interest rates), it would still be bloody obvious to Blind Freddy that it cannot possibly be expected to work in the current economic conditions.

The US Federal rate is 1.25%; The Australian Reserve Bank Rate is 1.5%, the Bank of England rate is 0.25%. If any business out there is unable to grow due to lack of available funds, then they must have an incredibly dodgy business case for their proposed growth - because anyone who can make even a half decent case that a given investment will be profitable, will find lenders beating down their door right now.

 

[Elixir]

There is no reason to believe that tax cuts for the rich will produce economic growth. The most obvious reason for this is because these tax cuts never have produced economic growth.

While I agree that that is one very obvious reason, I think you are missing an even more obvious reason - there is no shortage of capital for investment.

Money is incredibly cheap right now. If a company has a plan to grow, and cannot afford to pay for the necessary capital equipment, or extra staff, or raw material, or consumables, or whatever from cash on hand, then they can borrow money at historically low rates from any number of lenders who are falling over themselves to find someone to lend money to at even quite modest projected rates of return (by historical standards).

If there is no shortage of money (and there is demonstrably a glut of money looking for something to invest in), then clearly the availability of cash is not constraining growth; And so equally clearly, adding more potential investment capital (in the form of income not taxed, or profits not taxed) will do three-eighths of fuck all to 'boost the economy'.

Even if it had worked in the past (perhaps during a period of very high interest rates), it would still be bloody obvious to Blind Freddy that it cannot possibly be expected to work in the current economic conditions.

The US Federal rate is 1.25%; The Australian Reserve Bank Rate is 1.5%, the Bank of England rate is 0.25%. If any business out there is unable to grow due to lack of available funds, then they must have an incredibly dodgy business case for their proposed growth - because anyone who can make even a half decent case that a given investment will be profitable, will find lenders beating down their door right now.

All true, IME.
There are mind-boggling piles of venture capital out there right now. And they're less picky than ever, due to the paucity of high-return investments that you highlighted. Groups that once placed the bar at 35% returns are now getting aggressive about 15-20% possibilities.