Jonathan Chait

The Asymmetry in Tax Debates

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[Guest post by Matthew Zeitlin]

David Brooks in his column today argues that there is are almost symmetrical obsessions with “magic levers” policies that can always be counted to increase growth. One group thinks that the magic lever is marginal tax rates, some other group thinks it is deficit spending, and both of these groups are very bad:

The spending they began must have done some good to cushion the recession, but either through a failure of theory or a failure of implementation, their lever was not as powerful as they promised. Federal spending rose from 19.38 to 24.91 percent of gross domestic product, but the economy refused to rebound and the world is awash in oceans of debt.

Now a third group has emerged, also claiming that it has the magic lever to control the economy. Staunch Republicans argue that taxes are central to determining economic growth. Tax cuts, they argue, have huge positive benefits and tax increases have disastrous negative effects. 

This “third group” Brooks describes in his column can also be called the “contemporary Republican Party,” and they have not “emerged,” they have been around since 1981, and there is a fundamental asymmetry in how the parties view fiscal policy and the budget and it is one that columnists ought to point out, not obscure.

 The mainstream of the Republican party supports supply-side tax cuts no matter the economic circumstances. They pushed through major tax cuts in 1981, 2001 and 2003, Bob Dole campaigned on a 15% across-the-board tax cut in 1996 and McCain campaigned on extending the Bush tax cuts and lower corporate taxes. Tim Pawlenty, who can always be relied on to channel conservative policy consensus, proposed a tax plan that envisioned only two income tax brackets at 10 and 25 percent and a 15 percent corporate tax rate.

 1981, 1996, 2001, 2003, 2008 and 2013 (the first year of a Pawlenty administration) all present wildly different economic circumstances that call for different policy responses. And yet extending supply-side tax cuts or passing new ones has always been the order of the day for the GOP.

Democrats, on the other hand, have responded to different economic circumstances with different ideas. There is also a range of views within the Democratic party. When Clinton came into office, he proposed a stimulus, but then proceeded to govern as a deficit-cutter, and his 1993 budget, which produced huge budget savings and preceded the boom-time of the 1990s, was opposed by every Republican in Congress. There was a huge debate in the Democratic Party in the 1990s over whether they should pursue public investment or deficit reduction, and the deficit reducers won. And now Obama, after a large stimulus in response to a gigantic economic downturn, is begging the Republicans to let him sign a deal that would include massive spending cuts over the next ten years. But since it includes tax increases, there is little-to-no chance that such a deal can be reached. This turn of events, of course, is totally unsurprising if you have been following the conservative movement for anytime in the last three decades.

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