Washington Post reporters Peter Wallsten, Lori Montgomery and Scott Wilson have published a detailed account of the ultimately unsuccessful budget negotiations last July that ended in a stalemate, more partisan acrimony, a downgrading of the U.S. credit rating—and a much less satisfactory agreement in August.
One of the big disagreements: Republicans wanted to count revenue gains from economic growth. Speaker John Boehner and his team, including House Majority leader Eric Cantor, refused to raise tax rates, but weren’t opposed to more government revenue as long as it came from a growing economy. They thought the Democrats were open to the idea; Democrats disagree.
“For years Democrats have mocked the Republican argument that tax cuts pay for themselves by boosting the economy, an assertion for which evidence is scant … Fiscal ‘snake oil,’ some Democrats say. … [Timothy] Geithner and other administration officials … strenuously deny agreeing to count revenue from economic growth, a process known as “dynamic scoring,’” according to the Post story.
Of course, the evidence isn’t scant, as the reporters assert. And the Institute for Policy Innovation has published numerous studies over the years demonstrating the merits of dynamic scoring.
But whether cutting taxes will increase or decrease revenue depends on which taxes are cut, and the size of the cuts. Cutting taxes that affect incentives to work, save and invest will stimulate more work, saving and investing, which results in more taxes being paid to government at all levels.
Beginning in April the U.S. will have the highest corporate tax rate in the world among developed countries. I have no doubt that cutting that rate to a level that is competitive with other countries—along with eliminating some or all of the corporate loopholes—will increase government revenues.
It would have been the best way—and perhaps the only way—to meet President Obama’s demand of $800 billion in new revenue (which he later bumped up to $1.2 trillion).
But if Democrats think there is no connection between tax rates, government revenue and economic growth, there is little hope for the economy—until we get someone in office who does.